The CARES Act is only a month old, but plans for investigations to track the nearly $3 trillion in coronavirus relief funds are already emerging from Congress. Among the mechanisms for oversight created and funded by the CARES Act itself is the Congressional Oversight Commission, a five-member committee overseeing $500 billion in loans doled out by the Treasury Department targeting larger businesses. Additionally, a new investigative select committee, chaired by Representative Jim Clyburn (D-SC) and operating under the House Committee on Oversight and Reform, will monitor President Trump’s implementation of coronavirus relief efforts. And this anticipated congressional scrutiny comes on top of the expected investigative work of the new office created within the Treasury Department, the Special Inspector General for Pandemic Recovery (“SIGPR”), created to investigate how this $500B fund was utilized.
One of the programs included in the CARES Act most likely to be a target of congressional investigations—and already in the crosshairs of the media and Members of Congress from both parties—is the Paycheck Protection Program (“PPP”), which is designed to provide relief to small businesses during the COVID-19 crisis. The businesses and lenders participating in the PPP are likely to receive intense scrutiny not only because of the large sums of money that were distributed in such a short time frame (the initial program exhausted $349 billion in just 13 days, and Congress recently added another $310 billion), but also because of widespread media reports that the government-backed loans are not going to the small businesses for which the money was intended. In fact, Representative Clyburn recently announced that the new investigative committee will prioritize looking into how PPP funds went to publicly-traded companies. Representative Nydia Velazquez (D-NY), Chairwoman of the House Small Business Committee, has also publically said big firms that took funds from the PPP should pay them back. Other committees with jurisdiction could include the Senate Small Business Committee, the Senate Banking Committee, and the House Financial Services Committee.
Moreover, numerous lawmakers—including both Democrats and Republicans, each of whom have a political interest in seeing Main Street loans fulfilled—have expressed the need for more oversight in letters to the SBA and the Treasury Department and their Inspectors General, as well as to certain lending institutions, voicing concerns about where the money has gone and seeking explanations for how the Trump Administration will combat potential fraud. There can be no doubt that at least some of the concerns expressed below will translate into congressional inquiries and hearings. This recent flurry of letters regarding investigations includes:
- Senator Elizabeth Warren (D-MA) and Representative Velazquez sent a letter to the SBA and Treasury Department Inspectors General asking those offices to open an investigation into whether (i) the PPP favored larger, wealthier, or existing customers; (ii) the SBA and Treasury Department rulemaking and guidance processes were effective in protecting against fraud, waste, and abuse; (iii) businesses that received loans were in need of those funds due to the COVID-19 pandemic; and (iv) companies with close ties to the Trump Administration or those with other political connections were able to receive PPP funds.
- Senate Majority Leader Chuck Schumer (D-NY) and Senators Sherrod Brown (D-OH) and Benjamin Cardin (D-MD) sent a letter to the SBA Inspector General requesting that the IG investigate reports that certain lenders prioritized applications of their larger, wealthier clients to the detriment of smaller businesses, including “concierge-type services,” such as personalized assistance filling out paperwork and other administrative requirements.
- Senator Marco Rubio (R-FL), Chairman of the Senate Committee on Small Business and Entrepreneurship, sent a letter to a number of large banking institutions requesting information on their application process amid concerns that certain lenders prioritized borrower applications, which Rubio said in a press release was a violation of congressional intent of the program. Senator Rubio has announced he will use the Committee’s subpoena powers to conduct aggressive oversight of the PPP.
- Senators Diane Feinstein (D-CA) and Kamala Harris (D-CA) sent a letter to the Treasury Department calling for an investigation into why there were substantial funding disparities among states receiving PPP funds. Representative Jackie Speier (D-CA) wrote a similar letter to the Treasury Department and the SBA, requesting additional information on dispersal of PPP funds, including asking how SBA prioritizes lenders’ requests for funding.
- Representatives Judy Chu (D-CA), Chairwoman of the House Small Business Subcommittee on Investigations, Oversight, and Regulations, and Representative Velazquez wrote a letter to the SBA and the Treasury Department urging new rules for PPP to ensure lenders do not set unreasonable, exclusionary, or inequitable conditions on applicants, citing concerns that lenders were only accepting applications from customers with a pre-existing business lending relationship or business checking account.
- Representative Ron Kind (D-WI) sent a letter to the Treasury Department requesting more oversight over the second round of PPP funds to ensure the loans are going to small businesses who would not have otherwise been able to stay afloat during the COVID-19 crisis, and not to large or publicly traded businesses.
Members of Congress will also be receiving information about the loans from a group of inspectors general. The CARES Act created the Pandemic Response Accountability Committee (“PRAC”), where inspectors general from a variety of federal agencies—including SBA, FDIC, DOJ, DOD, and the Board of Governors of the Federal Reserve, among others—will have broad oversight authority. The PRAC is required to make regular reports to Congress (and the President), which will most certainly generate additional interest and likely lead to congressional investigations.
One thing these letters from Congress reveal: with such a tremendous amount of funding made available, and the pressure to pass the legislation and distribute the funds in an expeditious manner, Congress will closely scrutinize all parties to the programs. This includes the Executive agencies, the lenders, and especially the borrowers, already targets of Congress and the media.
Notably, the CARES Act provided substantial funding for oversight, and in several cases funded oversight arms into 2025. With an election cycle looming, this combination of factors—and the substantial noise out of Washington—suggests there will be years to come of political investigations.
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