August 26, 2020
Last week, the U.S. District Court for the Northern District of Florida ruled in favor of SBA lenders with respect to the treatment of “agent fees” under the Paycheck Protection Program (PPP). The decision to dismiss the putative class action lawsuit is the first ruling on the issue after a flurry of similar suits have been brought against other SBA lenders in recent months in response to the implementation of the PPP. The Court succinctly noted in its Order dismissing the case:
The central issue of first impression in this case is whether Plaintiff and others like it are entitled to any portion of the fees paid by the federal government to lenders like Defendants who were tasked with handing out hundreds of billion dollars of “loans” under the Paycheck Protection Program (PPP). The short answer is “no.”
This lawsuit, Sport & Wheat CPA PA v. Servisfirst Bank Inc., et al., No. 3:20-CV-05425 (N.D. Fla. 2020), was brought by an accounting firm claiming that it was entitled to “agent fees” for assisting small businesses with applying for PPP loans. The plaintiff did not allege that it or the borrowers had agreements with the SBA lenders regarding payment of plaintiff’s agent fees. In fact, as the Court found, “it is undisputed that neither Plaintiff nor the borrowers . . . have agreements with Defendants regarding payment for the work Plaintiff performed in assisting borrowers in obtaining PPP loans through Defendants.” Rather, the plaintiff’s primary argument was premised on the assumption that the Coronavirus Aid, Relief, and Economic Security (CARES) Act and its implementing regulations require lenders to pay the borrowers’ agent fees. The Court found “no support in the plain language of the statute or regulation” to support the plaintiff’s assertion.
In addition to building the PPP on the existing SBA Section 7(a) loan program, the CARES Act mandated that the SBA Administrator “shall reimburse a lender authorized to make a covered loan” and it established the fees that the lender will be paid for making the loans. (emphasis added). The Act also stipulated that “[a]n agent that assists an eligible recipient to prepare an application for a covered loan may not collect a fee in excess of the limits established by the [SBA] Administrator.” (emphasis added). Analyzing the CARES Act, the Court noted that “the different language used by Congress in mandating payment of lenders (‘shall reimburse’) and limiting agent fees (‘may not collect’) is indicative of an intent not to require lenders to pay agent fees.” Similarly, “the statutory language does not even speak to who pays the agent’s fees; it merely provides that the agent cannot collect a fee from anyone in excess of the amount established by the SBA Administrator.” In the series of interim final rules implementing the PPP, the SBA established restrictions and caps on the amount of fees that may be paid to agents, but the SBA did not otherwise mandate such payments to agents absent an agreement to do so. Finding nothing in the CARES Act or SBA rules implementing the PPP to support the plaintiff’s assertion, the Court looked to preexisting SBA Section 7(a) regulations for guidance and ultimately held that these preexisting regulations were clear in that they required execution of an agreement between a lender and an agent before an agent may receive any compensation.
This decision comes as a sign of relief to SBA lenders across the country facing a myriad of class action claims. Nelson Mullins continues to advise financial institution, FinTech, and technology services clients on the management of the PPP loan program. Should you have additional questions or wish to address these issues in further detail, please reach out to your attorney contacts.
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