March 27 marked one year since the passage of the CARES Act, the first coronavirus stimulus bill, which appropriated more than $2 trillion toward pandemic relief aid. Recent reports released by the nonprofit Public Citizen have shed light on the Federal Reserve’s Main Street Lending Program (MSLP), a CARES Act facility that was created to support small and medium-sized businesses. The reports suggest that the MSLP didn’t prioritize companies facing the greatest financial need during the pandemic and was unable to benefit workers to the fullest extent possible.
The MSLP was terminated on Jan. 8, 2021 — a decision that was not without controversy. The program faced criticism for being underused; according to Public Citizen, the Fed ultimately used only 3 percent of the $600 billion that Congress had appropriated.
In one report, Public Citizen found that the MSLP failed to fully meet two of its primary goals: first, to support businesses that most needed loans during the pandemic; and second, to send funds to businesses that would use them to retain or rehire employees. The report found that these failures were due in part to rule changes implemented after fossil fuel industry lobbying, such as weakened language on employee retention and loosened requirements regarding the financial need of the businesses applying for loans.
The MSLP was intended to support businesses that were too large to qualify for Paycheck Protection Program loans, another CARES Act facility run by the Small Business Administration to provide low-interest loans to small businesses during the pandemic. More than 20 percent of the companies that received MSLP loans had been approved for $1 million or more in PPP funds.
Public Citizen also found that more than $1.8 billion in loans went to companies that laid off workers during the spring and summer of 2020. Although the CARES Act had specified that companies applying for the MSLP should be required to make “good faith certifications” that they would use the funds to retain or hire back their workforce, the Fed didn’t implement any binding requirements that would ensure MSLP recipients prioritized workforce retention.
Another Public Citizen report found that two lending companies — Meadowwood Financial Services and Wellshire Financial Services — received $35 million in MSLP loans while potentially violating the program’s rules. The MSLP limited the amount of money that affiliated businesses could receive by requiring them to apply for loans through the same MSLP facility; Public Citizen’s analysis suggests the two businesses are affiliated entities and thus should have applied for their loans within the same facility. The companies did not disclose their affiliation, thus dodging MSLP restrictions.
For more on public reports and government oversight of pandemic relief funding, visit our summary of findings from CARES Act investigations.
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