A payday lender recently filed suit against the Small Business Administration (“SBA”) in the United States District Court for the District of Columbia relating to its Paycheck Protection Program (“PPP”) loan application under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). See Payday Loan, LLC v. United States Small Business Administration, Civil Action No. 1:20-cv-1084 (D.D.C. Apr. 25, 2020) The lender operated twenty-two stores in California that provided lending, check-cashing, money orders, money transmission, and other financial services, while employing approximately 88 employees. After the adoption of the CARES Act, the lender applied for a PPP loan from its SBA lender. The payday lender certified that it was otherwise eligible and adversely affected by the coronavirus and the current economic crisis. Its SBA lender, however, denied its application based upon existing SBA regulations that prohibit “financial business[es] primarily engaged in the business of lending” from participating.
Under the CARES Act, participation in the PPP is restricted to businesses with no more than 500 employees, that were in operation on February 15, 2020, and that certify the adverse effect of the pandemic on their operations and permissible use of the loan proceeds. The CARES Act did not expressly authorize the SBA to impose additional requirements on PPP applicants. The payday lender argued that the SBA’s regulations impermissibly limited its ability to participate in the program in violation of the clear Congressional intent to the contrary in the CARES Act. The payday lender requested injunctive relief allowing it to participate in the PPP and declaring the SBA regulation unlawful.
Before the district court could rule upon the payday lender’s request for preliminary injunctive relief, it received a firm offer for a PPP loan that required it to certify that it was “eligible” to participate in the program. The payday lender advised the court of its intent to execute the application and accept the loan proceeds. The court then questioned whether the payday lender’s claims had been rendered moot as a result of that PPP loan. Although it argued they were not moot because it could still be required to refund the proceeds or repay the loan, the payday lender nevertheless voluntarily dismissed its claims on May 11, 2020.
Therefore, it currently remains an open question whether the SBA can impose additional requirements on applicants or exclude from the PPP businesses that otherwise meet the statutory requirements of the CARES Act.