Consumer attorneys with Stalwart Law Group have filed four class-action lawsuits in California federal court on behalf of small business owners after four major banks rejected their Paycheck Protection Program (PPP) loan applications.
In response to the COVID-19 pandemic, Congress passed the CARES Act, which allocated $349 billion in emergency funds for the small business loan program known as the Paycheck Protection Program.
The program, which launched on April 3, was intended to provide loans of up to two-and-a-half times a business owner’s monthly payroll. The loan program officially ran out of funds on April 16, leaving most of the small business applicants empty-handed.
PPP Process Was Allegedly Rigged
The lawsuits claim the nation’s four largest lenders involved in the paycheck protection program, JPMorgan, Bank of America, Wells Fargo and US Bank, rigged the loan process to benefit their bottom line.
According to the complaints, instead of a “first-come, first-served basis,” the banks processed the biggest loan amounts first, because it increased the banks’ origination fees while leaving more than 90% of the small business owners who applied for loans out of luck once the funds depleted. An origination fee is the compensation a lender receives for processing a new application.
To make matters worse, the banks concealed from the public that they were reshuffling the PPP applications received and prioritizing the applications that would make the banks the most money.
Plans to File Similar Lawsuits in New York
The class actions are being filed on behalf of small business owners in California. Stalwart Law Group says it expects to file similar lawsuits on behalf of small business owners in New York.
“Small businesses are the backbone of the American economy and these businesses and their employees have been hit hard by the COVID-19 pandemic. Once again, we see big banks prioritize corporate greed at the expense of its small business customers.”
Dylan Ruga, lead plaintiff attorney
The lawsuits allege that as a result of their deceptive lending prioritization practices, giving preference to larger “small businesses” over true small businesses, banks received nearly $6 billion in fees while hundreds of thousands of loan applicants got nothing.
“With revelations that major banks allegedly shuffled Paycheck Protection Program applications to prioritize larger loan amounts and bigger businesses, Main Street businesses are furious. This possibility points to a clear design flaw in the program that tried to use the private lending market, already rife with discrimination and putting profits over all, as the mechanism for small business relief. Small businesses are demanding that any new funding must come directly to them via subsidies, not loans, and it must prioritize those who were left out.”
Main Street Alliance Executive Director Amanda Ballantyne
More Paycheck Protection Program Funding Pending
On Tuesday, Senate Minority Leader Chuck Schumer indicated a deal in principle had been reached for another $450 billion in coronavirus (COVID-19) aid.
The Paycheck Protection Program and Health Care Enhancement Act includes additional funding for the Paycheck Protection Program as well as money for hospitals and testing.
If this will actually help more small businesses that have not applied yet will be questionable. Some banks indicated that on the first wave the application volume was so high they may have burned through available funding in minutes.
“We didn’t even get through the first five minutes of applications,” a JPMorgan Chase senior banking executive told NBC news a few days ago.
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