Wells Fargo is bowing out of a new federal program aimed at helping small businesses retain workers and pay bills during the coronavirus pandemic. The bank announced late Sunday that it would no longer accept new loan applications under the government’s Paycheck Protection Program, which launched last week as part of Washington’s $2.2 trillion economic relief package.
Wells also said it planned to lend a maximum of $10 billion through the program and that it has already received more than enough applications to reach that threshold. Any requests for loans submitted after April 5 will not be considered, according to the bank.
Since the program launched on Friday, most U.S. banks are processing loans only for existing clients. Wells Fargo’s exit could shut out some of its small business customers that have not yet applied for a loan. That’s especially significant because Wells Fargo arranged more small business loans than any other lender in the country last year.
The Paycheck Protection Program offers 1% interest loans to business with fewer than 500 workers. Borrowers who don’t lay off workers in the next eight weeks will have their loans forgiven, along with the interest.
The government program is designed to limit the swelling number of workers applying for unemployment, with Congress aiming to distribute as much as $349 billion in aid through the small business initiative. Yet Wells Fargo’s limited participation could hamper the program, which has had had a rocky start.
A number of the nation’s largest lenders on Friday initially delayed taking loan applications, causing confusion among some small business owners. Many bankers blamed the hitch on the U.S. Treasury Department not finalizing rules for the program until less than a day before it was due to kick off.
As of Sunday evening, Citibank was still not accepting loan applications. But the bank said that once it began processing loans it planned to accept applications until June 30.
Wells Fargo on Saturday allowed borrowers to submit Paycheck Protection Program loan applications, but on Sunday it said customers and other businesses that hadn’t yet applied would have to go elsewhere. The bank said it planned to especially target its lending under the the program to businesses with fewer than than 50 employees and to non-profits. Wells Fargo also said it will donate any profits it makes from the program to charity.
The Federal Reserve in 2018 capped the amount of loans Wells Fargo can make after the bank was earlier revealed to have created millions of phony accounts as well as committed a string of other consumer abuses.
A source close to Well Fargo said it has had discussions with the Fed to lift the cap in order to allow the bank to issue more loans during the coronavirus crisis, which has shut down many small businesses. But it appears the Fed has declined to change its stance.
“Today, the company continues to operate in compliance with an asset cap imposed by its regulator due to actions of past leadership,” said Wells Fargo CEO Charles Scharf, who took the helm in September. “We are committed to helping our customers during these unprecedented and challenging times, but are restricted in our ability to serve as many customers as we would like under the PPP.”
The Small Business Administration tweeted late Friday that it had approved over 17,000 loans with a total value of $5.4 billion, a slow start for a program set up to quickly distribute nearly $350 billion.
Over the weekend, Bank of America said it had received 185,000 loan applications on the first day and a half of the program, seeking a total of $30 billion.
