PPP Loans: No good deed goes unpunished
Posted On June 18, 2020
In the past weeks, a number of class action lawsuits have been filed against financial institutions by alleged agents of PPP borrowers seeking payment of a portion of the PPP processing fees. It appears this is part of a national trend led by a group of national law firms whose pleadings have been provided to local lawyers. We have become aware of a number of putative class actions filed in federal court pursuant to the Class Action Fairness Act (CAFA). We also have learned of at least one case filed in South Carolina state court seeking certification of a class action against two financial institutions that participated in the PPP lending program.
In general the Plaintiffs allege that PPP lenders have wrongfully withheld the processing fees paid by the SBA and that the lender violated the Interim Rule of the CARES Act that makes lenders responsible for paying fees to agents of the PPP borrowers who assist applicants who obtained a PPP loan. Typically, the plaintiff asserts that the financial institution violated the portion of the Interim Rule that reads: “agent fees will be paid by the lender out of the fees the lender receives from the SBA.”
Many of the class action complaints allege gamesmanship by the financial institutions including allegations that the financial institutions initially engaged with borrowers’ agents – accountants and attorneys – but that they soon ceased communicating with the agents and opened web portals for borrowers to submit loan applications directly. The plaintiffs allege that the online application had no place for the borrower to disclose its agents and that the omission of a place to disclose agent information was an intentional effort by the financial institutions to avoid paying fees to the borrower’s accountants and attorneys.
The model complaint requests for a court declaration that: (1) the plaintiff was an authorized applicant agent entitled to compensation by the PPP lender; (2) that the lender is required under the CARES Act to compensate applicant agents; (3) that state banking laws mandate that the lender comply with the PPP loan program’s terms and conditions; and (4) that a portion of the SBA fees paid to the lender must be placed in trust for the borrower agents. The lawsuits usually contain allegations of Breach of Fiduciary Duty; Unjust Enrichment / Disgorgement; and the tort of Wrongful Conversion. Often the complaints contain allegations of negligence per se based upon some statutory violation. The plaintiffs also typically allege that the financial institution failed to adopt proper procedures to ensure compliance with the CARES Act; that the institution failed to provide appropriate training to its employees; that the institution failed to supervise its employees; and, that the institution created systemic policies that precluded the identification of applicant agents. The complaint may also contain a demand for a temporary restraining order or preliminary injunction
Turner Padget’s Banking and Financial Institutions practitioners and its experienced class actions litigators stand ready to assist in the event this national trend impacts your financial institution. Please feel free to contact Ian McVey at (803) 227-4267 firstname.lastname@example.org
, Kristen Nichols at (843) 576-2836 email@example.com
, Pierce Campbell at (843) 656-4429 firstname.lastname@example.org
, Jeff Payne at (843) 656-4432 email@example.com
, or Rich Dukes at (843) 576-2810, firstname.lastname@example.org
, if you would like additional information.