Paycheck Protection Program litigation is trending in several categories, one of which centers on the payment of agent fees. These litigation trends, tracked on Jones Walker’s PPP Bank Litigation Tracker, reveal key indicators and risk mitigation strategies for the court battles ahead regarding the $659 billion program.
Agent-fee lawsuits have quickly become a fast-growing category of PPP litigation in federal courts across the United States, and are poised for consolidation in multidistrict litigation. Under the PPP, an agent, such as an accountant or a consultant, may assist a lender with originating and preparing a loan application. Agents have filed lawsuits claiming that banks unlawfully withheld fees owed to agents for assisting in the application process. Many agents lacked a clear agreement with banks regarding compensation, and many banks have taken the position that no compensation is due in the absence of a written agreement. Even absent a written agreement, agents have asserted federal law claims for violation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Small Business Administration’s 7(a) loan program, referencing the SBA Interim Final Rule, which establishes the maximum fee an agent may collect from a lender; and the PPP Information Sheet for Lenders (PPP ISL), which provides, in part, that “[a]gent fees will be paid out of lender fees.” Some lawsuits have also asserted state law claims for unfair business practices, violation of consumer protection laws, and unjust enrichment, among others.
One indicator for the direction of agent-fee litigation emerged during the June 30, 2020, hearings before the House of Representatives, when Treasury Secretary Steven Mnuchin clarified that the agent-fee guidance “was intended to be based on a contractual relationship between the agent and the bank.” Secretary Mnuchin also indicated that clarifying guidance on this issue was forthcoming. This signals a Treasury position that may align with that of some banks — that the guidance on agent fees was merely a reference to the permissibility of banks to engage and compensate agents under the SBA 7(a) regulations. As these lawsuits progress, the Treasury’s position may not foreclose agent-fee disputes, particularly where lawsuits have asserted state law claims, but an interpretation of the PPP regulations that requires a contractual relationship for the payment of agent fees may curb the viability of many agent-fee claims.