LOS ANGELES - The four banks that were sued by consumer attorneys are denying allegations that they manipulated the COVID-19 Paycheck Protection Program (PPP) loan process to enrich themselves. The Stalwart Law Group filed lawsuits on Sunday April 19, 2020 against JPMorgan, Bank of America, Wells Fargo and US Bank in the U.S. District Court for the Central District of California on behalf of small business owners whose PPP loan applications were rejected.
“These businesses and their employees have been hit hard by the COVID-19 pandemic and once again, we see big banks prioritize corporate greed at the expense of its small business customers,” said Dylan Ruga, plaintiff’s attorney.
The lawsuits allege the banks processed the largest loan amounts first and, in doing so, the origination fees banks pocketed were increased. As a result, some 90% of small businesses were left without resources. The origination fee is a percentage of the amount of loan granted.
“We deny the allegations,” said Bill Halldin, spokesperson for Bank of America.
The lawsuits further allege that as a result of prioritizing the loans of large businesses over the intended small business recipients, the four financial institutions banked nearly $6 billion in fees while hundreds of thousands of small business loan applicants got nothing. At least one big business is returning the loan it received.
Shake Shack, a chain of 189 restaurants nationwide, announced Sunday that it is refunding $10 million to the Small Business Administration (SBA).
“We’ve decided to immediately return the entire $10 million PPP loan we received last week to the SBA so that those restaurants who need it most can get it now,” wrote Shake Shack CEO Randy Garutti in a post on his LinkedIn page. “We urge Congress to ensure that all restaurants no matter their size have equal ability to get back on their feet and hire back their teams.”
Jennifer Roberts, CEO of Chase Business Banking - which handles accounts for smaller business customers - denied the allegation that it prioritized certain clients over others among the 300,000 applicants. She offered an explanation in a statement posted online.
“Business Bank funded nearly three times the number of loans, and it received almost 55 times more applications than Commercial Banking. Therefore, Business Banking did not complete its work before the $349 billion dollars allocated by the CAREs Act were depleted,” wrote Roberts.
“Because the number of applications to the Commercial Bank was much smaller than Business Banking, the Commercial Bank completed most of the applications it received,” she stated.
Congress allocated $349 billion in emergency funds for the PPP small business loan program on April 3 under the CARES Act in response to the government shutdown caused by the COVID-19 outbreak.
As of April 20, some 746,625 people in the United States tested COVID-19 posted and there were 39.083 deaths, according to the CDC.
The federal program reportedly ran out of funds on April 16, according to the federal complaints.
In response, US Bank said it would process loan applications again as soon as additional funds are allocated.
“We are aware of the class-action lawsuit filed and we plan to vigorously defend ourselves as it is without merit,” said Cheryl Leamon, spokesperson with US Bank. “The cumulative industry data provided by the SBA is not reflective of U.S. 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.”
However, Wells Fargo said it was still processing PPP loan applications.
“Wells Fargo is working as quickly as possible to assist small business customers with the Paycheck Protection Program (PPP) in compliance with the regulations and guidance provided by U.S. Treasury and the SBA [Small Business Administration],” said Brian Lucero-Contreras, spokesperson with Wells Fargo Bank. “We have mobilized thousands of employees and launched new technology to better assist customers seeking assistance via the Paycheck Protection Program.”
Chase Bank further stated that the smallest business clients received more than twice as many loans as the rest of the firms combined.
“Business Banking funded around 18,000 loans, which collectively employ approximately 350,000 employees – and will fund many more if additional funds become available,” Roberts said. “Our other businesses that serve different businesses, including Commercial Banking, Dealer Commercial Services, and the Private Bank, all combined, funded roughly 8,500 loans for businesses that employ over 750,000 employees.”