LOS ANGELES (CNS) — Separate class-action lawsuits have been filed in Los Angeles against four banks connected with the Paycheck Protection Program, alleging that small business owners were passed over for emergency loans because of a “rigged” process.
In response to the COVID-19 pandemic, Congress passed the CARES Act, which allocated $349 billion emergency funds for the small business loan program. The PPP program which launched on April 3 was intended to provide loans up to two and a half times the total of a business owner’s monthly payroll but ran out of funds Thursday, leaving most of the small business applicants empty-handed, according to the plaintiffs.
The White House and Congress are trying to fashion another bailout package aimed at helping to mitigate the pandemic’s economic and health consequences. The new package would amount to roughly $470 billion in new spending, including $370 billion directed to small businesses. President Donald Trump said he hoped for a Senate vote this week.
The lawsuits filed in Los Angeles federal court on April 19 allege 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 businesses owners who applied for loans out of luck once the funds were depleted. An origination fee is the compensation the lender receives for processing a new application.
A JPMorgan spokesman declined comment, but provided informational material stating that nearly 70% of the applications approved and funded by the bank were from smaller business clients with roughly $20 million in revenue or less, while 80% of the bank’s paycheck protection loans have been for businesses with less than $5 million in revenue.
“We have more than 40,000 applications that are now fully processed, complete, and ready to submit to the (Small Business Administration). We are fully prepared to help our customers when the next round of funding is approved,” according to JPMorgan’s statement.
A Bank of America representative said only that the institution denies the allegations.
A Wells Fargo spokeswoman also declined to comment on the lawsuit, but provided a statement saying the bank is “working as quickly as possible to assist small business customers with the Paycheck Protection Program in compliance with the regulations and guidance provided by US Treasury and the SBA.”
“We have mobilized thousands of employees and launched new technology to better assist customers seeking assistance via the Paycheck Protection Program,” according to Wells Fargo’s statement.
US Bank issued a statement saying it plans to “vigorously” defend itself because the lawsuit is “without merit” and the “cumulative industry data provided by the SBA is not reflective of US Bank’s practices or results. We continue to serve our small business customers and are prepared to process loans as quickly as possible should additional funds become available.”
The SBA officially ran out of money for the PPP last week.
Negotiations have been ongoing since then to inject more money into the program.