A North Carolina CPA firm claims in a proposed class action that a group of major lenders has failed to pay those who assisted small businesses with filing for Paycheck Protection Program (PPP) loans amid the COVID-19 crisis.
According to the lawsuit, the PPP was implemented as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a means to provide $349 billion in forgivable loans to small businesses seeking cash-flow assistance during the pandemic. Another $310 billion was added to the program in April 2020, bringing the total available funds to $659 billion, the case says.
Though the U.S. Treasury and Small Business Administration (SBA) were to administer the loans, they were to be funded by private lenders such as defendants Bank of America, Fifth Third Bank, First Citizens Bank, Truist Financial Corp., Wells Fargo Bank, and Community First Bank, according to the complaint.
Unlike the SBA’s existing 7(a) loan program, the PPP and its corresponding regulations “expressly contemplate and encourage” applicants to engage agents to assist them with preparing and filing for a loan through the program, the lawsuit says. Per the SBA’s regulations, a PPP “agent” can be:
An employee of the applicant who helps prepare an application;
Someone who assists a lender with “originating, disbursing, servicing, liquidating, or litigating SBA loans”;
A loan broker; or
Any other individual who represents an applicant in its business with the SBA.
The lawsuit adds that while lenders received no payment from the SBA before the passage of the CARES Act for originating SBA 7(a) loans, the PPP allowed for financial institutions to be “generously compensated” for processing PPP loans. Likewise, agents who assisted borrowers with preparing and filing their PPP applications were to be paid, per SBA regulations, “by the lender out of the fees the lender receives from SBA,” the suit says. While lender fees ranged from one to five percent of the loan amount depending on the size of the loan, agent fees “may not exceed” 0.25 to one percent of the loan amount, the case explains.
The lawsuit stresses that the new regulations whereby both lenders and agents were to receive fees from the federal government differed from the previous process under the SBA’s 7(a) loan program.
“In other words, when implementing the CARES Act, the Treasury determined that the best and quickest way to get the PPP loans to the small businesses was to establish new regulations where Lenders and PPP Agents work together to quickly and efficiently process Applications,” the complaint states, adding that the fees were intended to incentivize both lenders and agents.
The case goes on to argue that PPP agents “play a critical role” in fulfilling the CARES Act’s goals, noting that nowhere in the Act itself or corresponding SBA regulations does the government “state, or even suggest” that a lender’s approval is required in order for an applicant to engage the help of an agent.
The plaintiff, who assisted various clients in applying for PPP loans from the defendants, says it has not been paid the required agent fees by the lenders and “has no other means of obtaining payment.”
“Instead, Defendants have illegally retained the Agent Fee portion of the Lender Fees,” the complaint scathes.
The plaintiff looks to represent all agents who assisted a business in preparing an application for a PPP loan under the CARES Act, or alternatively, all agents who did so in North Carolina.
ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.