On May 6, twenty-four state attorneys general led by Massachusetts Attorney General Maura Healey called for action from Congress, urging House of Representative and Senate leaders to come together to resolve the mounting issues with the Paycheck Protection Program (“PPP”). Against the backdrop of a record 33 million Americans filing for unemployment and daily news that small businesses have struggled to obtain the funds that the PPP was designed to provide them, these attorneys general highlighted their concerns about ongoing implementation of the PPP and the national economic crisis that the coronavirus (“COVID-19”) pandemic has caused.
In their letter, the attorneys general acknowledge that the PPP has helped some small businesses and their employees, but they focused on the “lack of transparency, technical savvy, and functionality” that led to numerous loans being “made to large, publicly traded companies that almost certainly have access to other sources of funding.”
Urging immediate action, the attorneys general noted that “[t]he chasm between those who need this money and those able to successfully secure funding undermines the program’s stated purpose of providing emergency relief to all small businesses adversely impacted by the COVID-19 crisis.”
The attorneys general are asking Congress to adopt the following measures before allocating additional PPP funding:
- Increase Fair Access Funding for Small Businesses/Limit to Those in Need: The A.G.s ask Congress to require the Small Business Administration (“SBA”) to prohibit applications from publicly traded companies with access to alternative funding sources, and from other companies that do not require assistance. They also ask that the SBA issue rules to “explicitly ensure that lenders cannot favor certain categories of applicants over others.”
- Ensure Equitable Distribution: The A.G.s call for Congress to allocate a portion of any future funding exclusively for minority-owned small businesses, highlighting that many of these businesses do not have longstanding relationships with banks or other financial institutions. They also want to see future funding disbursed fairly throughout the country and a broader representation of lending sources to include smaller banks, credit unions, and entities in the Community Development Financial Institutions Program.
- Direct Information to Small Businesses: The A.G.s insist that Congress require the SBA to provide more direct information to small businesses during the application process to allow small businesses to track the progress of their loan requests with the SBA rather than the submitting bank.
- More Flexibility and Transparency: Citing small businesses that have reached out to them directly, the A.G.s call for more flexibility in providing solutions for small businesses that need more time to rehire full staffs, as they already have been forced to lay off employees. In addition, they demand more transparency so that taxpayers can understand where the money is going, noting that among other requirements, the SBA should disclose comprehensive data on the businesses that receive funding to discourage larger companies with access to other funding sources from seeking PPP loans.
- Better Technical Support and Assistance for the Unbanked: The A.G.s highlight the need for more user-friendly processing platforms or a single lender application with clear guidance to businesses and lenders. They also ask that the SBA create a simple on-ramp for the “unbanked” or “lesser-banked” small businesses with clear explanations of the program and a list of institutions that specialize in handling applications from these types of businesses.
Early on May 7, Senate Minority Leader Chuck Schumer (D-N.Y.) appeared on MSNBC where he acknowledged the “huge” economic crisis and remarked that he and Speaker of the House Nancy Pelosi (D-Calif.) are “working closely to put together a very strong plan” with a focus on small businesses and working people, and more corporate oversight. Schumer insisted that he and his colleagues are “trying to do oversight” of the PPP, noting that they went to Congress on May 6 to ask that a “complete list of who is getting the loans and not getting the loans” be made public. Schumer sponsored bill S.3604 “Transparency and Oversight of COVID-19 Small Business Assistance Act,” with Maryland Senator Ben Cardin. The bill would mandate daily and weekly reports from the PPP and other relief programs.
It remains to be seen how the SBA will respond to various and increased calls for more information about PPP loans and more guidance to struggling small businesses. Certainly, with these attorneys general outlining a plan of action for Congress, small and large businesses should expect some action in the coming days or weeks as lenders continue to rapidly distribute the latest influx of additional funding. In the event that Congress does not make what the state attorneys general view as the necessary enhanced oversight of the PPP loan program, our team expects that state attorneys general will redouble their individual state enforcement efforts (and multi-state investigations) to pursue companies that participate in the PPP loan program.