Professionals sue banks for cut of loan fees

Attorneys, accountants and loan brokers sued major banks, saying they were not paid for helping to process small business loan applications under the federal government's emergency relief effort.

The proposed federal class action was filed Friday in Los Angeles on behalf of Brunner Accounting Group. Lenders are refusing to pay agents their rightful fees for work processing Paycheck Protection Program applications as mandated by law, the complaint said.

"Instead, they kept all of the origination and processing fees for themselves, in direct violation of the SBA regulations," the complaint states. Brunner Accounting Group v. SVB Financial Group, Silicon Valley Bank, Bluevine Capital Inc., JPMorgan Chase & Co., Bank of America, et al., 2:20-CV-04235 (C.D. Cal., filed May 8, 2020)

Michael E. Adler of Graylaw Group Inc. in Calabasas has challenged lenders on behalf of agents in Utah, Ohio and Illinois. Adler, who is representing Brunner and other accounting, consulting and law firms, teamed up with Geragos & Geragos and The Dhillon Law Group to file multiple class actions in California as well. American Video Duplicating Inc.; Tush Law LTD et al. v. Citigroup Inc., U.S. Bancorp et al., 2:20-CV-03815 (C.D. Cal., filed April 27, 2020).

While Adler agrees SBA guidelines have changed often during the crisis to get money out quickly, he said one rule hasn't changed since March: Any certified professional helping clients fill out Paycheck Protection Program applications must be compensated for their work by the banks.

"I'm not speaking out against what the government is doing, and don't have a problem with banks being involved," Adler said. "The volume of loans is out of control and banks weren't prepared for it, but they're not following the law concerning agent fees."

SBA rules say lenders are paid processing fees based on the balance of financing when they issue their final loans. Banks are projected to make $20 billion from originating loans.

Representatives for Silicon Valley Bank, Bank of America and JPMorgan refused to comment. Other institutions couldn't be reached for comment.

As Democratic lawmakers fight for more stimulus funds in coming days, legal experts question whether banks should be eliminated from the process given the recent debacles last month over alleged use of loopholes to favor big clients for origination fees.

Dylan Ruga, a partner at Stalwart Law Group who isn't involved in the Brunner class action but has sued banks relating to SBA loans, said Monday, "It's no surprise that banks withheld payments from agents."

"The banks view the PPP as a cash-grab and they have no intention of sharing any of it unless forced to do so, even though agents were an integral part of the process and deserve to be compensated for their efforts," Ruga said.

According to SBA regulations, agent fees must be paid out of lender fees, and clients cannot be billed by agents. Agents can receive 1% for loans of less than $350,000; .5% for loans between $350,000 and $2 million, and .25% for loans worth at least $2 million.

Adler said he processed about 120 PPP applications for clients since April and reached out to more than 100 banks for compensation, half of which he said either won't pay agents or denied the rules apply to them.

Christopher Karachale, partner at Hanson Bridgett LLP who isn't involved in the case, said it raises very valid points, especially about the language forbidding lawyers from billing clients relating to PPP, which poses risks for attorneys and other agents who unknowingly billed their clients.

"The idea that Congress tells lawyers they can't bill their clients for legal work is absurd," he said.

Karachale however said he doesn't believe the Treasury Department or SBA has the infrastructure to handle the voluminous loan applications and eliminate banks from the process. The point of the Coronavirus Aid, Relief and Economic Security Act was to offset some of the processing tasks to banks, he said, but perhaps with more foresight the program could be run in such a way by using data and payroll information from the Federal Reserve or the IRS.