By Michelle Price

WASHINGTON (Reuters) – The U.S. Treasury Department encouraged banks to prioritize existing customers when dishing out Paycheck Protection Program pandemic loans, disadvantaging smaller businesses against the intent of lawmakers, a Congressional panel said on Friday.

“The Trump Administration and many big banks failed to prioritize small businesses in underserved markets, including minority and women-owned businesses,” the Select Subcommittee on the Coronavirus Crisis wrote in its report. 

Congress in March passed legislation creating the program to help small companies weather the economic shutdown caused by COVID-19, leading banks to dish out more than $520 billion in forgivable government-guaranteed loans.

Under the program, banks can waive normal underwriting standards, but must include anti-money laundering paperwork, which can take weeks to assemble. That documentation was already in place for existing customers, banks have said.

Typically, larger, wealthier companies tend to have pre-existing banking relationships, federal data show.

According to an American Bankers Association (ABA) email obtained by the committee, the Treasury encouraged banks on a call to prioritize existing customers.

“Treasury would like for banks to go to their existing customer base as lenders will have all of the business information,” ABA Chief Executive Rob Nichols told the trade group’s board in the March 28 email, the report said.

A Treasury spokeswoman did not immediately respond to a request for comment. But the agency denied it had addressed the issue of prioritizing existing customers when asked by the committee staff, the report said.

Banks were urged to start processing loans as quickly as possible to support the deteriorating economy, Nichols said in an emailed statement on Friday.

“To achieve that goal, many banks processed applications from existing borrowers first since they already had the necessary borrower information needed to meet regulatory requirements,” he said. “Over time, as the Treasury and (Small Business Administration) provided more clarity, it became easier to gather information to process new customers.”