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Print articleFederal Court PPP Loan Applicants Can't Sue the Bank over PPP Rules
April, 2020 - Brian Malcom
With the promise of low-interest or no-interest loans, and even the possibility of loan forgiveness, small businesses rocked by COVID-19 have recently turned to banks to apply for federally guaranteed funds. These funds are vital to many small businesses in order to help them stabilize their financial health during the widespread economic fallout from the pandemic. They are seeking these funds under the recently enacted CARES Act.
On March 27, the President signed into law the CARES Act, H.R. 748, P.L. 116-136, “to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic.” The purpose of the CARES Act is to provide “immediate assistance to individuals, families, and businesses affected by the COVID-19 emergency.”
Section 1102 of the CARES Act, entitled “Paycheck Protection Program,” also known as the PPP, authorizes participating lenders to make general business loans available to eligible recipients in order to cover payroll and other expenses. CARES Act § 1102(a)(2), (b)(1). The PPP loans are federally guaranteed up to a maximum amount of $10 million and might be forgiven if the businesses meet certain conditions centered around encouraging businesses to maintain jobs and salaries for employees.
Congress allocated $349 billion for the PPP, but businesses quickly exhausted this pot of money. The small business PPP loan applicants that did not receive PPP funds were left frustrated and looking for someone to blame. If lawsuits are any indication, some businesses are blaming their bank.
One federal court recently considered an issue that will likely impact many lawsuits in the near future: whether Congress intended to provide a private right of action to allow for businesses to sue lenders under the CARES Act.Profiles, Inc. v. Bank of Am. Corp., No. CV SAG-20-0894, 2020 WL 1849710, at **4-7 (D. Md. Apr. 13, 2020).
Profiles, Inc. filed a putative class action complaint against Bank of America Corp. alleging that BofA wrongfully imposed additional restrictions on borrowing under the PPP beyond those restrictions expressly mentioned in the CARES Act . The federal district judge denied the plaintiff-applicant’s motion for a TRO and held that “the CARES Act does not expressly provide a private right of action.”
The court also considered whether Congress intended for the statute to have animpliedprivate right of action. In doing so, the court examined whether Congress intended to create both a private right for an applicant and a private remedy. The plaintiffs failed to convince the federal court that Congress intended to create a private right of action for applicants under the CARES Act.
