BofA defends giving priority to customers in rescue-loan program
Bank of America said a new law authorizing a coronavirus rescue-loan program does not bar it from favoring its own customers in processing applications and disgruntled consumers have no right to challenge it.
The bank, which came under fire for prioritizing applications from existing small-business customers, asked a federal judge in Baltimore on Thursday to reject a request in a lawsuit to temporarily bar it from employing the practice as millions seek to withstand the economic ravages wreaked by the virus.
Bank of America’s decision to put existing customers at the head of the line is simply “an effort to direct its resources quickly and efficiently,” the bank’s lawyers said in a court filing.
The initiative, called the Paycheck Protection Program, is aimed at helping small businesses keep workers on payrolls by offering forgivable loans of as much as $10 million to cover payroll costs, mortgage interest, rent and utility payments if firms retain employees. Requests for unemployment benefits have surged in the wake of the virus to about 16.8 million during the economic shutdown.
The rollout of the $350 million COVID-19 response plan has been plagued by uncertainty, however, tied to its size and the urgent need to get cash to financially strapped business owners to avoid permanent shutdowns. After the program launched last week with promises of quick processing of millions of applications, lenders said they lacked enough guidance on how to handle the funds to speed up the loans.
Some banks, such as Bank of America, also openly favored their existing small-business customers for priority processing of applications. Several Maryland businesses sued, challenging the bank’s practice.
They accused the bank of unfairly locking out some categories of existing customers and those who do not do business with the bank. The plaintiffs pointed to a recent appearance of Bank of America CEO Brian Moynihan on CNBC, where the executive urged customers of other banks not to apply to his firm for coronavirus-rescue loans.
“If you borrow from another bank, please go back to them because they’re your core bank, and they know you the best and can process you the fastest,” he said.
William Halldin, a Bank of America spokesman, said the institution has received a total of 250,000 applications seeking about $40 billion in loans. He added the bank decided to expand the program to cover “small-business clients without a lending relationship” to apply through the bank’s website.
The case is Profiles Inc. v. Bank of America Corp., No. 20-cv-894, U.S. District Court for the District of Maryland (Baltimore).