Judge Skeptical of Accountants Claims to PPP Fees From Chase

A federal judge Friday questioned claims that accountants, lawyers, and other consultants are entitled to be paid by banks including JPMorgan Chase and Citibank for helping small businesses apply for pandemic relief loans this spring.

The banks Friday sought to dismiss class actions that allege Small Business Administration rules for the Paycheck Protection Program require the lenders to compensate accountants and other businesses that helped borrowers apply for the relief loans. The accounting firms and a retired accountant involved in the cases argued that the rules for the program entitle them to receive up to 1 percent of the fees the federal government said it would pay the lenders for processing the loans.

Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York said he was skeptical of the accounting firms’ core premise because the CARES Act, the law that created the PPP lending program, mentions fees only to set a cap on them.

“If Congress, or as a fall back the administrator, wanted to guarantee the agent fees, why didn’t they say so directly? It seems like something that would have been so simple to put in,” he said. “But instead you are claiming that its implicit in the structure of the situation.”

Dozens of accounting firms have sued more than 100 lenders over PPP agent fees in federal courts across the country. The firms said the banks refused to enter into agent fee arrangements and prevented borrowers from sharing information about who helped them prepare the application.

Lawyers for the banks said that the accountants never reached agreements with the lenders that would have detailed the services they would provide to the borrower and what fee they would receive—a requirement under longstanding SBA rules for a similar loan program the PPP was based on. They also said the banks didn’t benefit from any of the agents’ work, had no relationship with the firms, and therefore shouldn’t have to pay any fees.

Attorneys for the accountants said the banks came up with their own “secret preconditions” that were outside the bounds of what the PPP called for or intended. Reaching agreements with the banks ahead of time only would have created more barriers for a program that intentionally stripped away traditional SBA rules in order to quickly get cash to small businesses coping with coronavirus-triggered shutdowns, they argued.

Rakoff said he would decide whether to dismiss the case in the next few weeks.

The virtual hearing comes just a few days after a federal judge in Florida tossed out a similar case, finding that agents were not entitled to be paid by the lenders.

The case is Quinn v. JPMorgan Case Bank N.A., S.D.N.Y., No. 20-cv-4100, oral arguments 8/21/20.