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Small businesses say Bank of America unfairly locked them out of federal lending program

On the first day small businesses could apply for federal relief to help pay employees during the coronavirus crisis, some complained they were unfairly locked out.

The much anticipated $349 billion Paycheck Protection Program opened Friday, offering federally backed loans of up to $10 million to employers with fewer than 500 workers. Businesses were told to apply through a participating SBA lender, bank or credit union and that they could be approved as soon as the same day.

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But many who applied through Bank of America’s online portal hit an unexpected snag.

Amy Elias, CEO and founder of 10-employee Baltimore public relations firm Profiles, was among them. She said she had worked with a representative of the bank, where she has had business and personal accounts for decades, to compile all the necessary documents, such as payroll reports and quarterly payroll tax reports.

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But after submitting her name and the name of her business Friday morning she got an on-screen message: “Based on our records, your account doesn’t qualify to apply for a Paycheck Protection Loan though Bank of America.”

To apply, it said, she must have a small business checking account and small business lending relationship, such as a credit card. She and others say nothing in the loan program, part of the $2 trillion coronavirus aid package passed by Congress and signed by President Donald Trump, permits banks to deny access based on the lender’s relationship with that small business.

“This program was a lifeline,” Elias said Friday. "It is not right that Bank of America gets to decide who sinks and who swims.”

Now Profiles is the lead plaintiff in a class action lawsuit against Bank of America filed late Friday. It 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 even applying. The bank was able to “pick and choose” who will benefit from a program that is expected to be first come first served, says the lawsuit, which is expected to represent thousands of businesses that have been shut out.

“At a time of severe national need, Defendants Bank of America Corporation... instead privileged discriminatory policies of corporate greed over the needs of America’s small businesses,” says the lawsuit, filed in U.S. District Court in Baltimore.

The bank faced a firestorm of criticism on social media Friday, including from Sen. Marco Rubio, a Florida Republican, who tweeted “The requirement that a #SmallBusiness not just have a business account but also a loan or credit card is NOT in the law we wrote & passed or in the regulations... They should drop it. This money is 100% guaranteed by fed govt.”

Maryland Sen. Ben Cardin, too, said he was “deeply troubled” by reports of financial institutions turning away small businesses that desperately need capital. The relief was designed to get funds to small business owners as fast as possible to keep employees on the payroll and “avoid financial ruin.”

“Creating artificial barriers that block businesses from much-needed capital is redlining by another name,” said Cardin, a Democrat, who did not name any particular lenders.

Earlier in the day, Bank of America CEO Brian Moynihan told CNBC that the bank was prioritizing by trying to get 1 million borrowing customers through the system first before turning to non-borrowing customers.

The bank appeared to reverse course later in the day, after it had accepted more than 75,000 applications nationally seeking $7 billion in funding.

A memo from Dean Athanasia, the bank’s head of consumer and small business, thanked employees for helping more than 58,000 clients with loan applications by midday “an astounding number of applications to take in such a short period of time” even as other major banks did not yet have application sites available.

“In this first initial launch, we have focused on our full relationship clients first — those with a business DDA and lending relationship,” he said. “We are also highly focused on responding to the needs of our core small business customers who do not currently have any borrowing relationship: we will expand our process soon.”

But for the lawsuit plaintiffs, that’s too little too late.

“There is no justification for requiring depository clients and other small businesses to go to the end of the line,” the lawsuit says.

It accuses the bank of prioritizing its balance sheet by supporting preexisting loans issued by the bank through the loan program at the expense of small businesses that don’t have a lending relationship with the bank.

Brad Close, president of the National Federation of Independent Businesses, said Friday in a statement that the group heard from “far too many” small businesses being shut out of the loan program. Close did not name any specific lenders.

“This has the potential to be the last straw for many small businesses and their employees,” Close said.

The lawsuit seeks to give plaintiffs the rights and benefits under the CARES Act as well as damages in an amount to be determined.

“These are serious times, and all small businesses should have and do have the right to participate promptly in the federal funding program,” said Alan M. Rifkin, managing partner of Rifkin Weiner Livingston, which filed the lawsuit.

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