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The Bank of Montreal and TD Bank towers are photographed in Toronto on April 21, 2020.

Fred Lum/the Globe and Mail

Four of Canada’s banks are collecting hundreds of millions of dollars in fees to help dole out the U.S. government’s COVID-19 aid to small businesses, sums that dwarf more modest compensation paid to banks by the Canadian government for a similar pandemic relief program.

Major Canadian banks’ U.S. subsidiaries are among thousands of lenders extending loans through the Paycheck Protection Program (PPP), launched by the U.S. Small Business Administration to funnel as much as US$660-billion to businesses suffering from lost revenue amid a global outbreak of the novel coronavirus. To get credit flowing quickly, the U.S. government offers banks generous processing fees of up to 5 per cent to banks that administer the loans.

U.S. banks have collectively loaned out at least US$520-billion through the PPP so far, and Toronto-Dominion Bank has been the most active Canadian lender among them. Its U.S. arm, TD Bank, has already racked up processing fees that could range from US$238-million to US$398-million this year, according to an analysis of loan data by Stanford Law School’s Colleen Honigsberg and New York University School of Law research fellow Edwin Hu.

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TD has extended PPP loans worth at least US$8.2-billion and as much as US$12.1-billion so far through its extensive retail banking network across the eastern United States, according to the analysis and a company filing. That is the sixth-highest total of any bank, and not far shy of the totals accumulated by U.S. retail banking giant Wells Fargo & Co.

A TD spokesperson declined to comment.

The analysis also shows BMO Harris Bank, a subsidiary of Bank of Montreal, has collected between US$91-million and US$175-million in fees so far. City National Bank, which is wholly owned by Royal Bank of Canada, has earned US$89-million to US$177-million. And CIBC Bank USA, the American arm of Canadian Imperial Bank of Commerce, is due anywhere from US$29-million to US$64-million in fees.

By comparison, the total cost recovery fees earned so far by all Canadian banks and credit unions that have helped distribute 690,000 small business loans worth $27.6-billion through the Canada Emergency Business Account (CEBA) could add up to a maximum of $110-million. The CEBA program allows small businesses borrow up to $40,000 interest-free until the end of 2022, with one quarter of the loan forgivable.

“Delivering the CEBA through financial institutions was key in ensuring that businesses had access to these loans expeditiously,” a spokesperson for the Department of Finance said in an e-mail.

The wide disparity in fees is partly because Canada’s program offers smaller loans. But it is primarily a result of what banks are paid to compensate them for the people and resources they have to devote to administering the loans for two to three years. U.S. banks receive a processing fee when PPP funds are disbursed of 5 per cent for loans under US$350,000, 3 per cent for loans from US$350,000 to US$2-million, and 1 per cent for loans of more than US$2-million, though the fees are paid over a period of time.

In Canada, banks are paid 0.4 per cent of the outstanding balance of each CEBA loan per year, which means the annual fees they receive would decrease as some loans are paid back. The fees cover costs such as setting up IT systems to take applications, work done by call centre staff and continuing reporting.

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Canada’s banks and credit unions “are delivering CEBA at cost and the program is structured so that institutions do not make a profit for providing the critical infrastructure required to put money in the hands of small businesses,” said Canadian Bankers Association spokesperson Mathieu Labrèche, but he declined to comment on the PPP program fees.

The analysis, which was first reported by the Wall Street Journal, calculates the possible ranges for PPP loans and fees because the U.S. government data provide exact amounts for loans of less than $150,000, but loans above that amount are listed only in categories, such as US$1-million to US$2-million.

The size of the fees paid to U.S. banks for PPP, which are between US$14.3-billion and US$24.6-billion so far, have drawn some criticism. The three largest U.S. banks – JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo – have pledged to donate some or all of the fees they make from PPP loans to help small businesses.

Bank of Montreal spokesperson Paul Gammal said the fee income from the programs covers a wide variety of costs “and will also help support our increased charitable giving and ongoing commitment to minority-owned businesses and underserved neighbourhoods.”

Canada’s banks also helped distribute federal relief funds from other programs through direct deposits, including the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy, but do not receive fees for those programs, government spokespeople said.

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