With assistance from some of my litigation colleagues, Bryan Cave Leighton Paisner has just published guidance on re-evaluating practices and considering some of the litigation risks that could arise with the Paycheck Protection Program.

Prior to the PPP going live on April 3, banks scrambled to assemble teams and online application in-take and processing protocols to handle the onslaught of applications.  Over 1.6 million small businesses were approved for relief, a small fraction of the total number of small businesses in the U.S. 

For many, the Program ground to a halt on April 16, 2020, a mere 13 days after it opened, when all of the $349 billion in funding was exhausted.  The abrupt and swift depletion of the Program left many small business owners in dismay and frustrated with their banks, and pondering what recourse they might have.  A few quickly filed lawsuits.  More lawsuits no doubt are coming.  

As Congress gets set to appropriate more than $300 billion in additional funding for the Program, and lenders prepare for ramping up their PPP operations for the second round of applications, it is smart to re-evaluate practices and consider some of the litigation risks that could arise. 

Lenders are trying to do what is right and manage tremendous volumes under tight timeframes and changing circumstances. Understanding operational realities and proactively managing communications both within the institution and with customers will be critical to assessing and managing potential litigation or regulatory risk. 

While there is no one “right” answer and banks often face conflicting litigation risks with regard to their processing of PPP loans, but we believe having an understanding of these risks when implementing a PPP strategy will only help banks in defending against future litigation. 

Among the factors analyzed in the guidance include:

  • Timeliness of Processing Applications
  • Prioritizing Certain Loan Applications
  • Undertaking Additional Underwriting
  • False Claims Act
  • Discriminatory Impacts
  • Post Hoc Criticism of Underwriting & Calculations
  • Consumer Fraud Claims