For the past several months, we have been seeing consumer finance companies turned down for forgiveness of their PPP Loans based upon the determination of ineligibility for such loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). So, notwithstanding that their banks made PPP loans to them in good faith, the SBA denials have arrived. And, it should be noted here that the Secretary of the Treasury, in March of 2020, deemed consumer lending to be an essential business to be carried on during those dark, early days of the Pandemic. So, why now does the SBA determine that loans to consumer finance companies are not eligible for forgiveness?
The simple answer is because “they say so.” The more complex answer is because the SBA is misconstruing the CARES Act and Congress’ intent in passing the same in March of 2020.
Too often, the amount of the PPP loans is relatively small, and the cost of the appeal outweighs the benefit of fighting the SBA decision—particularly absent our ability to offer a degree of certainty that the appeals will be upheld.
However, there are some consumer finance companies who received large PPP Loans; and, for them, the appeal effort is worth the cost of the fight.
We are now seeing two divergent paths that the Administrative Law Judges (ALJs) seem to be taking in reviewing the determinations of the SBA and issuing rulings. One path—the one of least resistance for the ALJs—is to find that the ALJ does not have the authority to overrule the SBA’s regulations holding that CARES Act PPP Loans are Section 7a loans, and therefore cannot be given to consumer lenders under the SBA Section 7a Loan Program.
The second path—taken by at least one ALJ—is to hold that the rationale of the 6th Circuit Court of Appeals that PPP Loans are not limited by Section 7a, is correct and can indeed be followed by ALJs.
The issue is fast coming to a head. So, stay tuned.