Suits for Agent Fees and PPP Loans: Clarity May Be Ahead | Goodwin
In a House Financial Services Committee (HFSC) watch hearing on June 30, 2020, Treasury Secretary Steven Mnuchin hinted that clarification could be provided on whether agents helping small businesses apply for Paycheck Protection Program (PPP) loans are entitled to automatic reimbursement of PPP fees. lenders. This clarification follows class action lawsuits alleging that lenders issuing PPP loans improperly withheld fees from accountants and other agents assisting small businesses with their PPP applications.
These lawsuits allege that under the PPP provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), lenders are obligatory pay an agent’s fees out of the fees that lenders receive from the Small Business Administration (SBA). These arguments are based mainly on the SBA Interim Final Rule 1 (First IFR). The first IFR states that “[a]agents cannot collect fees from the borrower or be paid from the proceeds of the PPP loan. At the same time, however, the rules state that “[a]Agent fees will be paid by the lender out of the fees that the lender receives from the SBA. “According to a ASB Fact Sheet, agents eligible to be compensated by lenders include “[a]ny. . . person or entity representing an applicant in doing business with the SBA “including lawyers, accountants, consultants and loan brokers. These agents thus argue that the first IFR – using the term “will be paid by the lender” – requires automatic reimbursement of agent fees.
But the lenders disagree. For example, in a motion to dismiss deposit Sport & Wheat CPA PA c. Servisfirst Bank Inc., et al, n ° 3: 20-cv-5425 (D. Fla.) on July 3, 2020, a bank argues that neither the CARES law nor the first IFR imposes an affirmative repayment obligation on lenders. The bank relies mainly on the clear text of a provision of the CARES law stating that “[a]An agent who helps an eligible beneficiary prepare an application for a secured loan may not charge fees in excess of the limits established by the [SBA] Administrator. “15 USC § 636 (a) (36) (P) (ii). This” unequivocal restriction on agents “, according to the bank,” cannot impose a positive obligation on lenders “to reimburse the costs of The agent. The bank further contends that while the SBA’s first IFR creates such a positive obligation (which it does not admit), the SBA has exceeded its authority in enacting such a rule. because the CARES law provides that the SBA “must repay a lender“at” fixed rates “, the SBA has essentially” rewritten[ten] the law “by allowing the” subtraction[ion] from these fixed rates, variable amounts of agent fees. In the bank’s view, this is “contrary to the SBA’s limited delegation of authority and the unambiguous language of the law.” The bank further contends that even though the first IFR is a valid exercise of the power of the SBA, it still does not create a positive obligation, but “places caps on the” total amount that an agent may collect.'”
The bank’s arguments are reinforced by comments from Secretary Mnuchin at the end of last month. During the HFSC hearing, Secretary Mnuchin explained that his department’s guidelines so far have stated that banks “could pay agent fees out of the fees they received ”—not necessarily that they must. Mnuchin further explained that the intention was not to make this reimbursement automatic, but that it “be based on a contractual relationship between the agent and the bank”.
It remains to be seen what kind of clarifying action the Treasury will take in response to the competing views of agents and lenders. But once issued, the impacts could be twofold: providing clarity to banks and agents in the future, and potentially impacting lawsuits pending agent fees like Sport & Wheat.