The Billion Dollar Fight About “Agent” Origination Fees for Paycheck Protection Program Loans
The Coronavirus pandemic has generated all sorts of litigation. A recent trend involves lawsuits against banks to collect loan-origination fees for “agents” who might have assisted borrowers that took advantage of economic stimulus loans.
At stake? An estimated $3.85 Billion.
The Legislative Background
In late March 2020, Congress passed the relief and stimulus package knows as the CARES Act—Coronavirus Aid, Relief, and Economic Security Act. See Forbes report here.
Congress intended the CARES Act to offset economic hardships caused by the COVID-19 pandemic. The package included stimulus checks and enhanced unemployment benefits for individuals. Another large feature—the Paycheck Protection Program or “PPP”—provided loans to small and medium-sized businesses through the Small Business Administration. See our detailed report here.
The PPP provided loans up to $10 million for businesses with fewer than 500 employees, which were intended to cover payroll-related costs and other business expenses. The SBA did not require collateral or personal guarantees for the loans, and under certain specific conditions, the loans were—and still are—eligible for full forgiveness.
Under the legislation and Treasury Department guidelines, both lenders and “agents” could earn fees from the SBA for originating PPP loans. The Treasury Department broadly defined “agent” as “an authorized representative” who helped a borrower or lender, including:
- Loan brokers
- Someone who prepared an applicant’s application for financial assistance and was employed and compensated by the applicant
- Someone who assisted a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans
- Any other individual or entity representing an applicant by conducting business with the SBA
Given this broad definition, essentially anyone who assisted a business in obtaining a PPP loan is an agent—even an employee of the borrower.
Through June 2020, the SBA had approved more than a half-trillion dollars in loans through 5,461 lenders. Specifically, the SBA approved 4,885,388 loans in the aggregate amount of $521,483,817,756. Given the agent “fee” schedule, it does not take a deep understanding of capitalism to know why the dispute arose:
- 1% for loans up to $350,000
- 0.5% for loans between $350,000 and $2 million
- 0.25% for loans of $2 million or more
The Litigation (or No Good Deed Goes Unpunished)
Beginning in May 2020, the would-be agents began filing class action lawsuits from coast to coast. Some plaintiffs in those cases have filed a petition with the Judicial Panel on Multi-district Litigation, seeking to consolidate and transfer all existing and future case to Georgia or Arizona. The JPML scheduled a hearing on the matter for July 30, 2020, styling the case In Re Paycheck Protection Program (PPP) Agent Fees Litigation and assigning the designation MDL 2950.
On one hand, the agents argue that Treasury guidelines specifically state that “[a]gent fees will be paid out of lender fees. The lender will pay the agent. Agents may not collect any fees from the applicant.” In other words, the agents contend that the guidelines specifically prohibit borrowers from paying the fees.
On the other hand, the lenders argue that the guidelines do not mandate fee payments but rather limit amounts an agent could receive if properly registered and disclosed as an agent. Some also argue that agent fees could result in a unintended windfall given the automated and uniform nature of the PPP loan process.