WASHINGTON – The Federal Reserve is temporarily lifting restrictions on Wells Fargo’s ability to make certain commercial loans to help alleviate a crushing backlog of requests for federally backed loans to small business decimated by the worsening Coronavirus crisis.
The nation’s fourth-largest bank announced over the weekend it would disburse up to $10 billion in emergency loans to nonprofits and firms with fewer than 50 employees as part of the Paycheck Protection Program (PPP), the massive small business rescue program signed into law last week that has seen overwhelming demand.
But the bank could not participate beyond that level due to a cap on assets federal regulators placed on Wells Fargo earlier this year after the bank agreed to pay $3 billion to settle claims related to its creation of millions of fake accounts to meet sales goals between 2002 and 2016.
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On Wednesday, the Federal Reserve said the lifting of cap limits are narrow and temporary, applying only to PPP and its companion Main Street Lending Program which aims to help medium-sized companies.
“The Board will require benefits from the PPP and the to be transferred to the U.S. Treasury or to non-profit organizations approved by the Federal Reserve that support small businesses,” the announcement said. “The change will be in place as long as the facilities are active.”
Wells Fargo CEO Charlie Scharf said the company would immediately expand participation.
“In the first two days alone, we received more than 170,000 indications of interest from our customers, and know there is much more need,” he said in a statement.
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The $349 billion PPP provides businesses employing no more than 500 workers with low-interest loans up to $10 million that are forgiven if at least 75% of the money is spent on keeping workers on the payroll. The program has gotten off to a rocky start due to tremendous demand, technical glitches and lender concerns over federal guidelines.
As of the end of Tuesday, the Small Business Administration reported receiving more than 275,000 applications totaling some $75 billion in loans through over 3,000 leading institutions.
The Trump administration and congressional leaders are already working on a plan to add another $250 billion to the small business program.