District court says CARES Act does not provide a private right of action under PPP loan provisions

Courts Federal Issues SBA CARES Act Small Business Lending Covid-19

On April 13, the U.S. District Court for the District of Maryland denied plaintiffs’ request for a temporary restraining order and preliminary injunction against a national bank, ruling that “the CARES Act does not expressly provide a private right of action” and that the bank’s Paycheck Protection Program (PPP) eligibility restrictions do not violate the Act. As previously covered by InfoBytes, the plaintiffs alleged that the bank prioritized existing lending clients in the PPP and limited access to depository-only customers that did not have a credit card or loan with another financial institution. The plaintiffs argued that the bank had no legal authority under the Act to deny, restrict, or impede access, even though there is no such prohibition in the Act.

The court first determined that the Act contains neither an express nor implied private right of action. Moreover, even if Congress did intend to provide a private right of action, the bank’s alleged conduct “does not run afoul” of the law. While the Act outlines requirements that banks must consider when offering loans to small businesses, it “does not constrain banks such that they are prohibited from considering other information when deciding from whom to accept applications, or in what order to process applications it accepts.” The court also rejected the plaintiffs’ argument that Congress waived the “credit elsewhere” requirement with respect to PPP loans. According to the court, “[t]ypically, when an entity applies for an SBA loan, it has to certify that it could not obtain a loan from a different source. . . . In this case, [the bank] has imposed no such requirement on businesses’ eligibility for the PPP.” The court also concluded that the plaintiffs failed to demonstrate irreparable harm, and that imposing a temporarily restraining order could disincentivize lenders from participating in the program and reduce small businesses’ access to PPP loans. “[G]iven the competing policy interests, the need to balance the desire to assist the widest swath of small businesses with the need to incentivize lender participation, and the overall fluidity of this epidemic, Congress is better positioned to remedy any defects in the CARES Act, and to pass the supplemental legislation it believes best aimed at ameliorating the effects of the COVID-19 crisis,” the court wrote.

On April 14, the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Fourth Circuit.