Banks prevail in first court decision over PPP fees for agents

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Four Southeast banks have prevailed in the first major court decision following a wave of lawsuits filed by accountants, lawyers and consultants who helped small-business owners apply for Paycheck Protection Program loans.

The plaintiffs in the cases contend that they are entitled to fees from the banks that processed PPP loans. Banks argue that they are not obligated to make those payments unless they reached upfront agreements with people who were acting as the agents of small-business applicants.

Truist Financial was one of the four lenders sued by Sport & Wheat, a Florida-based certified public accounting firm.
Truist Financial was one of the four lenders sued by Sport & Wheat, a Florida-based certified public accounting firm.

In an opinion issued Monday, U.S. District Judge T. Kent Wetherell II sided with the lenders. He wrote that banks were not required to make the payments under either the March 2020 law that established the Paycheck Program Program or a subsequent regulation from the Small Business Administration.

Instead, the regulation explains that if the borrower’s agent is to be paid a fee, that money must come from the fee that the SBA pays to the bank, the judge found.

The lawsuit was filed in April by Sport & Wheat, a Florida-based certified public accounting firm. It sought a total of $4,526 from ServisFirst Bank in Birmingham, Ala.; Truist Financial in Charlotte, N.C.; Synovus Financial in Columbus, Ga.; and The First in Hattiesburg, Miss.

Though the dollar amounts sought from those four banks were small, the plaintiffs were seeking class-action status on behalf of other Florida-based companies that helped prepare PPP loan applications.

The judge’s ruling also has implications for a slew of related lawsuits. Graham Ryan, a partner at Jones Walker, a law firm that has been tracking PPP litigation, said several dozen similar cases have been filed across the country in recent months.

“It’s quickly become the fastest-growing chunk of litigation,” Ryan said.

The plaintiffs in one of the cases argued that an estimated $3.85 billion was at stake in these suits, though lawyers for banks have said that number is inflated.

The Paycheck Protection Program was created by Congress in March to help small businesses ride out the economic slowdown brought on by the coronavirus pandemic. As of the program's Aug. 8 expiration, lenders had made 5.2 million loans totaling $525 billion, according to the SBA.

The defense lawyers argue that the plaintiffs’ calculation assumes that every PPP borrower got assistance with its application, and note that the math was based on the maximum fee that could be paid, rather than on how much work the lawyers and accountants actually performed.

The SBA has said that the total amount a borrower’s agent may collect from a PPP lender may not exceed 1% of the loan amount on loans of $350,000 or less. The maximum percentages are smaller for larger loans and may not exceed 0.25% on loans of $2 million or more.

Wetherell, a federal judge in the northern district of Florida, told the accounting firm that it could either appeal his ruling to the 11th Circuit Court of Appeals or amend its complaint, though he wrote that he finds it “highly unlikely” that the plaintiff will be able to state a valid claim against the banks.

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Law and regulation Paycheck Protection Program Coronavirus Truist Financial Synovus Financial