Last night, Congress passed a new COVID-19 stimulus package containing an important amendment to the CARES Act which should foreclose any possibility the Plaintiffs in the Agent Fee class actions currently pending across the country can successfully argue banks must pay them "agent fees" for preparing PPP loan applications. The amendment establishes that, contrary to the Plaintiffs' assertions, banks are not required to pay agent fees absent a written agreement with the agent to do so. Congress gave the amendment retroactive effect so it applies to every PPP loan made to date.
The amendment reads:
b) FEE LIMITS.—
(1) IN GENERAL.—Section 7(a)(36)(P)(ii) of the Small Business Act (15 U.S.C.
2636(a)(36)(P)(ii)) is amended by adding at the end the following: "If an eligible recipient has knowingly retained an agent, such fees shall be paid by the eligible recipient and may not be paid out of the proceeds of a covered loan. A lender shall only be responsible for paying fees to an agent for services for which the lender directly contracts with the agent.".
(2) EFFECTIVE DATE; APPLICABILITY.—The amendment made by paragraph (1) shall be effective as if included in the CARES Act (Public Law 116–136; 134 Stat. 281) and shall apply to any loan made pursuant to section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) before, on, or after the date of enactment of this Act, including forgiveness of such a loan.
The Agent Fees Plaintiffs previously refused to agree that a compensation agreement was required, primarily relying on language in an "SBA Factsheet" stating "Agent fees will be paid out of lender fees" received for originating PPP loans. However, 10 different federal judges have disagreed and dismissed Agent Fee class actions, holding neither the CARES Act nor its implementing regulations require lenders to pay agent fees absent a specific agreement to do so. (You can read about the first eight of these ten dismissals here. The last two dismissals – Brunner Accounting Group v. SVB Financial Group (C.D. Cal.) and Radix Law, PLC v. JP Morgan Chase Bank, N.A. (D. Ariz) – came in just days before the stimulus). We predicted such rulings were necessary to harmonize any fees allowed by the PPP with SBA's existing regulatory structure. Now, the new stimulus has enshrined this principle in law.
Plaintiffs have also previously relied on CARES Act language precluding a borrower from paying agent fees out of PPP loan proceeds and Factsheet language stating "Agents may not collect any fees from the applicant" in support of their claims that banks must pay the fee. The courts uniformly rejected these arguments as well. The amendment's express authorization for borrowers to pay agents out of non-PPP funds makes this argument even less persuasive now.
While it is impossible to predict whether Plaintiffs will attempt to avoid this direct language, it would certainly appear that the new stimulus will effectively put an end to the PPP agent fee litigation once it is signed into law.
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