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In Maryland lawsuit response, Bank of America says it can prioritize existing borrowers in federal relief program

Bank of America can choose to prioritize which small businesses it will lend to under the government’s federal coronavirus relief program, the bank argued in a court filing Thursday .

A lender in the Paycheck Protection Program, the bank responded to a class action lawsuit filed April 3 in federal court in Baltimore by Baltimore-based Profiles. The public relations firm and other lead plaintiffs argue they were unfairly locked out of the $349 billion program, which offers federally backed loans of up to $10 million to employers with fewer than 500 workers to help with payroll and other expenses.

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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.

“Contrary to plaintiffs’ allegations, beyond setting minimum eligibility criteria, the [CARES] act nowhere prohibits participating lenders from determining how best to prioritize to whom they will lend under the Program,” the bank says in a filing opposing plaintiffs’ request for a temporary restraining order.

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The small businesses have 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 coronavirus aid package passed by Congress. They are asking the judge to order the bank to open its application process to qualified small businesses and to notify small businesses that were denied access they have a right to apply.

The bank says it is far from alone in prioritizing lending, arguing that other lenders have taken different approaches, targeting nonprofits, businesses with a small number of workers, borrowers located in their own or nearby states or veteran-owned businesses, for example.

Bank of America’s decision to prioritize clients with whom they have lending relationships “is simply an effort to direct its resources quickly and efficiently,” the filing said. “Because lenders already have information about their existing clients, prioritizing those clients streamlines the application process, meaning more loans are processed faster.”

Profiles founder Amy Elias was among those not permitted to even apply at a bank where she had a longtime business relationship but no loans. Businesses represented by the lawsuit say the lender gave existing borrowers the first shot at applying for the first-come, first-served funds

Calls have come from members of Congress for lenders to remove requirements not set in the law.

“What we’re seeing is a number of banks imposing requirements on borrowers that are not part of the law,” Maryland Sen. Chris Van Hollen, a Democrat, said earlier this week. “Banks are in some cases inventing their own conditions that create barriers to small business and nonprofits, which is not right.”

After complaints began to surface April 3, Bank of America announced changes to its application process designed to broaden access.

The bank said in Thursday’s court filing that it was the first major institution in the voluntary lending program to create an online portal to take applications “to address the critical needs of small business owners in a time of national crisis." The bank has taken applications for loans exceeding $32 billion in one week.

The bank said lenders face unusual challenges with the emergency program.

“It is a new program, with untested guidelines and regulations that did not exist until last week and that are continually changing and developing,” the filing said.

It’s appropriate for the bank, which has 9 million small business clients, to look for an orderly process in the first days of an untested program, the bank said.

A court hearing on oral arguments on the temporary restraining order has been set for 2 p.m. Friday.

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