Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Banking newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360 (September 1, 2020, 6:31 PM EDT ) House Democrats on Tuesday pushed government watchdogs to probe the Trump administration's oversight of over $500 billion in forgivable loans distributed through the Paycheck Protection Program, citing thousands of loans with "indicia of fraud" and signaling continued scrutiny for recipients.
Democrats on the chamber's Select Subcommittee on the Coronavirus Crisis lamented the administration's plan to reserve audits for loans over $2 million, "leaving the other 99.4% of loans with little or no oversight." Staff members tallied nearly 11,000 loans worth over $1 billion in which companies appeared to receive multiple loans in violation of program rules, over 600 loans to companies blocked from federal contracts and hundreds more for applications missing basic data such as names and addresses.
The panel's chairman — Rep. Jim Clyburn of South Carolina, the third-ranking House Democrat — requested implementation reviews by the inspectors general for the U.S. Small Business Administration and the U.S. Department of the Treasury.
Clyburn criticized the administration's "weak audit plan" during a hearing Tuesday with Treasury Secretary Steven Mnuchin. Prosecutors have charged several dozen applicants with fraud, but lawmakers warn that is only the tip of an unexplored iceberg.
"There are simple steps that could have been taken to improve oversight and reduce fraud," Clyburn told Mnuchin. "Taxpayers should not have to choose between quickly getting aid to those who need it and wasting federal funds."
Mnuchin said a GOP proposal had been modified to allow more oversight. "The Senate bill has been changed so that even with streamlined forgiveness, they will be subject to audit by the SBA," he said.
A Treasury spokesperson added in a statement, "We worked around the clock and launched the program in record time, under one week, because Americans needed immediate economic relief. Any program of this scope and size will encounter issues, and we have moved quickly to respond as they arise. ... In addition, all loans are undergoing an automated review and all loans over $2 million will undergo a manual review."
Committee Republicans offered their own report titled "A Resounding Success," which defended implementation by the Trump administration and the private banks that have issued 5.2 million government-backed forgivable loans worth over $525 billion in the program meant to help small businesses survive pandemic shutdowns without laying off workers.
GOP lawmakers urged Mnuchin to keep loan forgiveness as straightforward as possible to spare the smallest businesses from hiring accountants or lawyers. Banking groups have urged automatic forgiveness for loans under $150,000, which would apply to the vast majority of PPP loans. Policymakers have not adopted that approach, but in July the administration offered a simplified forgiveness application for many businesses.
During the hearing, the Treasury secretary reiterated his support for reopening the Paycheck Protection Program, which lapsed Aug. 8 with more than $130 billion still available. There's broad support for a second round of forgivable loans with tighter eligibility criteria.
"There's money left over, and I would very much target that money for businesses that have been the hardest hit," Mnuchin said. "I think a decrease in revenues or a decrease in profits is the right approach. I think we have bipartisan support for that."
Mnuchin endorsed an additional $120 billion in new funding, in addition to the $130 billion that remains available.
He said a second round could support "travel, restaurants, entertainment, hotels — many industries that have been still hit very, very hard." He predicted a second round would easily pass Congress as a standalone bill, but the issue is currently one among many in limbo amid a weekslong impasse in bipartisan negotiations for another pandemic relief package.
The SBA did not immediately respond to a request for comment.
--Editing by Peter Rozovsky.
For a reprint of this article, please contact reprints@law360.com.
