CARES Law Does Not Allow Accountants To Pay Fees To Help Borrowers Get PPP Loans
The Paycheck Protection Program (PPP) of the Coronavirus Help, Relief and Economic Security Act (the “CARES Act”), which was expanded by the Paycheck Protection Act and improving health care, provides more than $ 650 billion in loans to affected small businesses. by the coronavirus pandemic. It includes the fees of banks that provide PPP loans to borrowers. But four recent cases (out of more than 50 pending nationwide) argue that the CARES law do not requiring banks to share these costs with accounting firms or other “agents” who have helped clients apply for loans.
Since the CARES Act and its regulations are part of the Small Business Administration’s pre-existing loan program, accountants and other officers should SBA 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 should be paid by the lender, not the borrower, and the fees are capped at percentages lower than for normal SBA loans.
These recent cases – from federal district courts in Florida, New York and Texas – dismiss class actions alleged by accountants for declaratory relief under the CARES Act, as well as state law claims for conversion, unjust enrichment, implicit contract and the as (see Juan Antonio Sanchez, PC v. Bank of South Texas, 2020 WL 6060868 (SD Tex. October 14, 2020); Steven L. Steward & Associates, PA v Truist Bank, 2020 WL 5939150 (MD Fla. October 6, 2020); Johnson v JPMorgan Chase Bank, NA, 2020 WL 5608683 (SDNY 21 Sep 2020), appeal filed sub name. Quinn v. JPMorgan Chase Bank, NA (2nd Cir. October 13, 2020); and Sport & Wheat, CPA, PA v ServisFirst Bank, Inc., 2020 WL 4882416 (ND Fla. Aug 17, 2020), appeal filed (11th Cir. Sep 10, 2020)). The Judicial Training on Multidistrict Litigation recently rejected a request to transfer more than 50 similar cases into a single consolidated procedure (see In re Paycheck Protection Program (PPP) Agent Fees Litig., MDL No.2950 (JPML 5 Aug 2020)).
Juan Antonio Sanchez, PC puts it this way: “Obviously, the applicant [an accounting firm that helped clients apply for PPP loans] thought he could act as an agent for applicants, get up and wait for banks to issue PPP loans to successful applicants, and only then notify [the banks] of its role as an agency and demand payment. The Court considers that this approach does not correspond to the way in which the PPP works and that it contradicts a sensible interpretation of the relevant laws and regulations ”(2020 WL 6060868, p. * 6 & n.120 (emphasis in original ; inner quotes and citation omitted)).
At least two of these cases have been appealed, so it is conceivable that federal courts of appeal view the controversy differently. But in the meantime, as cases agree, the “common sense” approach is for the lender, borrower, and agent to use Form 159 to document in advance an agreement on how the agent will be paid for his help.