Because SBA was ordered to disclose the identities of millions of business owners who took Paycheck Protection Program (“PPP”) loans during the pandemic (after having previously disclosed loan data concerning borrowers that received $150,000 or more), an unintended consequence of the disclosure has been a proliferation of vendors who have contacted PPP borrowers. These “vendors” have advised many bank customers that these agents are needed by them to complete the forgiveness documentation. In turn, PPP borrowers are now reaching out to lenders stating that they have been contacted by vendors offering to provide forgiveness assistance, often for a fee that must be paid by the lender.
Lenders need to meet this challenge with care. With regard to whether a borrower needs an agent to assist with the loan forgiveness application, it is important for lenders to remember that while lenders were entitled to certain “hold harmless” provisions with regard to making PPP loans and evaluating borrower PPP loan applications, there is no comparable safe harbor regarding the level to which a lender may assist or otherwise participate in the preparation of a borrower’s PPP forgiveness application. Lenders should be wary of providing assistance to borrowers with regard to forgiveness applications, and should recommend that borrowers seek assistance from competent and qualified third parties if needed.
Lenders should be prepared for these requests from their customers and take affirmative steps to reduce the chance of fraud and the spread of misinformation. Lenders should consider notifying PPP borrowers and warning them of potential fraud and misinformation, and encourage borrowers to seek trusted advisors such as certified public accountants, attorneys and other reputable service providers in the event a borrower decides to seek assistance with the forgiveness request.
Even legitimate vendors may run afoul of the lack of guidance in the CARES Act concerning payment of agent fees, a topic that has resulted in numerous lawsuits to date. While the lawsuits continue, none has yet been successful in requiring a lender to pay agent fees for any aspect of the PPP process without a contractual agreement between the lender and the agent. For example, in Sport & Wheat, CPA, PA v. ServisFirst Bank, Inc., et al., the U.S. District Court for the Northern District of Florida dismissed the complaint of an accounting firm seeking to be paid by certain PPP lenders for its provision of services to borrowers involving the preparation of PPP loan applications. The complaint alleged unjust enrichment, a contract implied in law, and conversion, among other things. All of the counts were dismissed by the Court, which held that the CARES Act merely provided that fees given to agents assisting eligible recipients could not be paid by a borrower, out of PPP proceeds, or in excess of limits set by Administrator of the SBA, and indicating further that there is no language in the CARES Act or subsequent guidance indicating a requirement for lenders to pay agent’s fees absent an agreement to do so. See Sport & Wheat, CPA, PA v. ServisFirst Bank, Inc., No. 3:20CV5425-TKW-HTC, 2020 WL 4882416 (N.D. Fla. Aug. 17, 2020).
In sum, lenders should remain vigilant throughout the PPP loan process, and consider developing a uniform plan to communicate with customers with regard to the use or availability of other service providers. While recognizing that sophisticated assistance from reputable professionals may be helpful, lenders must manage these third parties with care. Assistance from competent professionals may be a service that benefits both lenders and borrowers by streamlining the forgiveness process, while also removing the lender from the role of assisting with the forgiveness application. As good stewards of the SBA program, if a lender suspects fraud or SBA program abuse, the actions of unscrupulous third parties should be reported to the SBA Office of Inspector General or the applicable regulatory agency.
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