On February 22, the Biden-Harris administration announced reforms to the $284 billion Paycheck Protection Program (PPP). These changes directed funding “to the smallest businesses and those that have been left behind in previous relief efforts.”
Among the reforms, the administration established a 14-day exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees, including sole proprietors. (Recent data shows that 96 percent of Black-owned businesses operate as sole owner-operator firms.)
The main program administrator, the Small Business Administration, was tasked with eliminating other PPP program impediments. These barriers, including those due to student loan defaults or due to a non-fraud-related criminal record, stopped many businesses from applying for these loans.
In the most potentially impactful reform, PPP loans were directed to one-person (sole proprietor) firms.
Unfortunately, major financial institutions have formally stated that they will not abide by PPP reforms: JP Morgan Chase notified loan applicants that it “won't let them take advantage of Biden's new rules that let sole proprietors and the self-employed obtain larger loans. Businesses will have to accept less aid via Chase or hurry to find another bank as many lenders prepare to wind down.”
Bank of America announced similar restrictions.
This is the same behavior that was referenced in a "Friend of the Court" brief we filed in the U.S. Court of Appeals. The April, 2020 brief was part of a case brought by a Black-owned firm that sought an injunction preventing Bank of America from limiting Paycheck Protection Program (PPP) applications. According to news reports at the time, "Bank of America initially would only accept paycheck protection loan applications from small business clients that were active borrowers at the bank." https://www.prlog.org/12820237-william-michael-cunningham-files-amicus-brief-in-paycheck-protection-program-case-20-1438.html
Last year, large banking institutions, including JP Morgan Chase and Bank of America, publicly pledged to support Black Lives Matter (BLM). We believe the refusal to abide by PPP reforms violate the Black Lives Matter pledges each of these institutions made. Their BLM pledges have been published in corporate annual reports and other regulatory filings submitted by these banks, so we believe their refusal to abide by the Biden PPP reforms may have triggered a violation of securities laws and of regulatory obligations. As noted, most Black companies operating in the US are sole proprietors. By refusing to honor their earlier pledge of support, the banks may be guilty of fraud. We suggest securities regulators review this behavior.
Further, in an April 2020 survey we conducted, of the 60% of survey respondents who applied for the PPP program, 33% got some level of funding. One commented that he “received 1/12th of the amount I asked for.” https://www.prlog.org/12819707-ppp-funding-survey-of-african-american-businesses.html
The defilement of the BLM pledges may also violate the Equal Protection Clause of the US Constitution, since Black firms are specifically excluded from receiving Federal program benefits that white firms take for granted.
We also suggest banking regulators investigate the BLM pledges and the lack of compliance by large banking organizations. These banks are, in essence, “redlining” Black businesses.
Rather than suggesting that the public boycott these mega banking institutions, we suggest the public ask major corporate clients of these large banks, specifically firms who also made BLM pledges, to review the PPP sole proprietor situation. These firms include Facebook, Google and most of the S&P 500.
Asking these firms to review and to possibly stop doing business with these large banks may be a way to enforce BLM pledges.