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The Lawsuits Against Bank Distributions of PPP Loans Keep Coming

Loan application with denied stamp on it,
By Joseph Fawbush, Esq. | Last updated on

Another new lawsuit has been filed against Wells Fargo, the nation's fourth largest bank, over its handling of Paycheck Protection Plan (PPP) loans. Federal and state agencies began investigating Wells Fargo's handling of PPP loans in late April and early May. They are already facing class actions in Texas, California, and Colorado.

The lawsuits allege that, rather than distribute PPP loans on a first-come, first-served basis, as directed by U.S. Treasury and Small Business Administration, Wells Fargo prioritized large businesses.

Wells Fargo is not alone in having to defend its PPP policies. JP Morgan Chase, US Bank and Bank of America are facing similar lawsuits. The lawsuits allege that banks prioritized larger firms in order to obtain a greater amount of loan origination fees, among other financial considerations. Banks have argued that different divisions processed the loans, meaning that departments for small businesses became overwhelmed and led to a greater number of small businesses not getting their applications in on time.

Plaintiffs argue that regardless of how it happened, banks failed to deliver PPP loans on a first-come, first-served basis, violating Congress' intent.

Shareholder Suit

Unlike previous class actions, however, the new lawsuit against Wells Fargo is a shareholder action that alleges the bank lied to its shareholders about its handling of PPP loans. After Wells Fargo revealed government agencies were investigating in May, stock prices dropped 6%. It had previously dropped 5% after the first lawsuit against the bank was filed in April.

Wells Fargo has experienced significant backlash in recent years. The Federal Reserve has implemented a balance sheet cap on Wells Fargo to avoid further scandals such as opening checking and savings accounts on customers without their knowledge or consent. The Federal Reserve made an exception for PPP loans, however, in order to allow Wells Fargo to process as many loans as possible under the program. 

The lawsuit was filed in the United States District Court for the Northern District of California, as is seeking damages on behalf of shareholders for harm caused between April 5, 2020, and May 6, 2020.

PPP Problems Continue

Meanwhile, Congressional actions to improve the Paycheck Protection Program continue. On June 5, President Trump signed into law the Paycheck Protection Flexibility Act, which lowers the threshold amount needed to spend on payroll from 75% to 60%. Small businesses that now spend only 60% on payroll will receive loan forgiveness.

As of June 1, PPP loans have reached millions of businesses and distributed over $500 billion. The SBA has indicated funds remain.

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