A federal judge on Monday, April 13, 2020, defended a Bank of America program that had generated class action complaints relating to eligibility qualifications for the loan program. According to the plaintiffs in the suit, the Bank of America program allegedly restricted the pool of small businesses that could seek Paycheck Protection Program (“PPP”) loans. Given the concerns of other financial institutions relating to the roll-out of their own PPP loan programs, the judge’s action may provide additional legal assurance to the institutions as they field hundreds of thousands of applications.
In the case, Profiles, Inc. v. Bank of America Corp., No. 1:20-CV-00894 (D. Md. 2020), District Court Judge Stephanie Gallagher denied a motion for a temporary restraining order by a group of businesses seeking to force Bank of America to loosen its limitations on the PPP loans, which Congress is ultimately backing with $350 billion in funding to help avert mass layoffs during the COVID-19 pandemic. The government-backed loans have a forgiveness feature for businesses using the funds to cover eligible expenses.
As more fully explained in the court’s order, Bank of America began accepting online applications for PPP loans on April 3, 2020. At that time, the bank only permitted applications from customers with a preexisting borrowing relationship with the bank. On April 4, 2020, the bank revised its policy to allow depository-only clients to apply for PPP loans as well. However, under the new policy, businesses maintaining only a depository relationship with the bank could apply for a PPP loan only if they did not have a credit or borrowing relationship with another bank. A group of businesses then sued the bank and argued that nothing in the law allowed it to pick and choose who would have access to the program when such limits were not present in the CARES Act — the legislation creating the program.
In her opinion siding with Bank of America, Gallagher said she did not believe that Congress intended to establish a private right of action for borrowers to challenge loan decisions in court. Even if Congress had created that right, Bank of America's conduct did not run afoul of the law, she added. Ultimately, it was determined that “even if the Court were to infer a private right of action in the CARES Act, Plaintiffs have not demonstrated that BofA’s eligibility criteria are inconsistent with the plain language of the statute.” The court went on to conclude that “[g]iven the plain statutory language, the Court is not at liberty to impose further limitations on lenders.”
In a statement provided to Reuters, Alan Rifkin, counsel for the plaintiffs stated that the plaintiffs in the case, including a Connecticut company that sells roof racks for cars and a Maryland business that provides private security services to bars, will appeal Judge Gallagher’s decision. Rifkin went on to note certain language from the court’s order, namely that the class action allegations “demonstrate a significant flaw...in the implementation of the massive and complex PPP program.” Rifkin also noted the order included the statement that “BofA’s rigid eligibility criteria have undoubtedly made it materially harder for some small businesses to access the PPP.” Rifkin also called upon lenders “to do what is right and open the PPP process to any small business that otherwise qualifies.”
Financial institutions across the nation continue their implementation of the PPP. New FAQs are being issued periodically by the Small Business Administration, however, there has been no clarification yet regarding the criteria lenders may use in determining eligibility to apply for their programs.
Many small businesses continue to complain about their ability to access PPP funds. A number of lenders are expected to launch “new customer” programs in the coming days that may help to alleviate this backlog.
