Wells Fargo, Hampered by Regulatory Caps, Already Exhausted PPP Lending Capacity

Banking giant Wells Fargo (WFC) said on Sunday that it has already received so many loan requests from small businesses that it exhausted its $10 billion capacity for lending under terms of the government’s Paycheck Protection Program.

Wells Fargo is subject to stringent regulatory asset caps due to past wrongdoings.

As a result, Wells Fargo will no longer accept any more such loan applications

The Paycheck Protection Program, or PPP, administered by the U.S. Small Business Administration, or SBA, was introduced as part of the federal government’s massive $2.2 trillion stimulus package and was designed to assist small businesses to keep and pay their employees during the coronavirus pandemic, and also to pay for rent, mortgage interest, or utilities.

PPP provides low interest (1%) loans to businesses with less than 500 employees. Borrowers who don't lay off workers over the next eight weeks will have their loans forgiven, along with the interest payments – which essentially converts the loan into a grant.

In addition, SBA said, PPP loan payments will be deferred for six months and no collateral nor personal guarantees will be required. Neither the government nor lenders will charge to any fees to small businesses. However, loan forgiveness will be reduced if a business’ full-time headcount declines, or if salaries and wages decrease.

PPP will run through June 30.

Wells Fargo also said it will lend the maximum of $10 billion allowed by the program. The bank earlier said it would seek to help very small businesses with less than 50 employees and to non-profits. Wells Fargo also said it will donate any profits it makes from the loan program to charity.

CBS News reported that by exiting the loan program early, Wells Fargo might be shutting out some of own its small business clients that have yet to apply for a loan. (Most U.S. banks are processing loans for existing clients only).

As of Monday morning, SBA said more than 100,000 loans (with a total value of $30 billion) were already approved and funded under the program.

Congress seeks to issue as much as $349 billion in financial aid through its small business initiative

But Wells Fargo’s exit could hurt the program, which has already struggled as some banks delayed taking loan applications leaving many small business owners confused.

Some small business owners were alarmed by Wells Fargo’s withdrawal as many are finding it difficult to secure loans from other banks.

“That puts small business owners at a big disadvantage,” said Mandy Wroolie of Champlin, Minn., who was seeking $8,000 to keep her company going. “It is really frustrating. I heard that if you weren’t in line by 9 a.m. Friday, you’re out of luck. I’m concerned that there isn’t going to be any money left.”

Moreover, after some employees at Wells Fargo were caught creating millions of fake accounts, as well as other forms of consumer abuse a few years ago, in 2018 the Federal Reserve capped the volume of loans Wells Fargo can make. The Fed effectively prohibited Wells Fargo from growing beyond its 2017 size -- about $2 trillion in assets,

Reportedly, the Fed has refused to lift the cap.

Sheila Bair, the former head of the Federal Deposit Insurance Commission, tweeted that Wells Fargo's lending cap should be lifted.

“I’ll go out on a limb here. I think Wells Fargo should be given latitude to make CARES [Coronavirus Aid, Relief, and. Economic Security] Act small business loans even if that expands its balance sheet beyond current regulatory limits,” she said.

Meanwhile, Wells Fargo asserted it is operating under the rules.

"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 over last 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."

Bloomberg News reported last week that Wells Fargo would have a lending capacity of more than $384 billion if it wasn’t restricted by the asset cap.

“Since the beginning of this health crisis, Wells Fargo has provided substantial credit and liquidity to our customers to help them weather these uncertain times,” Scharf added.

For March, Wells Fargo said that it loaned almost $70 billion to consumers, small businesses and U.S. corporations.

Wells Fargo also said that it deferred more than 700,000 payments (totaling $1.8 billion) and also approved more than 750,000 fee waivers (exceeding $28 million) for customers who were hurt by the coronavirus outbreak.