PNC Bank Pay 7.1 Million to Resolve Claims Its Underwriting Practices Were Deficient
Section: US News
PNC Bank, a Pittsburgh-based Bank, to Pay U.S. for Failing to Engage in Prudent Underwriting Practices on Small Business Administration Loan Guarantees
PNC Bank N.A. has agreed to pay the United States $7.1 million to settle claims under the False Claims Act that it failed to engage in prudent underwriting practices in connection with the issuance of loans guaranteed by the Small Business Administration (SBA), the Justice Department announced. PNC has also agreed to take corrective action to prevent similar occurrences in the future. PNC is a national banking association located in Pittsburgh.
The SBA Act allows banks to partner with the SBA to make loans to qualified small businesses. Participants in the SBA’s Preferred Lenders Program, like PNC, have authority to make and close these loans without obtaining the prior approval of the SBA. SBA guaranteed 75 percent of the balance of the loans in question. Banks are required to exercise prudent lending standards when making loans under the Preferred Lenders Program.
In 2005, under the Preferred Lender Program, PNC issued 64 SBA-guaranteed loans for the purchase of 98 Uni-Marts stores located primarily in the mid-Atlantic region. The United States alleges that in connection with these loans, PNC relied upon unaudited financial statements without further verifying whether the information contained in the financial statements was accurate. Of the 64 SBA-guaranteed loans issued by PNC, 36 have defaulted, triggering SBA’s obligations to pay PNC 75 percent of the balance of the defaulted loans. In May 2008, Uni-Marts filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.
“Banks that are SBA preferred lenders have a duty to prudently guard the public funds they commit to borrowers,”
said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division of the Department of Justice.
“The government will pursue vigorously lenders that fail to adequately safeguard public funds due to deficient lending standards.”
The Dodd Frank financial reform bill makes it more difficult for banks to engage in such practices in the future.
The government has initiated new programs to help develop businesses that venture capitalists would not find attractive because the area of business doesn’t grow as rapidly as other areas (e.g., high tech) and the SBA will be making many new investments in areas where Sandy caused damages to businesses.
by Todd Miller
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