Recently, federal district courts have agreed to accept agent-fee claims against PPP lenders. While the issue of agent-fee claims may be a complex one, this article provides a brief overview of the relevant law, including the CARES Act, Interim final rule, and Court ruling. In addition, we discuss the limits on agents’ fees in PPP transactions. In addition, we will discuss the implications of the rulings.
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CARES Act
There is a growing legal challenge in the U.S. against the practice of paying agents’ fees for PPP loans. Borrower agents, usually small accounting firms, have filed over 60 lawsuits against major banks. These plaintiffs include JPMorgan Chase, Citigroup, and Trust Financial. Despite the repeated rulings in favor of these plaintiffs, litigation against these firms continues. In this article, we will examine some of the key issues involved.
The CARES Act created a new program called the PPP Loan to help small businesses amid the COVID-19 pandemic. However, some lenders who provide these loans have become targets of class action lawsuits, claiming that the lenders improperly prioritized their clients and overcharged the agents for their services. In addition, some agents have claimed that banks violated various consumer protection laws and were engaging in unfair practices. However, so far, these lawsuits have had limited success in U.S. courts.
Interim final rule
The Small Business Administration (SBA) announced that its rules on agent fees would be modified on April 15. This new regulation may have a similar effect. The interim final rule is aimed at clarifying who pays agent fees and may conflict with the existing Form 159. But it still does not mandate payments to agents. It will still allow for state-law claims to be filed. The proposed change may not be final.
The SBA’s first interim final rule on PPP agent fee lawsuits has been challenged in federal court. However, this does not mean that the rule is binding. The SBA has guidance and regulations that provide an appropriate defense in PPP agent fee lawsuits. CARES Act compliance does not prevent agents from charging fees. But the SBA’s guidance on agent fees may not be helpful in the meantime.
Court ruling
In a recent case, the United States District Court for the Southern District of New York ruled in favor of the lenders in a class-action lawsuit involving agent fee claims against the PPP leaders. This case provides a valuable insight into how PPP lenders are interpreted. The ruling was significant for plaintiffs in the case, as it provides a precedent for similar cases. Currently, the plaintiffs have the burden of proving that they were owed the fees for the services they rendered.
In the case at hand, the plaintiff, Bookkeeper Francis Lopez, brought a PPP lawsuit against BANA and other large banks. She alleged that the banks owed her an agent fee for assisting her clients in applying for Paycheck Protection Program loans. The defendant, Bank of America, N.A. (BANA), moved to dismiss the complaint, and the Court granted BANA’s motion to dismiss the case.
Limitations on agent fees
In deciding whether to void a contract with a lender based on the terms of the compensation agreement, the court ruled that the CARES Act does not require lenders to pay PPP agents’ fees. Further, the SBA requires borrowers to execute an agent compensation agreement on SBA Form 159) that specifies the portion of the fee to be paid by the lender and the borrower. In addition, the SBA Form 7(a) forbids lenders from making payments contingent upon loan approval.
In addition to state regulations, federal guidance on PPP agents has indicated that compensation for PPP agents must come from the lender’s fees. This language makes clear that Congress intends to compensate PPP agents with compensation paid out of the proceeds of the PPP. In many states, however, PPP agents have been able to receive their compensation even without federal guidance. As such, these fees are often paid by lenders with whom they have a preexisting relationship.
Class actions
While it may be difficult to find evidence of a private right of action for agent fees under the CARES Act, agents can still file a lawsuit. Before filing suit, the agent should document a written request for an agent fee. The first step in pursuing a lawsuit is to communicate with the lender of the PPP loan. In the unlikely event that the lender does not pay the requested fee, the agent should seek counsel.
The lawsuit alleges that banks knew their customers were using agents to prepare PPP applications. Several banks refused to process loan applications if the applicant did not use an agent, and others simply referred them to a bank’s online application portal to avoid having an agent prepare their loan application. Several of these banks now have class action settlements pending in these cases. But before that, the lawsuits are still relatively new.
