By December of this year, businesses that applied for and accepted loans under the Paycheck Protection Program (PPP) overseen by the Small Business Administration (SBA) will have to repay the loans unless they can prove they used at least 75 percent of the funds to cover the cost of payroll.
Although it's only July, some businesses are already filing their applications to have their loans forgiven, but banks that made a tidy profit from administering the program don't want to deal with it.
Banks are asking Congress to automatically forgive many if not most PPP loans and they have an ally in Treasury Secretary Steve Mnuchin.
A bill that would stop just short of automatic forgiveness for loans of $150,000 and under is gaining bipartisan support. Treasury Secretary Steven Mnuchin gave the idea a big boost on Friday, when he told lawmakers they should consider automatic forgiveness for smaller loans.
But critics argue there's not enough information available to vet the proposal and that it could heighten the risk of scams.
“Easing PPP loan forgiveness should not be on the table until Congress has the data we need to see whether this program is actually working to save jobs,” Rep. Katie Porter (D-Calif.), one of the sharpest critics of the government's oversight of the massive coronavirus relief packages, told POLITICO.
One proposal working its way through the Republican-controlled Senate Banking Committee would simply require applicants to file a one-page form that merely states that they used the funds for payroll, but it would not require that they show any proof of it.
If you've been following along, you know how bad of an idea this is if you have any interest at all in accountability. There have been so many stories of dubious loans and phantom job numbers I could not cover all of them here.
The consumer banking lobby is throwing its support behind this legislation because, in their words, the forgiveness applications are too time-consuming. But this is the same industry that has reaped up to $24 billion in profits from fees while administering the paycheck program.
Making this proposal right now is even worse for another reason, however, as the Paycheck Protection Program is still accepting applications right now! Congress voted to keep the program open for applications through the end of August.
If automatic forgiveness legislation is passed between now and when the program expires, someone who actually wants to scam the system could apply for funds knowing that it will be automatically forgiven anyway. They'll never have to show proof that they used it for legitimate or appropriate expenses.
Fraud for everyone!