Bank of America Misrepresented Paycheck Protection Program Loan Forgiveness, Lawsuit Alleges

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A proposed class action alleges Bank of America has misled small businesses who applied for Paycheck Protection Program (PPP) loans by falsely representing that payments to independent contractors were eligible for loan forgiveness.

The 47-page lawsuit claims that Bank of America, in an effort to secure “massive commissions” on forgivable loans through the pandemic-era Paycheck Protection Program, courted small businesses and then secured for those businesses loans “significantly larger” than those they qualified for under the program. According to the suit, many businesses who received PPP loans through Bank of America to help with expenses amid the pandemic found out upon applying for forgiveness that only a fraction of those loans were actually forgivable. 

The case explains that although the PPP program, a $669-billion loan program implemented in early 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, allowed small businesses to apply for 100-percent forgivable loans to cover certain expenses, including employees’ wages, payroll expenses associated with 1099-MISC workers, i.e., independent contractors, were not eligible under the program, and could not be used to calculate a business’ loan eligibility. Moreover, any loan proceeds used to pay 1099 workers were not forgivable under the program, the suit adds.

Bank of America nevertheless instructed small businesses to include expenses for 1099 workers in their loan applications and subsequently secured loans for much higher amounts than its clients were qualified for, the lawsuit alleges.

“At no time did Bank of America inform or clarify to these businesses that 1099 Worker expenses could not be used to calculate their Loan eligibility, nor did Bank of America disclose that Loans used to pay 1099 Workers were not forgivable,” the complaint relays. “As a result, many businesses, including Plaintiffs and the members of the Class, relied on Bank of America’s actions and statements to apply for Loans through Bank of America and in using such funds to retain and pay their 1099 Workers as Bank of America instructed was permissible.”

According to the case, Bank of America directed small businesses, upon their application for a PPP loan, to submit certain information about their expenses, including “independent contractor costs for 2019.” The suit says that because private lenders such as Bank of America were required to underwrite PPP loans, they were responsible for verifying documentation submitted by borrowers and confirming the amount of monthly payroll costs.

The lawsuit argues that although Bank of America knew that expenses associated with 1099 workers were not eligible under the PPP program, the lender nevertheless included these expenses as part of borrowers’ monthly payroll costs and secured loans for them that it knew were not fully forgivable. 

“In so doing,” the case says, “Bank of America knew or should have known that it provided false and misleading information to Plaintiffs and Class members, and to the Small Business Administration, in its efforts to increase its commissions.”

Though many businesses found out upon applying for PPP loan forgiveness that they were “on the hook for tens of thousands of dollars, or more,” that Bank of America had represented was forgivable, the bank, on the other hand, scored millions of dollars in commissions from the SBA for facilitating the loans, the lawsuit says.

The plaintiffs are a Maryland home remodeling business and a Washington home renovation business who received PPP loans through Bank of America and were told to submit, among other required documents, Form 1099-MISC information. 

According to the case, the Maryland business was approved for a loan in the amount of $37,500 in April 2020 but was told by Bank of America in June 2021 that only $179 of the loan was forgivable. 

The Washington business, the suit says, received a $32,927 loan in May 2020 and was informed in January 2022 that Bank of America had determined that only $1,216.67 of its loan could be forgiven.

The plaintiffs claim that had they known payments for 1099 workers did not qualify for PPP loans and loan forgiveness, they would not have applied for the loans, would have reduced the amount they applied for, or would have spent their loan funds differently.

The lawsuit looks to represent all borrowers in the U.S. who received a loan from Bank of America under the Paycheck Protection Program and were denied loan forgiveness in any part because they included payments to 1099 workers in the calculation of qualified payroll costs as part of their loan applications, or they made payments to 1099 workers with loan proceeds.

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