COVID-19 Lawsuits: PPP Loan Denials, Delays

If you had trouble getting your application for the paycheck protection program (PPP) approved, attorneys working with ClassAction.org want to hear from you.

Several banks have been sued for prioritizing applications that would benefit them the most, rather than following the first-come, first-served rule. As a result, hundreds of thousands of small business owners have lost out on the money they desperately needed during the coronavirus outbreak, as well as the opportunity to apply with different, more honest lenders.   

Business owners who had their PPP applications delayed or denied may be able to take legal action against the bank they applied to. 

Which Banks Have Been Sued – And Why?

Wells Fargo, JPMorgan Chase and PNC Bank are among the bigger-name financial institutions that have been hit with proposed class action lawsuits alleging they reshuffled their PPP loan applications so that the ones that would garner the banks the biggest fees were moved to top.

Reordering applications is in direct contradiction to the U.S. Small Business Administration’s (SBA) requirement that these loans be administered on a first-come first-served basis and could be considered an unfair – and unlawful – business practice.

Some banks have also been accused of false advertising and misrepresentation by stating that they would be processing PPP applications in the same order they were received. In the case of Wells Fargo, the bank has been accused not only of pushing larger clients to the top of the pile, but also failing to inform small business owners that it had received more applications than it could ever process.

It has been suggested that borrowers who applied to more than one bank would cause a “fraud alert” to be triggered. As a result, many PPP borrowers decided to pick a single institution to apply to – only to likely be put in a never-ending queue with no hope of ever having their applications processed. If banks had been honest about the way they were processing applications and how many they could handle, businesses could have applied elsewhere and had other opportunities to get the money they needed.

How Are Banks Said to Be Reordering PPP Applications?

In general, several banks have been accused of serving their own best interests – and going against the SBA’s orders – by prioritizing PPP applicants based on one or more of the following:

The amount of money being asked for and the size of the company. The bigger the company, the better chance it has of needing a larger loan amount. The greater the loan, the bigger the fee the bank receives. Here’s how it breaks down:

The SBA will pay a bank a 5% commission for loans under $350,000 and 3% for loans ranging between $350,000 and $2,000,000. Therefore, if a bank processes a loan for say $100,000 for a small mom-and-pop shop, it will only receive a $5,000 commission. If the bank puts through an application for a loan just shy of $2 million, it will receive nearly $60,000.  

For example, the suit against Chase alleges that the average approved loan amount for the bank was about $515,000. This means that the companies who received this money during the coronavirus pandemic typically spend nearly $2.5 million in payroll costs each year, well over the needs of the typical small business. The lawsuit claims that the bank has in fact “quickly approved” the applications of larger businesses, such as Shake Shack and Ruth’s Chris Steakhouse who asked for $10 million and $20 million, respectively.  

Whether the applicant is already a customer of the bank. Some banks may also be favoring their own customers over those who choose to bank with different establishments. It has been alleged that moving applications for existing clients – especially ones who already have outstanding lines of credit or other capital commitments with the bank – to the front of the line allows the bank to lower its own default risk. Further, if a customer of say, PNC Bank, gets a large loan and puts it into its PNC bank account, the bank’s liquidity improves.

How a Lawsuit Could Help Businesses

A class action lawsuit could help PPP applicants who had their claims denied or put on hold collect money for the damage it caused to their business during the COVID-19 outbreak. 

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