1489313 - Hogan Lovells FIS Horizons 2021 update - Flipbook - Page 13
Financial Institutions Horizons
13
COVID-19 relief efforts spark litigation and
investigations in the U.S.
In the U.S., the government response to COVID-19 has prompted numerous litigation
claims from a diverse set of plaintiffs. Many of these claims relate to the federal
Paycheck Protection Program (PPP), which was created by the federal CARES Act and
distributed $660 billion in forgivable business loans. The PPP, which ended 8 August
2020, was administered by the Small Business Administration (SBA), although private
sector banks processed applications, disbursed the loan proceeds, and were paid a
processing fee for doing so.
Some PPP applicants used agents to help prepare
their applications. More than 60 lawsuits,
many of them class actions, have been filed on
behalf of such agents, claiming that the banks are
required to share their CARES Act processing fees
with the agents. More than 100 banks have been
named as defendants in “agent” lawsuits. In August
2020, the Judicial Panel on Multidistrict Litigation
declined to consolidate these cases. At least two
federal courts have dismissed the agents’ claims on
the ground that the CARES Act does not require
banks to pay agents a portion of the PPP processing
fees absent an agreement between the agent and
lender. See Johnson v. JPMorgan Chase Bank,
N.A., No. 20-cv-04100-JRS, 2020 WL 5608683
(S.D.N.Y. Sept. 21 2020); Sport & Wheat, CPA,
PA v. Servisfirst Bank, Inc., No. 3:20CV5425TKW-HTC, 2020 WL 5507551 (N.D. Fla. Sept. 4,
2020). An appeal of the decision issued in Johnson
v. JPMorgan is pending before the Second Circuit
Court of Appeals, and dozens of these cases
continue to work their way through the courts.
A number of small businesses that failed to obtain
PPP loans, or were delayed in securing such loans,
have also sued banks. In general, the claims in these
cases are that the banks fraudulently or negligently
delayed processing applications or failed to
process PPP loans on a first-come, first-serve
basis. In particular, many plaintiffs have alleged
that banks improperly prioritized applications for
existing customers or larger companies in order to
maximize their processing fees.
Litigation has also arisen out of the CARES
Act requirement that borrowers with federally
backed mortgages may obtain forbearances
if they are experiencing a financial hardship
during the COVID-19 emergency. The CARES Act
amended the Fair Credit Reporting Act (FCRA)
to require that financial institutions making an
“accommodation” to a consumer’s payments on
a credit obligation report such credit obligation
or account as “current”, and not in “forbearance,”
during the period of the accommodation.
Numerous suits are pending in which consumers
allege that they were: (1) not granted the
forbearance required by the CARES Act; (2)
“opted in” to a voluntary mortgage forbearance
program without proper notification; or (3)
negatively impacted by reports made to credit
reporting agencies that did not comply with
FCRA as amended by the CARES Act. Litigation
related to credit reporting was already on an
upswing before the pandemic. We expect this
trend to accelerate after the CARES Act mandated
forbearance periods end and credit reporting
obligations are removed, allowing lenders to make
more negative credit reports.
