Home Builders Sue, Say Rule on Relief Loan Eligibility Invalid

A rule blocking numerous businesses from loans created through a pandemic relief law conflicts with the law’s eligibility requirements, according to a complaint filed by a builders trade association.

The National Association of Home Builders filed the complaint with the U.S. District Court for the Eastern District of Michigan, Southern Division on Tuesday, which is the deadline for businesses to apply for Paycheck Protection Program loans under the relief legislation known as the CARES Act (Public Law 116-136). The association asked the court to permanently block enforcement of the rule’s eligibility restrictions.

The complaint alleges that the Small Business Administration violated the Administrative Procedure Act by issuing an interim final rule that imposed exclusions predating the CARES Act onto the act’s PPP loans as well as its PPP loan forgiveness. The APA establishes rules governing federal agency regulation.

“Simply put, Congress did not pick winners and losers in the PPP; instead, Congress intended to provide temporary paycheck support to all Americans employed by all small businesses that satisfied the statute’s eligibility requirements—even businesses that may have been ineligible for other SBA programs during normal times,” the association said.

The association also alleged that the SBA caused businesses to risk their financial security by keeping employees on payroll while receiving loans, only to see the SBA shift its standards.

“Now, having done everything Congress required of them, these businesses will likely be compelled to repay their loans because of the SBA’s unlawful eligibility restrictions, even as the economic crisis continues,” the association said.

The association includes 700 state and local affiliate associations representing around 140,000 members that in total employ over 3.4 million people, according to the complaint. The Home Builders Association of Michigan and the Home Builders Association of Southeastern Michigan are also plaintiffs in the case.

The case is Nat’l Ass’n of Home Builders v. Small Bus. Admin., E.D. Mich., No. 2:20-cv-11780, complaint filed 6/30/20.