Bank of America Can Favor Its Own Customers in Rescue Loan Program
(Bloomberg) -- Bank of America Corp. can favor its own customers in making emergency loans for now, a federal judge ruled as small businesses start to compete for a piece of the $349 billion Paycheck Protection Program.
U.S. District Judge Stephanie Gallagher in Baltimore rejected a request to temporarily bar the bank from giving preferential treatment to existing small-business loan customers as millions scramble to borrow money amid the economic catastrophe caused by the coronavirus.
The federal program aims to help small businesses keep paying workers through forgivable loans as big as $10 million to cover payrolls, rent and utility payments. Requests for unemployment benefits have surged to nearly 17 million as workers stay home to limit the spread of the highly contagious pathogen.
The rollout of the Paycheck Protection Program has been plagued by uncertainty tied to its size and to delays in getting cash to businesses to avoid permanent shutdowns and a wave of bankruptcy filings.
In one of the first suits to go after a lender based on the program, half a dozen businesses selling products in the state sued Bank of America, arguing their applications had been rejected because they didn’t already have small-business loans from the bank. They include a security company, an automotive parts seller and a hair salon.
Gallagher on Monday denied their request for a temporary restraining order against the bank, though she allowed the lawsuit to move forward. She found that the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act didn’t impose “prohibitions on what lenders may do in their processes for accepting or processing” loan applications. In her 23-page ruling, the judge also found that Congress didn’t specifically provide the right for loan applicants to “bring civil suits against PPP lenders” over processing procedures.
The plaintiffs will appeal the ruling and press ahead with the suit, aimed at enforcing “their rights to seek these critical funds,” said attorney Alan Rifkin.
The bank will “remain focused on processing the more than 300,000 applications we’ve received so far, seeking more than $45 billion in loans,” spokesman William Halldin said.
The judge acknowledged that “BofA’s rigid eligibility criteria have undoubtedly made it materially harder for some small businesses to access” the loan program. But she concluded that the duty to fix any flaws in the law falls on Congress, which 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 case is Profiles Inc. v. Bank of America Corp., 20-cv-894, U.S. District Court. District of Maryland (Baltimore).
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