A lawsuit has been filed against some of the biggest names in banking in connection with the Paycheck Protection Program. The class-action suit, American Video Duplicating et al v. Citigroup, a class action, alleges that the banks have systematically failed to pay to agents of borrowers — in most cases accountants — their share of the processing fees established under the program.
Michael Adler, a partner at GrayLaw Group Inc, started the case. He said he first realized something was wrong when he received a phone call from a friend who is a Small Business Administration consultant. “He was upset because the lenders he was trying to place with PPP clients were not paying the fee that is required by law,” Adler said.
The CARES Act allowed lenders who issue loans under the PPP to be paid five points for loans under $350,000, three points for loans between $350,000 and $2 million, and one point for loans over $2 million, Adler explained: “They wanted to make sure that lenders would not prioritize their clients, so they created the role of agent. The agent can be a CPA, accountant, attorney, consultant or even an employee that worked for the applicant. From those five points, one point was supposed to go to the agent — the intent was to make sure that borrowers didn’t pay for the application.”
“But 98 percent of the lenders have refused to pay the fee to the agents,” he continued. “The law is clear. It says the lender ‘will’ pay, not ‘may’ pay. Wells Fargo has said it will donate the fees to charity, but it’s not theirs to donate.”
“The government specifically wanted the fee to go to agents,” he said. “Most of them are accounting firms who spend three weeks of time and are owed on average about $22,000 in agents’ fees. These are not large firms — this was their money that they needed to make their own payroll. Without the agents, many of the businesses wouldn’t have been able to get loans because the lenders made it difficult for non-clients to apply.”
Although theoretically there are over 5,000 potential defendant lenders, Adler said the suit currently has about 200 defendants.
“Each lender has to be sued, so we need an agent for each lender,” he said. “We’re getting calls from CPAs who have been harmed. Over 5,000 [lenders] made PPP loans, but so far only six or seven have said they will pay the fees. None of them are the large banks.”
“It’s sad that the banks are paying money to attorneys to fight the case, instead of paying it to the agents who earned the money,” Adler concluded.
