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May a bank decide to offer Paycheck Protection Program (PPP) loans only to its existing customers? In the alternative, may a bank decide to give priority to applications from its existing customers?

Generally, Regulation B does not expressly prohibit a bank from limiting PPP loans to existing customers, or prioritizing applications from existing customers. Regulation B prohibits a bank from discriminating against an applicant, or discouraging a person from applying, on a prohibited basis, e.g., race, sex, national origin, etc. The banking agencies also interpret Regulation B to prohibit discrimination based on a proxy for a prohibited basis. Being an existing customer of the bank is not a prohibited basis under Regulation B, and it does not appear to be a proxy for a prohibited basis.

However, a bank that wants to limit PPP loans to existing customers, or to prioritize applications from those customers, should first discuss such policies with its compliance and legal team. As with all bank policies, consistent application is important. If exceptions to policy are permitted, they should be documented based on objective business reasons. Exceptions should be monitored to help ensure that the bank does not inadvertently disfavor applicants on a prohibited basis.

Finally, regulators routinely examine banks for fair lending, and a fair lending exam may include a review for disparate impact. Disparate impact occurs when a bank uses a neutral policy that disproportionately affects one or more protected classes, and the policy is not necessary to achieve a business objective or the business objective could be achieved through a less discriminatory alternative. A bank that limits PPP loans to its existing customers should discuss any potential for disparate impact with its compliance and legal team and document its business reasons for the policy. (April 2020)

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