A pledge to provide more loans under the federal Paycheck Protection Program has gained Wells Fargo & Co. limited relief from the asset cap overshadowing the bank.
The Federal Reserve said Wednesday it has agreed to “temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses.”
Wells Fargo said Monday its $1.93 trillion asset cap — placed by the Fed in response to the fraudulent customer-account scandal that surfaced in September 2016 — has led it to focus efforts on lending to nonprofits and small businesses with fewer than 50 employees.
Eligible nonprofits are those that focus on serving small businesses.
Wells Fargo opened its online application portal Sunday and closed it by the end of the day, saying its “intake from customers indicates Wells Fargo has reached its capacity of $10 billion to lend under the PPP.”
With the temporary relief from the asset cap, Wells Fargo said it will offer loans to a broader set of its small business and nonprofit customers. It did not say how much additional funding it plans to provide to its PPP lending.
The Fed cited “the extraordinary disruptions from the coronavirus” for its decision to allow Wells Fargo to expand its participation in the $349 billion Paycheck Protection Program. The Fed plans to unveil shortly a Main Street lending initiative.
The financial proceeds that Wells Fargo makes from the two programs will not count against the cap.
However, those proceeds are required to be transferred to the U.S. Treasury or to nonprofit organizations approved by the Fed that support small businesses. The change will be in place as long as the facilities are active.
“The (Federal Reserve) Board continues to hold the company accountable for successfully addressing the widespread breakdowns that resulted in harm to consumers identified as part of that action and for completing the requirements of the agreement,” the Fed said.
Charlie Scharf, Wells Fargo’s chief executive, said in a statement that “Wells Fargo appreciates the targeted action of the Federal Reserve to support the needs of small businesses through PPP.”
“In the first two days alone, we received more than 170,000 indications of interest from our customers, and know there is much more need.”
Scharf stressed that the Fed’s decision “does not — and should not — in any way relieve us of our obligations under the consent order.
“The work required under the consent order is clear, has been outstanding for too long, and is a prerequisite for consideration of the asset cap being lifted.”
The overall PPP program, which began Friday with major online processing hiccups for many lenders, allows for loans to businesses with up to 500 employees.
Applicants had to have an eligible Wells Fargo Business checking account as of Feb. 15 and be enrolled in Wells Fargo online banking.
The program is considered as a key part of the federal government’s $2.2 trillion stimulus in response to the COVID-19 pandemic’s devastating impact on local, state and national economies.
Small businesses can apply for low-interest loans for up to 2½ times their average monthly payroll.
The loans will be fully or partially forgiven if businesses show that the money was used to retain or rehire employees and pay some overhead expenses through June 30.