BALTIMORE (WJZ) — A federal court in Maryland heard a class-action lawsuit Friday on how banks administer federal small business loans.
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The lawsuit brought against Bank of America accuses the company of prioritizing its existing customers when doling out federal funds as part of the Paycheck Protection Program, essentially a forgivable loan program created by the $2 trillion CARES Act, also known as the coronavirus stimulus law.
The program makes nearly $350 billion available in the form of government-backed loans meant for small businesses to cover eight weeks’ worth of payroll and other expenses.
In its 16-page lawsuit filed earlier this month in Maryland, Baltimore-based marketing firm Profiles PR said Bank of America’s implementation of the law was discriminatory:
“Defendants implemented a loan process that unlawfully prioritized their existing borrowing clients and barred their depository clients and other small businesses from even applying for funds from the governmental loan programs. Nothing in the CARES Act authorizes or permits Defendants to pick and choose who would gain access to or benefit from the federally backed lending program. And, the priority of access to these limited funds is material – the demand is overwhelming as America responds to the economic tsunami of COVID-19 upon small businesses. There is no justification for requiring depository clients and other small businesses to go to the end of the line.
“Unfortunately, the banks were the ones who were supposed to administer it, but it wasn’t their money. It’s Treasury money. It’s your money. It’s taxpayer money,” said Alan Rifkin with Rifkin Weiner Livingston, LLC, an attorney representing the plaintiffs.
Yasmine Young, the owner of Diaspora Salon in Baltimore’s Charles Village neighborhood, is also participating in the class-action suit.
“I was hurt. I was upset, and then I was mad,” she said.
Young has been in business with the bank since before she opened the salon, but since she didn’t have a loan, she wasn’t able to get the PPP money.
“(Bank of America has) the ability to be a beacon of hope for people like me and you are choosing to not do that,” she said.
Bank of America said many other lenders chose not to participate in the program at all. In a brief filed Thursday, the company argues, “…beyond setting minimum eligibility criteria, the Act nowhere prohibits participating lenders from determining how best to prioritize to whom they will lend under the Program.”
The company also said prioritizing its existing customers will speed up the process and get money to businesses quicker.
Bank of America says many lenders have chosen not to participate in the PPP loan program and attorneys just cited its 3,000 employees working to process applications.
They argue the bank is prioritizing clients who have borrowing relationships to speed the process up.
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In response, Young said, “it feels gross.”
“I’m almost disgusted by it because Bank of America says they care about small businesses.”
Several senators, including Sens. Ben Cardin (D-Maryland) and Marco Rubio (R-Florida) have criticized Bank of America and asked Treasury Secretary Steven Mnuchin to lift the restrictions.
The requirement that a #SmallBusiness not just have a business account but also a loan or credit card is NOT in the law we wrote & passed or in the regulations.
This is a @BankofAmerica requirement not a govt one.
They should drop it. This money is 100% guaranteed by fed govt. pic.twitter.com/cG2i9eqi7k
— Marco Rubio (@marcorubio) April 3, 2020
Cardin called the bank’s priority “an artificial barrier” and “redlining by another name.”
“We’re going to support their applications being received, processed and fully funded, and we will put as much money as needed to make sure that every small business can participate that’s eligible,” he said.
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The demand for #PaycheckProtectionProgram loans is a welcome sign that small businesses are beginning to receive the economic relief that they desperately need. I remain committed to ensuring that no small business is left behind as our cities and states address #COVID19.
— Senator Ben Cardin (@SenatorCardin) April 8, 2020
Since the lawsuit was filed last week, attorneys said they’ve received 61,000 requests to join the suit.