Small businesses that say they were unfairly blocked from applying for federal coronavirus relief loans will be irreparably harmed without swift court intervention against Bank of America, attorneys told a U.S. district judge in Baltimore Friday.
But lawyers for the bank, a lender in the Paycheck Protection Program, argued that a court order forcing the bank to remove restrictions it placed in its online application could have a “chilling” effect on other lenders’ participation and could overwhelm the Bank of America’s systems.
“To our knowledge, no cases have been filed against any other bank at this point,” said attorney Enu Mainigi, who said her client is on track to be the biggest lender in the federal program. "This lawsuit... should not create roadblocks for the larger small business community ultimately in getting the loans that they need.”
After nearly three hours of oral arguments in hearing by teleconference because of the pandemic’s restrictions, Judge Stephanie A. Gallagher said she planned to issue a written ruling later.
Four small businesses, plaintiffs in a federal class action lawsuit filed April 3, asked the court to order the bank to remove all “gating” requirements not found in language authorizing the payroll protection funds, part of the $2 trillion aid package passed by Congress. The $349 billion program, which opened a week ago, offers federally backed loans of up to $10 million to employers with fewer than 500 workers to help with payroll and other expenses during the pandemic.
The lawsuit accuses the bank of using a process that unlawfully prioritized its existing borrowing clients while barring the bank’s depository clients and other small businesses from applying. The bank said nothing in the CARES act prohibits it from prioritizing which small businesses it will lend to.
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“Seven days ago, America’s small businesses had hope; they had a lifeline,” after the federal program opened to applicants, said Celeste Bruce, an attorney for the small businesses. “But for thousands of Bank of America small business customers, that hope turned into despair and fear and confusion,” after finding they could not apply unless they had a borrowing relationship with the bank.
The court needs to step in, plaintiffs’ attorneys argued, because the funds are being depleted rapidly. Loans are being secured at a rate of $20 billion worth a day, and so far more than 550,000 applicants have been assigned $141 billion, or 40% of the funds, they argued.
Meanwhile, small businesses that have business relationships with Bank of America are being told to look to other lenders, but some banks won’t take applications from new clients. Bank customers have continued to be shut out even after complaints surfaced and the lender announced changes to its application process designed to broaden access.
Such businesses “will have nowhere to go,” Bruce said. “Their doors will close and their employees will be out of work... Financial institutions were included as a conduit through which taxpayer dollars would flow from the treasury to small businesses across America."
The bank argues that it is doing nothing unlawful and that the CARES act established no criteria regarding taking applications. Some 2,400 banks are involved in the program and some have chosen to prioritize veteran-owned businesses, nonprofits or businesses located in a specific market area.
“The rules as they have been passed to not obligate a lender to make loans to every borrower that meets the baseline criteria,” Mainigi said.
She said the bank soon will have 5,000 employees processing loans and already has received requests for $40 billion in funding. Focusing on borrowing customers will spread the demand to more lenders and help each lender speed up review time, she said.