Lawsuits claim banks shuffled stimulus loans for profit

In a series of class-action lawsuits filed in California and New York over the past week, Bank of America, Wells Fargo, U.S. Bank and JPMorgan Chase were accused of maximizing the fees they were paid to participate in the Paycheck Protection Program at the expense of mom-and-pop-sized small businesses.

The suits allege that the banks submitted larger loans to the Small Business Administration ahead of smaller ones, leading to bigger small businesses getting greater access to PPP funds before the program ran out of funding this month.

Banks are supposed to process the applications first-come, first-served.

A spokesman for Bank of America said the bank disputes the lawsuit and disagrees with the claims. A U.S. Bank spokeswoman said the suit was without merit. Wells Fargo and JPMorgan Chase declined to comment.

The Paycheck Protection Program has been troubled since its start, which was marked with technical glitches and spotty participation.

A business with fewer than 500 workers could get a loan of up to $10 million through the program, backed by $349 billion from the federal stimulus package passed in March. If certain criteria are met, including if the loans are primarily spent on payroll, the loans will be forgiven.

After the initial $349 billion was exhausted, lawmakers agreed Tuesday on a deal that will replenish the program with $320 billion more. So far, in operating the program, banks have collected over $10 billion in fees, according to an analysis from National Public Radio.

Shifting data

The suits are, in part, based on data released by the SBA that showed a trend in the data on PPP loans that were submitted to the agency.

On April 13, 30% of the loans processed by the SBA were for more than $150,000, meaning they came from “larger” small businesses. On April 16, just as the program ran out of money, that figure fell to 26%.

That told Ji-In Lee Houck, the Los Angeles lawyer whose firm, Stalwart Law Group, is behind the suits, that banks prioritized applications of larger businesses to the SBA ahead of those from smaller businesses as the program was running out of cash .

“There’s plenty of evidence so far already that these were not taken in order and larger loans were processed ahead of smaller ones,” she said in an interview.

Banks make 1% to 5% in fees on each loan, depending on the size. For loans under $350,000, banks make a 5% fee, while for loans from $2 million to $10 million, banks make 1%. For a $10 million loan, a bank takes home $100,000, while on a $100,000 loan, the bank makes $5,000.

In Houck’s eyes, the banks’ motivation is clear: if you prioritize larger loans, you make far more on a per transaction basis.