CALIFORNIA – A massive $3.85 billion class action was filed this morning in the United States District Court for the Central District of California alleging that lenders have failed and refused to pay agents of borrowers the fees they are owed as part of the Paycheck Protection Program (PPP), MeidasTouch has exclusively learned.
Under the PPP, approximately 5,000 banks and lending institutions have served as intermediaries between the government and borrowers (who are supposed to be small businesses) to process loans. Under the United States Department of Treasury’s PPP Information Sheet, lenders may take in 1% to 5% in fees for processing the loans for the borrowers.
You may recall that banks came under fire last week for prioritizing larger businesses who the banks had preexisting relationships with for loans, so the banks could earn larger processing fees. Just by one example, for the $10 million loan to Ruth’s Chris Steakhouse, JPMorgan Chase & Co., acting as the lender, took a $100,000 fee on the one-time transaction. Banks have earned billions of dollars in processing fees already under the PPP.
The class action filed this morning in California Federal Court alleges that the banks and lenders are not supposed to keep the entire processing fee if the borrower was assisted by an agent in processing the loan and is supposed to share the fee with the agents.
The class action cites Treasury Department guidelines which state that borrowers may rely on agents such as “lawyers, accountants, consultants” and others and the agents are to be compensated by the lenders.
The Treasury guidelines hold that “Agent fees will be paid out of lender fees. The lender will pay the agent. Agents may not collect any fees from the applicant.” According to the guidelines, agents for the borrowers who assisting in preparing the applications should receive between .25 percent to 1 percent of the loan amount to be paid from the lenders processing fee.
The class action is brought on behalf of a number of these agents against some of the largest banking institutions including JPMorgan, Wells Fargo, Citigroup, Citibank, and other large lending institutions. The class action names 4,975 lending institutions as “DOE” Defendants meaning all the banking and lending institutions that are part of the PPP will likely be added as Defendants in the lawsuit.
The class action alleges claims for unjust enrichment, unfair business practices, and declaratory relief and asks the federal court to direct all banking institutions to set aside a portion of their fees to be paid to the agents of borrowers in the next 60 days.
MeidasTouch has exclusively reviewed nearly a dozen communications between agents of borrowers and banking institutions confirming that the banking institutions would not be paying agents the agent fee. By way of one example, below is an email between a Wells Fargo executive and an agent’s representative where Wells Fargo expressly states it would not be paying the fee. We have redacted the identity of the executive and agent to protect their privacy.
The federal class action lawsuit is titled American Video Duplicating, et al. v. Citigroup, Inc., et al.
The full class action complaint is embedded below:American-Video-Duplications-et-al-v-Citigroup-Inc-et-al