Feds modify growth restriction on Wells Fargo to support small business

US President Donald Trump instructed Treasury Secretary Steven Mnuchin to ask for more funds to help small businesses

US President Donald Trump instructed Treasury Secretary Steven Mnuchin to ask for more funds to help small businesses

The Federal Reserve said Wednesday it will temporarily lift Wells Fargo's growth restriction put in place following the bank's customer abuse scandals.

Steve Troutner, Wells Fargo's head of small business, instructed employees to suggest customers apply elsewhere to increase their chances of getting a loan before the stimulus money runs out, according to a memo seen by Bloomberg. The Fed has said it would only remove the cap when Wells Fargo had improved its governance and risk controls following a wave of sales practice scandals.

The bank will also have to send the fees it collects through the program to either the U.S. Treasury or to certain nonprofits. The bank said it reached its $US10 billion distribution limit due to the Fed's restriction, and that the applications received on April 4 and April 5 alone were enough to reach the threshold.

The change only bolsters the bank's ability to lend through the Paycheck Protection Program and the Fed's upcoming Main Street Lending Program.

The Paycheck Protection Program offers 1% interest loans to business with fewer than 500 workers.

A source close to Well Fargo said it has had discussions with the Fed to lift the cap in order to allow the bank to issue more loans during the coronavirus crisis, which has shut down many small businesses.

Between the lines: When Wells Fargo's newest CEO, Charlie Scharf, took the helm past year, one of his goals was to work with regulators to get the bank's growth cap removed.

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He said businesses will now have the option of using revenue figures in January and February of this year to show such a loss. Under the wage subsidy program, workers are paid 75 per cent of normal hourly wages or up to $847 per week.

"The changes do not otherwise modify the Board's February 2018 enforcement action against Wells Fargo", the Federal Reserve said in the announcement. Wells Fargo was barred from expanding its almost $US2 trillion balance sheet until overhauling its internal processes to a level approved of by the Fed board.

For over a decade, a toxic culture at the bank led to the creation of millions of accounts in customers' names without their consent. He's now awaiting word from Wells Fargo on the status of his loan application.

The Fed was clear to say that this doesn't mean it's easing up on the bank: outside of the two federal stimulus programs, all the prior restrictions it put on the bank stay in place.

Scharf noted in the statement that Wells Fargo already extended nearly $70 billion in new and increased commitments and outstanding loans to consumers, small businesses and corporations in the US last month.

The bottom line: Wells Fargo has a ton of demand from small business customers that need the aid to pay employees and their bills while the economy is shut. Sherrod Brown of OH, the top Democrat on the Senate Banking Committee. Yet Wells Fargo's limited participation could hamper the program, which has had had a rocky start.

Austin Weinstein is the banking reporter for The Charlotte Observer, where he covers Bank of America, Wells Fargo and Truist, among others. He attended the University of California, Berkeley.

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