CARES Act Paycheck Protection Program – Risk Areas for Lenders

As the U.S. takes measures to stabilize the economy after the pandemic-initiated shutdown, much attention has been focused on the Small Business Administration (SBA) Paycheck Protection Program (PPP) which is intended to help businesses bridge gaps from lost revenues.

Financial institutions were not granted blanket immunity in administering and approving loans under the program. Recent guidance clarifies that financial institutions may rely on the authenticity of borrower-supplied documentation, however, financial institutions are still responsible for exercising “good faith” efforts to confirm borrowers’ calculations for eligible loan amounts and loan forgiveness eligibility. Financial institutions need to fully understand the risks of administering these public funds.

Challenges for Financial Institutions

Given the timeline financial institutions were provided to stand up the program, combined with compliance and internal audit departments that are already stretched thin with ongoing priorities, it is no wonder that financial institutions are dealing with significant challenges in implementing the program expeditiously and within its parameters. Many financial institutions have diverted resources from their normal roles and responsibilities in order to process the thousands of applications that have been received. In some instances, these resources have been diverted from other supervisory roles and those other programs might suffer gaps in compliance oversight and monitoring.

Added to this, many bank employees are working from home under government-mandated stay-at-home orders and are struggling to perform day-to-day tasks in less-than-optimal home environments with limited equipment and IT system resources. Employees that typically have multiple monitors at designated workstations in the office are making do with portable laptops while working at their kitchen tables. These challenges are magnified with the additional burden of administering the SBA PPP.