Should banks be on the hook for fees to accountants, lawyers and consultants who helped small-business owners prepare applications for loans from the government’s Paycheck Protection Program?
It’s a debate now playing out in courtrooms across the country after plaintiffs’ firms filed scores of lawsuits against banks, arguing that their clients deserve to be compensated for work they did amid the frantic dash for federal pandemic relief dollars.
Banks argue that they are not obligated to make the payments unless they reached upfront agreements with people who were acting as the agents of small-business applicants. They contend that federal guidance does not require them to pay agent fees, but rather puts limits on the size of any fees that they choose to pay.
One of the lawsuits says that an estimated $3.85 billion is at stake, though lawyers for banks say that number is inflated. Companies that have been sued in lawsuits seeking class-action status include JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, U.S. Bancorp, Truist Financial, PNC Financial Services Group and many smaller institutions.
Inside the banking industry, concerns about the suits have been compounded by a recent civil investigative demand that the Department of Justice
The emergency law that established the Paycheck Protection Program makes only scant reference to the role of agents. The act states that agents “may not collect” fees in excess of limits established by the Small Business Administration.
The SBA later distributed a fact sheet that makes clear that borrowers may not pay accountants and others who acted as their agents in preparing the applications. It also states that “agent fees will be paid out of lender fees.” The lawsuits may hinge on whether that guidance obligates banks to pay agent fees, or merely establishes limits on any fees that banks elect to pay.
Lawyers for banks say that their clients did not learn that certain individuals were seeking agent fees until the lawsuits were filed. They also point to
But plaintiffs’ attorneys note that numerous banks failed to provide a method for agents to submit fee claims or outright declared that they would not pay the fees. Spokespeople for various banks either declined to comment on the lawsuits or pointed to arguments their lawyers have made in court filings.
In court documents seeking to dismiss a lawsuit filed in Florida, Synovus Financial argued that the plaintiffs are seeking an entitlement that would be susceptible to rampant fraud, since it would require lenders to compensate any agent who merely purports to have helped an applicant.
“Congress and the SBA intended the exact opposite by establishing a cap on agent fees and limitations on their source of payment,” lawyers for Synovus stated in a May 17 court filing.
In response to a lawsuit filed in Ohio, Fifth Third Bancorp suggested that it never even knew that the plaintiff, a certified public accountant, performed any work in connection with the Paycheck Protection Program.
But Mark Geragos, a Los Angeles attorney who represents an Illinois-based small-business consulting firm, argued that participating banks are ignoring their obligations to pay borrowers’ agents. “I would hope that all the banks would do what the law requires of them,” he said.
Agents were meant to play a key role for Paycheck Protection Program applicants who did not have personal banking relationships with their lenders, said Michael Popok, a New York lawyer who is co-counsel with Geragos.
“The banks are not supposed to be gatekeepers to prioritize their borrowers,” he said. “It’s not supposed to work that way. It’s a first-come, first-served program.”
Lawyers on both sides of the cases agree that banks did not handle the issue of agent fees uniformly. Some banks stated — even writing on their websites in some cases — that they would not pay the fees. Other banks never committed to a position on the issue. And some banks expressed a willingness upfront to negotiate fees with borrowers’ agents.
The SBA has said that the total amount an agent may collect from a lender may not exceed 1% of the loan amount on loans of $350,000 or less. The maximum percentages are smaller for larger loans, and may not exceed 0.25% on loans of $2 million or more.
Applying those percentages to the $660 billion in funds allocated for the Paycheck Protection Program, the plaintiffs in one lawsuit argued that participating lenders should set aside $3.85 billion for distribution to agents.
But as defense lawyers noted, that calculation is based on the maximum fee that could be paid, rather than the amount that would be negotiated based on the amount of work that agents actually performed.
Plaintiffs’ lawyers are also assuming that small businesses universally got assistance with their PPP applications, said Peter Weinstock, an attorney at Hunton Andrews Kurth who represents lenders. “In their world, there are no cases where the applicant did not use an agent,” he said. “It’s just fanciful.”
In addition to the Department of Justice’s inquiry, United Community is named as a defendant in a Georgia lawsuit that was filed by an accounting firm.
The bank said in a statement that it believes all of its more than $1.1 billion in Paycheck Protection Program loans were made in compliance with applicable laws, regulations and available published regulatory guidance. It also said that it plans to fully cooperate with the Justice Department.
The lawsuit against United Community is one of several cases that plaintiffs’ lawyers are seeking to consolidate before one judge. A hearing on that issue has been scheduled for late July.
Richard Gottlieb, an attorney at Manatt, Phelps & Phillips who is representing lenders, argued that the SBA should clarify that banks are not required to pay agent fees.
But others expressed skepticism about the ability and willingness of the Trump administration to wade into the dispute. “It’s unclear to me whether SBA or Treasury could resolve this,” said Chris Cole, executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
In response to a question about the possibility of additional rules or guidance, an SBA spokeswoman did not directly address the issue of agent fees, but said that the agency and the Treasury Department will continue to provide guidance to PPP lenders and borrowers.
