Dylan Ruga, with the Stalwart Law Group.

Ten California businesses, including two law firms, filed class actions alleging major banks such as Wells Fargo & Co. and Bank of America prioritized larger loan applicants as part of the federal $349 billion COVID-19 emergency relief program.

The Paycheck Protection Program, launched April 3 as part of the $2 trillion Coronavirus Aid, Relief and Economic Security Act, or CARES Act, provides loans designed to fund more than two months of payroll expenses to small businesses.

In four separate class actions, filed Sunday in federal court in the Central District of California, attorney Dylan Ruga alleged that, despite program requirements that financial institutions must review applications on a first-come, first-serve basis, banks processed larger loans first in order to generate $6 billion in origination fees.

"The concern for all of them is that they still have bills to pay, and they have payroll and other expenses to meet, and they're uncertain at this point if they will get any funding from the government," said Ruga, of Stalwart Law Group in Los Angeles, of his small-business clients. He also sued JPMorgan Chase & Co. and U.S. Bank. "In the meantime, they are continuing to try to keep the doors open as best they can."

The lawsuits seek to represent small businesses in California, but Ruga said he planned to file four additional class actions against the same banks in New York.

Bank of America spokesman Bill Halldin said the bank denied the allegations, and a representative of JPMorgan did not respond to a request for comment.

"We are aware of the class-action lawsuit filed and we plan to vigorously defend ourselves as it is without merit," said U.S. Bank spokeswoman Cheryl Leamon. "The cumulative industry data provided by the SBA is not reflective of U.S. Bank's practices or results. We continue to serve our small business customers and are prepared to process loans as quickly as possible should additional funds become available."

U.S. Bank, in a statement last week, said it had secured funding for more than 17,000 customers, with thousands more applications "moving through the process." It said it was working "around the clock" to move applications through as quickly as possible.

In an emailed statement responding to the new lawsuit, Wells Fargo spokesman Manny Venegas wrote, "Wells Fargo is working as quickly as possible to assist small business customers with the Paycheck Protection Program (PPP) in compliance with the regulations and guidance provided by U.S. Treasury and the SBA. We have mobilized thousands of employees and launched new technology to better assist customers seeking assistance via the Paycheck Protection Program."

The Small Business Administration announced April 16 that the loan program ran out of money, but Congress is considering allocating billions more for the program.

"That's one of the reasons we wanted to get the lawsuits on file as quickly as we did was to raise awareness of this issue, so that if the PPP is replenished, which I hope it is, that the banks will handle the application process correctly the next time around," Ruga said.

Bank of America already faces a class action alleging that, as part of the same loan program, it rejected applications from small businesses that did not have an existing lender relationship with the bank, or that had borrowed from competing institutions. On April 13, a federal judge in Maryland refused to halt Bank of America's practices, which the bank insisted were necessary to ensure efficient processing.

The new lawsuits all allege the banks falsely assured small businesses that they would process loans on a first-come, first-serve basis. The suits cite SBA statistics revealing that, through April 13, 15% of the loan processed were for those seeking the smallest loan amounts of less than $150,000. However, in the final days of the program, through April 16, those loans amounted to more than 17%, showing that banks reshuffled the application process, leaving small businesses funded last.

"We compared where the money went, as of April 13, which was about 10 days into the program," Ruga said. "The loans that were being processed in first 10 days were much larger than the loans in the following three days before the money ran out, between the 13th and the 16th, which indicates to us the big loans were being front-loaded so the banks could maximize the origination fees they're making on the loans."

Among the lead plaintiffs were two law firms that do immigration work: The Law Office of Sabrina Damast Inc., based in Los Angeles, which sued Bank of America, and the Law Office of Irina Sarkisyan, based in Glendale, California, a lead plaintiff in the case against U.S. Bank. Other plaintiffs in the cases included a frozen yogurt shop, an optometrist and a cyber-defense services firm.