$ 60 billion exclusion for small lenders does not solve P3 problems, CFO says

House legislators gathered to vote on Thursday on a $ 484 billion Senate coronavirus relief bill that would replenish the Paycheck Protection Program (PPP) with $ 320 billion and push a second round of US small business loans.

But this new injection of money will not solve the problems that plagued the previous round, Ryan Metcalf, head of US regulatory affairs at Funding Circle, told Banking Dive.

Despite preprocessing “thousands” of applications a week and a half before the first $ 350 billion in loans became available on April 3, Funding Circle was only allowed to participate in the PPP on April 15, a day before the funds are not exhausted, said Metcalf.

And it seems that Funding Circle was not alone.

No “fintechs effectively loaned directly to PPP “before program funds ran out last week, Scott Stewart, CEO of the Innovative Lending Platform Association, an industry group in fintech startups, said Fortune.

The bill voted on Thursday includes a $ 60 billion exclusion for banks and credit unions with less than $ 50 billion in assets, intended to give smaller businesses fair access to funds. Metcalf said the exclusion should not be based on the size of the lender but on the size of the loan.

“What they should have and could have done is make sure that that $ 60 billion is earmarked for loans under $ 50,000, or for small businesses with less than 20 employees, but they don’t did not, “he said. “For some reason, they inexplicably said that that $ 60 billion was earmarked for the same banks that turned down people who only serve their existing customers and prioritize bigger companies.”

Small businesses have filed class actions vs JPMorgan Chase, Wells Fargo, Bank of America and US Bank, alleging banks prioritized existing customers and larger loans, which generate higher origination costs, rather than processing requests on a first-come, first-served basis.

Funding Circle has thousands of pending applications – 61% of which are for loans under $ 50,000 and 95% are for loans under $ 350,000, Metcalf said.

By these metrics, non banking lenders like Funding Circle should have been included in the $ 60 billion allocated to small institutions, he said.

But the $ 60 billion set aside excludes fintech and non-bank lenders.

“I don’t know why they did what they did, but Congress has a chance to fix it in the next round,” said Metcalf. “I hope there will be another round, and I hope they will correct this mistake.”

Fast action

Meanwhile, banking and credit union trade groups have expressed support for the $ 60 billion exclusion.

“These funds are badly needed by small business clients in urban, suburban and rural communities,” said Rebeca Romero Rainey, President and CEO of Independent Community Bankers of America, adding that the funds reflect the commercial group’s repeated calls to ensure access of community banks to the program. .

The Credit Union National Association also backed the allocation, saying it “would ensure that small lenders could provide Main Street businesses with access to these funds.”

As many lenders continued to process applications in anticipation of a new infusion of funds, the second round could proceed quickly.

“This will last no more than 72 hours,” said Consumer Bankers Association president Richard Hunt. Politics. “But the odds are more like 48 hours.”

A second obstacle

Another hurdle that non-bank lenders might face is the lack of access to the Federal Reserve’s new credit facility, created to provide credit to banks that make PPP loans through the Small Business Association platform. .

Some banks participating in the PPP have reached their capital levels and have had to remove the loans from their balance sheets and recapitalize. As part of the Fed’s program, the central bank will take PPP loans as collateral at face value.

Non-bank lenders, however, have not yet been approved for the credit facility.

“I received a message from the Fed [Wednesday] morning saying there was an announcement coming up on this and the team is working on it, but they haven’t said when, ”Metcalf said. “The question for the Fed is how fast can we access it, and is this process really achievable in time for the program to open and before funds run out again?”

John Pitts, head of policy at Plaid, said if the Fed fails to get non-bank lenders approved for the credit facility before the second round of PPP funding, fintechs could fall behind lenders again. traditional.

“[Fintechs] may lack capital and not have access to this system, ”Pitts said Bank dive Monday. “You really need to take care of that stuff before the new funds are available so that fintechs can give loans on a par with banks, as they are both fully approved lenders in the program. . “


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