Small-business owners have so overwhelmed banks with requests for money — just days after the start of an emergency relief program — that Federal Reserve officials are considering easing restrictions on Wells Fargo to make it easier for it to lend.
Two years ago, the Fed imposed growth limits as a penalty after Wells Fargo, the nation’s fourth largest bank, revealed it had opened millions of fake accounts in its customers’ names, charged some of them unnecessary mortgage fees and forced others to buy auto insurance they did not need.
However, there is so much demand and chaos in the $349 billion lending program, which went into effect via participating banks on Friday, that Fed officials are now discussing a temporary truce with Wells, according to two people with knowledge of the matter.
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. On Sunday, Wells Fargo said the cap was limiting its ability to lend to businesses that qualified under the government’s so-called Paycheck Protection Program. Because of the restrictions, the bank said, it was able to only make up to $10 billion in loans to small businesses, but there was already demand for more.
Panic in the financial markets over the coronavirus pandemic has squeezed Wells Fargo’s business up to the very limits of the Fed’s asset cap of nearly $2 trillion. First came the flood of new deposits as investors sold risky assets and converted those holdings to cash to store in their bank accounts; then came the rush of businesses seeking loans, much of which will go to paying their employees during the economic shutdown.
Senior Wells Fargo executives are now talking with Fed officials about a short-term pause in the penalties — just long enough to let the bank handle more loan volume, said the people, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly.
Bank executives first approached the Fed about lifting the growth restrictions three weeks ago, before the small business aid program was created. The discussions have intensified over the past week as the problems processing the avalanche of loan requests have grown, the people said. (Lenders’ websites have often crashed, or bankers simply don’t have any advice for the borrowers on how to proceed.)
Fed officials had earlier said they would remove the restrictions only after Wells Fargo demonstrated that it had improved itself enough that its customers would be safe from further harm — something that has not happened yet.
The two people said they did not know when the Fed would make a decision.
A Wells Fargo spokesman and a Federal Reserve spokeswoman each declined to comment.
The small-business program was opened on Friday, but some banks began talking to their customers earlier in the week about how to apply for loans. Anecdotal evidence suggests that successful applicants are vastly outnumbered by frustrated borrowers, and even those who were notified that their loans had been approved say they do not expect to receive money before the end of the week.
Part of the problem is that many banks, including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo, say they can handle making loans only to existing customers whose financial and personal information they already have on file.
Even existing customers are struggling to put in their loan requests.
“Citi has this line on their website that says ‘Citi is on your side when you need us most,’ and that irritates me the most,” said Andrew Levine, the chairman of Development Counsellors International, a 60-person business that helps cities, states and countries market themselves to tourists and corporations. Mr. Levine’s father started the business in 1960 and now its future is 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 count for much, he said. The banker Mr. Levine normally deals with has no answers. “He just doesn’t know what’s going on,” he said.
A Citi spokesman said the web portal would be up shortly.
At Wells Fargo, customers are not sure whether the loan requests they have made are still being considered. Late on Sunday, as business owners around the country continued to report trouble applying for loans, Wells Fargo announced it had reached its loan limit.
Charles W. Scharf, the bank’s chief executive, said that it would consider loan applications submitted through Sunday and that executives would also try to find ways to shrink its balance sheet and make more room for loans.
“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 P.P.P.,” Mr. Scharf said in a statement.
That left Rebecca Miller, who runs a counseling service for dyslexic children in Omaha, Neb., feeling confused and anxious. She submitted a preliminary request for a $35,000 loan on Saturday and was told to wait for a bank representative to contact her. She is not sure whether her loan request came in before the bank reached its $10 billion cap, or after.
“I have not applied with anyone else because I didn’t know what the rules were,” she said, adding that since she had received a message from the bank warning customers not to try to enter its branches, she planned to drive to a bank branch and ask a teller at its small-business drive-through window for more information.
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