During hearings before the House of Representatives on June 30, 2020, Representative Steve Stivers (R-OH), asked Treasury Secretary Mnuchin about financial institution’s payment of agent fees as part of the Paycheck Protection Program (“PPP”). Representative Stivers noted:

[B]anks are being targeted by litigation that takes advantage of the lack of clarity about how agent fees are supposed to be processed and how they work. For example, banks don't have precise answers on where the fees were supposed to come from, is an agreement between a bank and an agent required before any work on the application is completed or processed. Is this an issue you're aware of and does Treasury have a plan to offer any addition FAQs to clarify the issue of agent fees and when they're do and how that works?

In response to the question, Secretary Mnuchin noted that he has:

recently become aware of this issue as well. What our guidance did say is that banks could pay agent fees out of the fees that they received, that was intended to be based upon a contractual relationship between the agent and the bank. And to the extent there's any confusion on that, we'll look at clarifying that.

(Emphasis added). Representative Stivers then asked if the Treasury would issue “a clarifying FAQ” to assist financial institutions facing this litigation. Secretary Mnuchin committed that “We’ll do that. Thank you.” Representative Stivers supported the issuance of an F.A.Q. stating he believes it will “prevent some litigation, or at least allow for that litigation to move expeditiously and less costly through the process,"

Not only do the comments by Secretary Mnuchin provide further clarification of the Treasury’s existing interpretation of these provisions of the CARES Act and the implementing guidance, but also may serve as an indication that further, explicit guidance will be forthcoming. Secretary Mnuchin highlighted statement, above, should provide additional ammunition for financial institutions defending these suits—that this was a limited provision that was specifically designed to enable banks to work with what the SBA 7(a) regulations define as a lender-engaged “lender service provider,” a lender “broker,” or a lender “referral agent.” (I.e., those agents that operate pursuant to a “contractual relationship between the agent and the bank.”) 

Financial institutions should be cognizant of other potential obligations relating to such agents referenced within the SBA 7(a) program regulations (13 CFR 101.100 et seq.) and SOP 50 10 5(K). Specifically:

• The obligations of 7(a) lenders regarding diligence and review of loan agents (SOP pp. 13-15);
   
• The disclosure and filing of agreements with Lender Service Providers (or the obligation to obtain Form 159s) (SOP pp. 169-171);
   
• The obligations of lenders relating to all agents (SOP pp. 171-176); and
   
• The completion of the lender disclosures of agents in the PPP Lender Application, Form 2484 (Box K).

Nelson Mullins continues to advise FinTech, financial institution, and technology services clients on the implementation 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.