WASHINGTON (dpa-AFX) - 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 or SBA, the U.S. Justice Department announced Friday.
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 alleged 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.
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