U.S. banks, facing criticism for prioritizing existing customers over new ones who are seeking coronavirus rescue loans, put the blame on federal rules meant to catch terrorists and money launderers.
The lenders, who have been getting beaten up by small businesses and lawmakers alike, have asked a little-known agency that monitors suspicious financial transactions for relief from the stringent regulations. But their requests have gone unheeded for now.
The issue is just one of a number of problems that have surfaced during the rollout of the $350 billion Small Business Administration lending program that began last week.
"Small businesses and policymakers should understand that a primary reason most banks will be extending these loans only to existing customers is because the anti-money laundering process is so onerous and time-consuming," said Greg Baer, president of the Bank Policy Institute, a Washington-based trade group for lenders that has been working closely with the Treasury Department and the Small Business Administration. "Banks large and small have urgently sought relief from these requirements from day one, to no avail."
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LONG WAIT
To underscore its point, the industry estimates that even the initial steps of processing a new borrower's application can add as much as two hours of work. And then verifying that the customer's information is legitimate can take a month or longer. Bankers say it's hardly a recipe for rapidly getting rescue funds out the door.
For borrowers, there's a risk that much of the billions -- available on a first-come, first-served basis -- will be gone by the time their requests go through. President Donald Trump said Tuesday that "we will be running out of money very quickly" and that he has asked Congress to add another $250 billion by the end of the week.
The target of banks' ire is the Financial Crimes Enforcement Network. Tensions between the industry and the agency aren't new, as lenders have long lobbied Congress to roll back some of its rules, many of which were put in place after the Sept. 11, 2001, terrorist attacks. Coronavirus is giving firms a fresh opening to argue that the agency should be reined in.
An agency spokesman pointed to a statement on the agency's website that says it is "committed to promoting the success" of the new stimulus law, "including the need to facilitate expeditious disbursal" of funds. The agency plans to issue additional guidance as the law is rolled out and questions arise, the statement added.
FIRST IN LINE
The loan program, a crucial aspect of the government's response to the virus-fueled crisis, is still a work in progress. The Treasury Department issued guidelines for participating banks on April 2, the night before they were to begin processing loans. That in turn caused a number of banks, including some of the biggest like Wells Fargo & Co., to say they couldn't immediately participate.
One major bank that did, Bank of America Corp., drew public scorn for saying it was first processing applications from existing clients. It was even sued last week over the decision.
In a Tuesday call between Trump and bank leaders, Bank of America chief executive Brian Moynihan said his firm is "prioritizing our work to make sure we serve the clients who have a relationship with us."
"That is keeping us plenty busy but we're hear to continue to support this effort," Moynihan added.
A Bank of America spokesman declined to comment on the lawsuit filed against the company. He said the lender has received some 250,000 applications seeking $40 billion, as of Tuesday evening.
TOUGH RULES
The Financial Crimes Enforcement Network regulations impose tough know-your-customer requirements that force banks to be able to verify clients' identities. For people, that often entails providing information such as a driver's license and Social Security number.
The process is more complex for businesses. Banks must check the identity of each person who owns more than 25% of the company, as well as any person who has control of its operations. That involves getting corporate documents as well as the standard information for individuals. The industry says obtaining these details can add between 40 minutes and 2 hours to the application intake process. And, depending on the complexity of the business's ownership, it can require up to 30 more days for verification.
Adding to the problems: Both banks and small business customers are now working remotely because of the virus. Often, applications with smaller clients are done in person at branch offices.
To speed things up, the banks have asked the agency to let them collect the customer information and verify it after the loan application is processed. That would allow lenders to significantly cut the delays facing borrowers who don't already have documents on file with a bank. Though the agency hasn't granted the request, it did provide some relief in another area. The agency issued guidance stipulating that banks providing the Small Business Administration loans don't need to re-verify existing clients. Still, that doesn't help with new customers.
Though analysts say there could be a significant amount of fraud in the lending program, especially since banks aren't required to vet a borrowers' small-business credentials, few think the loans will be used to finance terrorism -- a prime target of agency rules.
Aaron Klein, a fellow at the Brookings Institution in Washington who worked at the Treasury Department in the aftermath of the 2008 financial crisis, said well-intentioned regulations shouldn't stand in the way of companies getting cash quickly.
"Delaying emergency relief to America's small businesses in order to check for money laundering is counter to the spirit of the law and the well being of the nation," he said.
Business on 04/09/2020