The Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was expanded by the Paycheck Protection & Health Care Enhancement Act, provides more than $650 billion in loans for small businesses affected by the coronavirus pandemic. It includes fees for banks that make PPP loans to borrowers. But four recent cases (of more than 50 pending nationally) hold that the CARES Act does not require the banks to share those fees with accounting firms or other “agents” who helped clients apply for the loans.
Because the CARES Act and its regulations are part of the Small Business Administration’s pre-existing loan program, accountants and other agents should use the SBA’s Form 159 Fee Disclosure and Compensation Agreement if they want to be paid for their efforts to help consumers get PPP loans. The SBA regulations limit the fees that can be paid to an agent, and the CARES Act adds more limitations: For example, if agents are paid, they must be paid by the lender, not the borrower, and fees are capped at lower percentages than for normal SBA loans.
These recent cases — from federal district courts in Florida, New York, and Texas — dismiss putative class action claims by accountants for declaratory relief under the CARES Act, as well as related state law claims for conversion, unjust enrichment, implied contract, and the like (see Juan Antonio Sanchez, PC v. Bank of South Texas, 2020 WL 6060868 (S.D. Tex. Oct. 14, 2020); Steven L. Steward & Associates, P.A. v. Truist Bank, 2020 WL 5939150 (M.D. Fla. Oct. 6, 2020); Johnson v. JPMorgan Chase Bank, N.A., 2020 WL 5608683 (S.D. N.Y. Sept. 21, 2020), appeal filed sub nom. Quinn v. JPMorgan Chase Bank, N.A. (2d Cir. Oct. 13, 2020); and Sport & Wheat, CPA, PA v. ServisFirst Bank, Inc., 2020 WL 4882416 (N.D. Fla. Aug. 17, 2020), appeal filed (11th Cir. Sept. 10, 2020)). The Judicial Panel on Multidistrict Litigation recently rejected a request to transfer more than 50 similar cases into a single consolidated proceeding (see In re Paycheck Protection Program (PPP) Agent Fees Litig., MDL No. 2950 (J.P.M.L. Aug. 5, 2020)).
Juan Antonio Sanchez, PC puts it this way: “Evidently, Plaintiff [an accounting firm that helped clients apply for PPP loans] believed that it could serve as applicants’ agent, kick its feet up and wait for the banks to issue PPP loans to successful applicants, and only then notify [the banks] of its agency role and demand payment. The Court holds that that approach is not how the PPP works, and it contradicts a common-sense interpretation of the relevant statutes and regulations” (2020 WL 6060868, at *6 & n.120 (emphasis in original; internal quotation marks and citation omitted)).
At least two of these cases have been appealed, so it’s conceivable that federal appeals courts will view the controversy differently. But in the meantime, as the cases agree, the “common-sense” approach is for the lender, borrower, and agent to use Form 159 to document an agreement, in advance, about how the agent will be compensated for its help.