Lawsuit alleges bank is prioritizing lending clients for access to the PPP

Federal Issues Courts SBA CARES Act Covid-19

On April 4, a group of plaintiffs filed an action against a national bank, alleging that prioritizing existing lending clients and limiting access to the Paycheck Protection Program (PPP) to depository clients and other small firms violates the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Small Business Administration’s (SBA) 7(a) loan program.  As previously covered by Buckley Special Alerts (see here and here), the PPP expands 7(a) eligibility for SBA-guaranteed loans that will provide loan forgiveness of up to eight weeks of payroll (based on employee retention and salary levels), as well as additional relief for eligible borrowers. (See Buckley’s dedicated SBA page for additional information.) The plaintiffs contend that the bank declined initially to accept PPP loan applications for small businesses that were not lending clients of the bank. According to the amended complaint, the bank updated its policy on April 4 to allow customers with depository relationships only to apply for PPP loans, provided they do not have a credit card or loan with another financial institution. The plaintiffs argue that the bank has “no legal authority under the CARES Act to deny access, restrict or otherwise impede” small business access, notwithstanding that there is no such prohibition in the CARES Act.