A Maryland Federal Court denied an emergency motion seeking to block a bank from applying eligibility restrictions to its lending under the recently enacted Paycheck Protection Program (PPP). In the case of Profiles Inc. v. Bank of America Corp. et al., No. 1:20-cv-00894 (D. Md. 2020), the U.S District Court for the District of Maryland for the first time interpreted the eligibility requirements for borrowers under the PPP. Four small businesses alleged that Bank of America only accepted applications for PPP loans from pre-existing small business checking customers or those with no lending relationships with other financial institutions. The businesses alleged that these limitations violated the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Small Business Act (SBA) by requiring a hirer standard for lending.

Judge Stephanie Gallagher made two important decisions that impact banks that are participating in PPP lending. First, the District Court found that PPP applicants do not have a private right of action to bring a lawsuit challenging a lender’s conduct under the CARES Act.^[1] The District Court opined that:

Even assuming that the CARES Act grants PPP loan applicants with some statutory right to apply through a particular lender of choice (which is, itself, dubious), nothing in its text evidences Congress’s intent to enable PPP loan applicants to bring civil suits against PPP lenders, to enforce that right. The plain language of the statute does not suggest an intent to confer the particular right alleged, nor a private remedy against participating SBA lenders.

The District Court went on to conclude that even if the PPP applicants had a private right of action against participating lenders, Bank of America’s “challenged conduct here does not run afoul of the CARES Act.” Judge Gallagher concluded that “the statutory language does not constrain banks such that they are prohibited from considering other information when deciding from whom to accept applications, or in what order to process applications it accepts.”

We expect that issues related to access to loans made through the PPP will be heavily litigated as businesses, banks, and government agencies work through the application of the new rules.

^[1] The Court also noted that the CARES Act does not expressly provide a private right of action.