Update: the Fed declared in a Wednesday order that Wells Fargo will be allowed to exclude loans through the paycheck protection program from the account in the bank’s asset limit. This decision allows Wells Fargo to participate fully in the program.

Michael Brawley is one of thousands of business owners who are desperate to get the stimulus money the federal government promised small businesses in the $ 2 trillion package passed by Congress last month.

He owns Brawley’s Beverage, a bottle store in South Charlotte with four employees. The statewide stay-at-home order to prevent the spread of COVID-19 has decimated his business.

Brawley went to his Wells Fargo branch last week and they said the program was not ready. This weekend, he filled out an online form indicating that he would like to apply once the application is complete. But like thousands of other small businesses that do business with Wells Fargo, he never got a chance.

In a weekend, the bank reaches a self-imposed cap of $ 10 billion he set himself for his participation in the program. He closed the bid for new submissions on Sunday night. Plus and Wells Fargo ran the risk of breaching a regulator’s cap on the bank’s assets, a legacy of the bank’s sale scandals, he said.

This leaves Brawley and others in a bind.

Wells told Brawley he should apply elsewhere to increase his chances of getting an application. But most of the big banks, including Bank of America and JPMorgan Chase, only let current customers apply for loans, so going elsewhere isn’t an easy option.

The few banks that offer loans to new clients, like Aquesta Bank in Cornelius, tell potential applicants to try multiple banks due to limited capacity, and applicants should expect delays if they are not. not already customers.

Brawley went through five banks, none of which accepted his request because he wasn’t already a customer, before a friend of a friend found one that would.

Paycheque Protection Program

What is at stake are billions in small business loans designed to keep people in jobs and businesses out of the water.

Paycheque Protection Program, a $ 349 billion portion of the $ 2 trillion federal stimulus package passed last month, a business with fewer than 500 workers can get a loan of up to $ 10 million . If certain criteria are met, especially if the loans are mainly devoted to the payroll, the loans will be canceled.

For banks, there is no risk of default: the loans are fully guaranteed by the state. The federal government will also pay bank charges for granting loans.

The program was designed to get a lot of money into the hands of small businesses very quickly, with the banks as the middleman. But it’s a problem inherited from one of the country’s small business lenders, Wells Fargo, that has been one of the biggest obstacles to achieving this mission so far.

Since the start of 2018, the Federal Reserve has blocked Wells Fargo from growing more than $ 1.95 trillion in assets.

After the bank was caught creating millions of accounts on behalf of customers without their consent, among other faults, regulators needed a way to keep banking online. The reason was that once the bank dealt with the structural problems exposed in the sales scandal, it would be allowed to expand.

It was a punishment made in more predictable economic times.

Now, with the federal government asking banks to help make billions in loans at a rapid pace, this sanction is preventing Wells Fargo’s small business clients from accessing the help many need to survive.

“We are committed to helping our clients in these unprecedented and difficult times, but we are limited in our ability to serve as many clients as we would like through PPP,” said bank CEO Charlie Scharf, in a statement Sunday.

$ 20 billion remaining

At the start of the year, Wells had only $ 20 billion of wiggle room between its assets and the cap. The bank declined to comment on how close it is to the cap now.

The asset cap is just one of the penalties imposed by regulators for the Wells Fargo sales scandal. In February, the bank paid $ 3 billion to settle several federal investigations into the practices.

Federal Reserve officials consider easing wells lending restrictions, The New York Times reported Monday.

A Fed spokesperson declined to comment.

“I feel like I’m a hostage that Wells Fargo is using to try and raise the cap on its assets,” Brawley said.

“They’re using the potential that we can’t get funding to pay our employees to blackmail the federal government, the Fed, to raise the cap and say ‘Oh we’ll let you grow up’. I feel like collateral damage.” “Brawley said. He takes his money out of the bank.”

Mason Marino, owner of parts maker M2 Performance Solutions in Concord, found himself in a similar situation. He employs two to three part-time people, who begged him to work, but struggles to keep the lights on.

A PPP loan was going to be important: if it loses more business, it may have to file for bankruptcy. When he visited the Wells Fargo website on Sunday night, he received the same message as thousands of others: It’s too late.

“It affects a lot more than a bunch of CEOs making money – it affects everyday life,” Marino said.

He thinks the Fed should, at a minimum, lift the cap only on PPP loans. “Everyone wants to demonize the banks and demonize American businesses, but at the end of the day the people who are hurting are the smaller people,” he said.

While Wells waits to see what the Fed will do, the bank said it will focus its participation in the program on companies with less than 50 employees and nonprofits. It will also reimburse the costs it collects from the program to charities.

Wells Fargo has 27,000 employees in the Charlotte area, the largest number of cities in which the bank operates, a legacy of its acquisition of Wachovia in 2008.

Program disrupted

The unique nature of Wells Fargo’s loan and punishment program has led to some unusual bedfellows.

“There is a huge negative impact on the small business customers of Wells Fargo. They will essentially be excluded from the program, ”said Dennis Kelleher, managing director of Better Markets, a financial regulation advocacy group in Washington DC. His group has criticized Wells Fargo in the past, but recently said the cap should be conditionally lifted for the coronavirus pandemic.

“If you’re a small business owner who does business with Wells Fargo, you probably can’t access PPP because you don’t have a know-your-customer relationship with another bank,” Kelleher said, referring to regulations. which oblige banks to seek their customers.

Demand for the program has flooded both banks and the Small Business Administration, which manages the program. Bankers reported this week that the SBA’s system for handling loans was in the throes of technical difficulties.

So far, $ 70 billion in PPP loans have been processed, President Donald Trump said on Tuesday. Much more is expected soon.

As of Tuesday, Bank of America received more than 230,000 loan applications requesting $ 38 billion in funds, more than a tenth of the total funds allocated to the program. JPMorgan had 375,000 applications Tuesday afternoon for about $ 40 billion in loans, an executive said at a White House meeting.

With growing concerns that demand will exceed funds available for small businesses, Senate Majority Leader Mitch McConnell, R-Ky., Said on Tuesday that he plans to vote on additional funding for the program this week.

In the meantime, small businesses are scrambling to submit their applications if they can, in the face of on-the-go systems and mixed participation.

“It struck me that it would be oversubscribed. If you don’t line up soon, you won’t be able to access it, ”said Paul Krause, president of Fanalytical, a sports analysis company in Chapel Hill, which received a request for PPP funds with Bank of America.

And with some banks, like Citi, not yet participating in the program, some customers are being left out. ” It’s a big problem. A small business owner called me and told me his bank was not participating. So she called 30 other banks and none of them accepted her, ”said Karen Mills, who headed the SBA in the Obama administration.

In a conversation with bankers at the White House on Tuesday, Trump acknowledged the bumpy nature of the deployment. “Do you remember when banking was a nice, easy business, guys?” You remember it? Pleasant and simple? It is not easy anymore.

McClatchy’s White House reporter Michael Wilner contributed to this report.

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Austin Weinstein is the banking reporter for the Charlotte Observer, where he covers Bank of America, Wells Fargo and Truist, among others. He previously covered financial regulation for Bloomberg News. He attended the University of California at Berkeley.