Bank of America

Bank of America has turned to a team from Williams & Connolly to fight a court action that it says would threaten the federal government's $349 billion relief program in which small businesses receive loans to stay afloat during the COVID-19 outbreak.

The filing, made Thursday, opposes a motion for a temporary restraining order in a class action alleging Bank of America limited its loans under the Paycheck Protection Program to applicants that don't have lending relationships with other banks. The program, launched April 3 to protect payroll expenses for two months, is part of the $2 trillion stimulus package called the Coronavirus Aid, Relief and Economic Security Act, or CARES Act.

Bank of America said the lawsuit, and any potential temporary restraining order, would threaten its ability and that of other financial institutions to get loans to small businesses efficiently.

"Plaintiffs' lawsuit, asking this court to dictate the criteria under which banks must accept applications, would significantly interfere with efforts by BofA to provide these needed loans," wrote Williams & Connolly partners Beth Stewart, Enu Mainigi, Kenneth Smurzynski and Craig Singer. "Such an injunction would perversely chill PPP lending, not just by BofA but by all other lending institutions, because even to enter the program at all risks lawsuits of this very sort."

Alan Rifkin, managing partner of Rifkin Weiner Livingston in Annapolis, Maryland, who filed the lawsuit, continued to push for a temporary restraining order that would prevent Bank of America from imposing restrictions on loan applicants. His motion says the restrictions threaten the shutdown of thousands of small businesses.

"This is no small harm," he said. "Some of these folks who accessed the program and were denied, when they should not have been denied, shut their doors."

U.S. District Judge Stephanie Gallagher of the District of Maryland, has set a hearing on the motion for Friday.

The lawsuit comes as several small businesses complained they were unable to apply for the loans in the first days of the paycheck program. Sen. Marco Rubio, a Republican from Florida, aired complaints about Bank of America on Twitter. Two U.S. Congressmen from Maryland, Rep. David Trone and Sen. Chris Van Hollen, both Democrats, wrote in a Monday letter to U.S. Department of Treasury Secretary Steven Mnuchin that its recent guidance "seems to weaken the program" and that several Maryland constituents "are facing difficulties obtaining loans."

"For example, some financial institutions have required that businesses have an existing line of credit or a credit card account in order to obtain a loan," they wrote. "Imposition of such requirements, which are outside the purpose of the program, are unnecessary at best and, in the case of some of our constituents, harmful to their ability to access the program."

Rafkin's firm originally filed the case against Bank of America on April 3, after the bank began denying loans to applicants that were not its existing lending customers. The next day, Bank of America began accepting depository clients but continued to impose restrictions on businesses that have credit or lending relationships with other banks, prompting Rifkin Weiner Livingston to amend its complaint.

"Bank of America, like most banks, has a loan portfolio, which is very important to the financial wherewithal for the bank," Rifkin said. "By prioritizing their lending portfolio over those that don't owe them money, they were prioritizing their own balance sheet to ensure that small businesses that owe them money got enough resources to pay Bank of America back. That wasn't the justification for the program. That kind of distinction is not supposed to be made."

In the class action, four small businesses serve as lead plaintiffs. They tried to apply for a loan through Bank of America, but only one was successful.

Bank of America, on Thursday, raised questions about the standing of the lead plaintiffs, noting that any of them could go to another of the 2,400 financial institutions providing loans through the program, which is available until June 30.

It also insisted that the CARES Act and Small Business Act, cited in the complaint, provided no private right of action to bring the lawsuit.

Moreover, Bank of America wasn't violating the CARES Act, which does not require banks to provide the loans, and had imposed the restrictions, as other banks have done, to streamline the process of approving applications, the company's lawyers assert. As of April 6, Bank of America had received applications from 177,000 small businesses for $32.6 billion in financing.

"BofA's decision to prioritize lending to clients who do not have lending relationships with other banks is simply an effort to direct its resources quickly and efficiently," the Williams & Connolly lawyers wrote. "Because lenders already have information about their existing clients, prioritizing those clients streamlines the application process, meaning more loans are processed faster."