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COVID-19

Wells Fargo faces proposed class action over PPP loan application process

Gavin Hart, Esq.  

Gavin Hart, Esq.  

(June 10, 2020) - A California pet grooming company says small businesses have not received fair financial relief from the coronavirus pandemic because Wells Fargo & Co. discriminated against them during the application process for Paycheck Protection Program loans.

Karen’s Custom Grooming LLC v. Wells Fargo & Co. et al., No. 20-cv-956, complaint filed, 2020 WL 2754919 (S.D. Cal. May 22, 2020).
 
According to the proposed class-action complaint filed May 22 in the U.S. District Court for the Southern District of California, Wells Fargo prioritized big businesses and its preferred clients for the PPP loans and required applicants to have checking accounts with the bank.
 
Karen’s Custom Grooming LLC filed the suit on behalf of two proposed classes of businesses and individuals who contacted Wells Fargo to apply for PPP loans and whose applications were delayed or not processed in the order they were received.
 
Congress passed the Coronavirus Aid, Relief and Economic Security Act, Pub. L. No. 116–136, 134 Stat. 281, establishing the government-guaranteed forgivable loans by private lenders to small businesses to address the economic effects of COVID-19.
 
The PPP loans provide funds for businesses to cover essential costs, such as rent and payroll, during the virus outbreak.
 
Delayed or unprocessed loans
Small Business Administration regulations, which govern the PPP, require applications for the loans to be processed on a first-come, first-served basis to ensure fairness.
 
According to the complaint, Wells Fargo announced April 5 that it would be prioritizing loan applications for businesses with fewer than 50 employees. However, the bank allegedly prioritized applicants that had established relationships with the bank and that would borrow larger amounts and provide higher origination fees from the loans.
 
The suit says Wells Fargo represented that the PPP loan program would be open to anyone and that applicants would be placed in a queue to receive the loans based on when they expressed interest in applying.
 
KCG alleges the bank only opened applications for businesses that had a checking account with Wells Fargo as of Feb. 15, a requirement not found in the CARES Act or SBA regulations.
 
The suit says the bank, “by design or negligence,” did not host an active, reliable website on which to request an application, which further delayed the distribution of loans.
 
As a result, KCG says it could not apply for a loan until April 16, the day the SBA announced the original $349 billion PPP fund was exhausted.
 
Wells Fargo’s misconduct prevented or delayed applicants from submitting PPP applications through other lenders and from using the PPP loans to maintain business operations during that time, the suit alleges.
 
The complaint asserts 11 claims, including intentional and negligent misrepresentation, fraudulent concealment, and violations of the California unfair-competition law, Cal. Bus. & Prof. Code §17200, and the false-advertising law, Cal. Bus. & Prof. Code §17500.
 
KCG, represented by Kathleen A. Herkenhoff, from San Diego-based law firm Haeggquist & Eck, seeks unspecified damages on behalf of nationwide and statewide classes of businesses.

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