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Court Takes a Pass on Limiting Bank of America’s Restrictions

A Maryland federal District Court Judge declined to issue an emergency temporary restraining order on April 13, which was intended to remove eligibility restrictions put in place by Bank of America under the Coronavirus Aid, Relief, and Economic Securities Act’s Paycheck Protection Program. 

US District Court Judge Stephanie Gallagher dealt a blow to some of BofA’s small business customers by refusing to grant an emergency order sought by plaintiffs in a putative class action lawsuit filed against BofA on April 3, 2020. In the lawsuit, the Plaintiffs accuse the lender of unlawfully placing restrictions on their PPP loan applications. According to court filings, Plaintiffs allege BofA is accepting applications for loans under the $349 billion program from current BofA small-business borrowers and from new borrowers, provided they did not have business credit or a borrowing relationship with any other bank.
 
In her decision, Judge Gallagher held that BofA’s policies did not violate the CARES Act, which included other qualifying criteria because the Act did not prohibit lenders from considering other criteria when deciding from whom to accept applications, or in what order the bank must process applications which it accepts. The Court noted that while the initial Interim Final Rule issued by the Small Business Administration with respect to the PPP provides criteria that may be used by lenders to deem borrowers ineligible for a PPP loan, “[n]either the CARES Act nor the Interim Final Rule imposes prohibitions on what lenders may do in their processes for accepting or processing applications [under the PPP].”
 
Importantly, the Court also addressed a threshold obstacle to plaintiffs seeking to enforce the CARES Act in Court against a private lender – whether the CARES Act provides a private right of action. Judge Gallagher found that even if BofA’s application policies ran afoul of limitations in the PPP, the CARES Act, which adds the PPP to the Small Business Act, does not provide an implied private right of action to plaintiffs seeking relief under the CARES Act. This followed a prior holding that the Small Business Act did not provide an implied private right of action to litigants.
 
Ultimately, the Court recognized and sympathized with the economic harm that small businesses such as the Plaintiffs are enduring because of the COVID-19 pandemic, and the havoc the crisis is causing to the US and global economy. However, in balancing the equities of the parties and the public interests, the Court decided that Congress, not the courts, was in the best position to “balance the desire to assist the widest swath of small businesses with the need to incentivize lender participation” given the fluidity of the COVID-19 pandemic and the needs of the small businesses.
 
Finally, in assessing the need for emergency relief under a temporary restraining order and/or preliminary injunction, the Court addressed Plaintiffs’ claim that they would suffer irreparable harm because “the ‘first-come-first-served’ PPP loans will not be available” to Plaintiffs if they had to wait for the trial to obtain relief. Rejecting Plaintiffs’ request for a TRO, the Court indicated that it was not clear from the record how many Plaintiffs actually applied for PPP loans with other lenders, or could have, and for those that did, whether those Plaintiffs were denied loans by other lenders based on the same criteria that BofA put in place, namely preexisting lending relationships.
 
The outcome of this case highlights the need for businesses to react quickly and pivot when faced with obstacles while submitting applications under the PPP loan program and to obtain assistance from your counsel or business advisors when you are at an impasse with your lender. Turning to the courts may not provide you with the quick answers you need in order to avail yourself of these first-come-first-served and highly sought after loans.

The case is Profiles Inc. v. Bank of America Corp. et al., case number 1:20-cv-00894, in the US District Court for the District of Maryland.

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