Skip to content
COVID-19

Payday lender sues over ‘unjustified’ COVID-19 loan denial

Nate Raymond  Reuters News

Nate Raymond  Reuters News

(Reuters) - A California payday lender has filed a lawsuit challenging the Trump administration’s decision to bar financial companies that primarily engage in lending from receiving emergency small business loans under the federal government program established last month in response to the coronavirus pandemic.

Payday Money Centers in a lawsuit filed on Saturday in federal court in Washington, D.C., said the U.S. Small Business Administration had taken an “unjustified stance” in rules it issued governing the Paycheck Protection Program.
 
The program, created as part of last month’s $2.2 trillion economic stimulus law the CARES Act, allows struggling small and medium-sized businesses to obtain loans through banks that can be forgiven if they keep their employees on their payrolls.
 
The loan program has been overwhelmed with demand, and the initial $349 billion funding for the program was quickly depleted. Congress last week approved another $321 billion to replenish the program.
 
Payday Money Centers’ lawyers, led by Christopher Hatfield of Ballard Spahr, in its complaint said the company applied for a $644,382 loan on April 3, the first day it could, but Republic Bank of Chicago denied its application.
 
The bank cited rules the SBA adopted that bar PPP loans from going to “financial businesses primarily engaged in the business of lending,” one of a number of categories of businesses the agency deemed ineligible for the loans.
 
The company’s lawyers argued the rule contradicted the plain language of the CARES Act, which provides that “any business concern” with 500 employees or less “shall be eligible” for a PPP loan.
 
The lawsuit seeks a temporary restraining order requiring the SBA to set aside $644,382 so it could be able to guarantee a loan to the company up to that amount and a ruling declaring that the SBA’s prohibition on PPP loans going to lenders is unlawful.
 
Payday Money Centers said without a loan, it would need to shut down most of its 22 stores in California and likely its entire business after already suffering losses due to the COVID-19 crisis.
 
The SBA declined to comment.
 
The lawsuit is one of a number of cases filed by businesses challenging SBA rules that make them ineligible for PPP loans to cope with the economic fallout of the pandemic.
 
More than 24 million people have filed for unemployment benefits since mid-March after states began requiring businesses to close to deter the spread of the virus and advising residents to stay home.
 
Last week, a federal judge in Washington declined to block the SBA from preventing pollsters, lobbyists and campaign operatives from receiving PPP loans.
 
A federal judge in upstate New York is expected to consider on May 15 whether the SBA can also prevent loans from going to bankruptcy debtors in a lawsuit by the Diocese of Rochester and the Diocese of Buffalo.
 
The case is Payday Loan LLC v. United States Small Business Administration, et al, U.S. District Court for the District of Columbia, No. 1:20-cv-01084.
 
For Payday Money Centers: Christopher Hatfield, Constantinos Panagopoulos, Daniel Tobin, Jeremy Rosenblum and Sarah Reise of Ballard Spahr
 
For the SBA: James Gilligan of the U.S. Justice Department

To keep up-dated on the latest news and information regarding the COVID-19 pandemic, the economic impact, and the government’s response, at Thomson Reuters’ COVID-19 Resource Center, and you can follow Reuters.com or the Reuters App.

More answers