Small business owners have overwhelmed banks with demands for money – just days after an emergency relief program began – that Federal Reserve officials are considering loosening restrictions on Wells Fargo to facilitate loans.
Two years ago, the Fed imposed growth limits as a sanction after Wells fargo, the country’s fourth largest bank, revealed that it had opened millions of fake accounts on behalf of its customers, charged some of the unnecessary mortgage fees and forced others to buy car insurance they didn’t need.
However, there is so much demand and chaos in the $ 349 billion loan program, which went into effect Friday through participating banks, that Fed officials are now discussing a temporary truce with Wells, according to two people knowing the issue.
The truce would involve lifting a cap on the amount of assets the bank can hold, so that it can lend more to small businesses. Wells Fargo said on Sunday that the cap limited its ability to lend to qualified businesses under the government’s so-called pay check protection program. Due to restrictions, the bank said, it was only able to make $ 10 billion in small business loans, but there was already demand for more.
Panic in the financial markets due to the coronavirus pandemic has pushed Wells Fargo’s business to the limits of the Fed’s asset ceiling of almost $ 2 trillion. First there was the flood of new deposits, with investors selling risky assets and converting these assets into cash to store in their bank accounts; then came the rush of companies looking for loans, a large part of which went to paying their employees during the economic closure.
Wells Fargo executives are now talking to Fed officials about a short-term break in sanctions – just long enough to allow the bank to handle more loan volume, said people who spoke under cover anonymity because they weren’t allowed to chat publicly.
Bank executives contacted the Fed for the first time the lifting of growth restrictions three weeks ago, before the creation of the small business assistance program. Discussions have intensified over the past week as problems with processing the avalanche of loan applications have increased, people said. (Lenders’ websites have often gone down, or bankers simply have no advice to give borrowers on how to proceed.)
Fed officials previously said they would only remove restrictions after Wells Fargo demonstrated that it had improved enough to protect its customers from further damage – which is not yet arrived.
The two said they did not know when the Fed would make a decision.
A Wells Fargo spokesperson and a Federal Reserve spokesperson each declined to comment.
The small business program opened on Friday, but some banks started talking to their customers earlier in the week on how to apply for a loan. Anecdotal evidence suggests that successful applicants are greatly overwhelmed by frustrated borrowers, and even those who have been notified of their loan approvals say they do not expect to receive any money until the end of the loan. week.
Part of the problem is that many banks, including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo, say they can only manage loans to existing customers who already have financial and personal information.
Even existing customers find it difficult to submit loan requests.
“Citi has this line on their website that says,” Citi is on your side when you need us the most, “and it irritates me the most,” said Andrew Levine, president of Development Counselors International, a company of 60 people helping cities. , states and countries sell to tourists and businesses. Mr. Levine’s father started the business in 1960 and his future is now uncertain. “We are in the travel industry and the industry has just been decimated,” he said.
The company’s 40-year relationship with Citi, where it has lines of credit and bank accounts, doesn’t seem to matter much, he said. The banker that Mr. Levine normally treats has no answers. “He just doesn’t know what’s going on,” he said.
A spokesman for Citi said the web portal would be available soon.
At Wells Fargo, clients are not sure that the loan requests they have made are always taken into account. Late Sunday, as business owners across the country continued to report difficulty applying for loans, Wells Fargo announced that it had reached its loan limit.
Charles W. Scharf, the bank’s managing director, said he would consider loan requests submitted until Sunday and that the executives would also look for ways to reduce his balance sheet and make more room for loans.
“We are committed to helping our customers in these unprecedented and difficult times, but we are limited in our ability to serve as many customers as we would like under the PPP,” said Mr. Scharf in a statement.
This left Rebecca Miller, who runs a counseling service for dyslexic children in Omaha, Neb., Feeling confused and anxious. On Saturday, she submitted a preliminary loan request for $ 35,000 and was told to wait until a bank representative contacted her. She does not know if her loan request arrived before or after the bank hit its $ 10 billion ceiling.
“I didn’t apply to anyone else because I didn’t know the rules,” she said, adding that since receiving a message from the bank warning customers not to trying to get into its branches, she planned to go to a bank branch and ask a cashier at her small business service window for more information.