Cut Them to the Past – New COVID Stimulus Program Should Rule Out Any Chance of Plaintiff Winning in Agent Fee Class Actions | Balch & Bingham LLP
Congress has passed a new COVID-19 stimulus package containing a significant amendment to the CARES Act that should rule out any possibility that plaintiffs in the agent fee class action lawsuits currently underway across the country can successfully assert that banks have to pay them “agent fees” to prepare PPP loan applications. The amendment establishes that, contrary to plaintiffs’ assertions, banks are not required to pay agent fees in the absence of a written agreement with the agent to do so. Congress gave the amendment retroactive effect so that it applies to all PPP loans made to date.
The amendment reads as follows:
b) FEES LIMITATIONS.—
(1) GENERALLY.—Section 7(a)(36)(P)(ii) of the Small Business Act (15 U.S.C.
2636(a)(36)(P)(ii)) is amended by adding at the end the following: “If an eligible beneficiary has knowingly retained the services of an agent, such costs must be paid by the eligible beneficiary and cannot be paid from the proceeds of a covered loan. A lender will only be responsible for paying fees to an agent for services for which the lender contracts directly with the agent. ».
(2) EFFECTIVE DATE; APPLICABILITY.—The amendment made by subsection (1) will take effect as if included in the CARES Act (Public Law 116-136; 134 Stat. 281) and applies to any loan made under Section 7(a)(36) of the Small Business Act (15 USC 636(a)(36)) before, on or after the date of enactment of this Act, including the forgiveness of such a loan.
Agent fee plaintiffs have previously refused to accept that an indemnification agreement was necessary, relying primarily on wording in an “SBA fact sheet” stating that “agent fees will be paid on lender’s fees” received for originating PPP loans. However, 10 different federal judges disagreed and dismissed the agent fee class action lawsuits, finding that neither the CARES Act nor its implementing regulations require lenders to pay agent fees in the absence of of a specific agreement to do so. (You can read about the first eight of these ten dismissals here. The last two layoffs – Brunner Accounting Group v SVB Financial Group (CD Cal.) and Radix Law, PLC v JP Morgan Chase Bank, NA (D. Ariz) – arrived just days before the relaunch). We predicted such decisions were necessary to align the fees allowed by the PPP with the SBA’s existing regulatory structure. Today, the new revival has enshrined this principle in law.
Plaintiffs have also previously relied on language in the CARES Act prohibiting a borrower from paying an agent fee out of PPP loan proceeds and information sheet language stating that “agents may not collect any fees from the plaintiff” in support of their claims that the banks have to pay the fees. Courts have consistently rejected these arguments as well. The amendment’s express permission for borrowers to pay agents from non-PPP funds makes this argument even less compelling now.
While it is impossible to predict whether plaintiffs will attempt to avoid this direct language, it would certainly appear that the new stimulus will effectively end the PPP agent fee litigation once it is enacted.