finance

Lawmakers press for small business loans for payday lenders

The lenders are among many industries lobbying to gain access to the $670 billion small business loan program.

Pay day loan storefront

A bipartisan group of lawmakers is pressing the Trump administration to let payday lenders gain access to small business rescue money, going to bat for companies that have been accused of engaging in predatory behavior toward lower-income people.

The move comes as officials try to quell public criticism by stopping hedge funds and publicly traded companies from benefiting from the program, which is designed to avert massive job losses and resumes on Monday after running out of funds because of high demand.

In a letter signed by 24 House Republicans and four Democrats, lawmakers asked the Treasury Department and Small Business Administration to open up Paycheck Protection Program loan applications to "small-size nonbanks," including installment lenders and so-called community development financial institutions, which focus their lending on underserved populations.

Payday lenders weren't explicitly mentioned, but a spokesperson for Rep. Blaine Luetkemeyer (R-Mo.), one of the lawmakers who led the letter, confirmed the intent was to include them in the request.

In the letter sent Thursday, the House members said the companies provide their constituents with access to financial services and have been deemed "essential" businesses allowed to stay open amid stay-at-home orders. They said that many have fewer than 500 employees and that they don't plan to offer Paycheck Protection Program loans to their customers.

"Yet these businesses have been shut out completely from the PPP, which has forced many of them to lay off their highly trained employees who would have preferred to keep their jobs than seek government unemployment assistance," the lawmakers said.

In addition to Luetkemeyer, lawmakers who signed the letter include Reps. Ted Budd (R-N.C.), Henry Cuellar (D-Texas), Collin Peterson (D-Minn.) and French Hill (R-Ark.) — a member of the Congressional Oversight Commission tasked with policing the bailout money.

The lenders are among many industries lobbying to gain access to the $670 billion small business loan program, which has proven to be one of the most popular and also most controversial economic aid efforts launched during the Covid-19 pandemic.

The program faced a huge backlash this week following revelations that Wall Street-backed companies received loans via major banks, even as thousands of small businesses were unable to get approved before funding ran out on April 16. On Friday, President Donald Trump signed into law another $320 billion in funding. His administration tried to calm the furor by shutting off the flow of loans to publicly traded companies, hedge funds and private equity firms.

"What Treasury is looking at broadly is whether companies applying really need it or have other ways to get money," said Ian Katz, director at research firm Capital Alpha Partners.

The American Financial Services Association, whose members include installment lenders referred to in Thursday's letter from lawmakers, argues that the intent of the program is to provide assistance to a broad base of businesses, including non-bank consumer lenders.

"As the economy reopens, consumer lending — from auto finance to installment loans — will be crucial to jumpstarting growth and our members will be there to help," the group's spokesperson, Ed McFadden, said Friday.

The lawmakers who signed the letter Thursday echoed the industry's message.

"The apparent malleability of PPP eligibility rules for some industries but not for others is not grounded in the CARES Act and has the unfortunate appearance of the government's picking winners and losers among businesses that all want to keep their employees on their payrolls," they said.

A spokesperson for Budd of North Carolina said: "The PPP is primarily about helping employees keep jobs and receive paychecks, not about supporting a specific industry."

But opening up the government-backed loans to payday lenders would spark its own major battle.

Amanda Fischer, policy director at the Washington Center for Equitable Growth, said making loans available to payday and installment lenders would "supercharge inequality for the low-wage workers suffering the most from this recession."

"The companies now asking for government help are the same ones that ruthlessly pursue borrowers when they can’t pay their debts," she said. "Families need better unemployment insurance, additional direct payments, and forbearance on mortgage and rent — not taxpayer-financed predatory loans."

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