An IT services company has launched a class action lawsuit against Bank of America, claiming that the financial giant misused coronavirus relief funds by giving loans first to larger businesses and its own banking clients, rather than distributing the relief fairly among loan applicants as the law requires.
The Bank of America PPP loans class action lawsuit was filed by Informatech Consulting Inc., a California-based business that provides information technology consulting services to companies in primarily the pharmaceutical, biotechnology, and medical device industries.
Allegedly, the company applied for a Paycheck Protection Program loan through Bank of America, but was wrongly denied a loan. According to the company, this denial was the result of unfair lending practices by Bank of America which caused Informatech serious financial hardship.
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Informatech explains that the U.S. Small Business Administration implemented the Paycheck Protection Program to help small businesses overcome the challenges related to the coronavirus outbreak.
Specifically, the program provides loans up to $10 million each for small businesses in order to help them keep employees on payroll, explains the Bank of America class action lawsuit.
The federal government designated financial institutes like Bank of America to distribute the loans, says Informatech. In the rules for the PPP, the government allegedly stated that the loans must be distributed on a “first-come, first-served” basis.
However, Informatech asserts that Bank of America has violated the PPP rules, California law, and their fiduciary obligations by distributing loans in an unfair manner. Allegedly, the bank gives preferential treatment to larger banking clients and applicants who already bank with Bank of America.
Allegedly, this preferential treatment included fast-track procedures for wealthy clients, whereas other, smaller applicants were forced to use online portals that were inconvenient, hard to use, and full of bugs. To support this claim, Informatech notes that news sources have reported on this preferential treatment.
According to the Bank of America PPP loan class action lawsuit, these policies were implemented in an effort to boost BoA’s profits from the program.
Allegedly, by offering loans first to customers who already had accounts or credit lines with Bank of America as well as those who had more of a financial cushion of their own, the bank was able to “mitigate their own risk exposure to default” in the program.
Informatech goes on to explain that Bank of America’s practice of giving loans first to customers who already bank with Bank of America also allows the bank to receive the funds from the loan that the client then deposited into their Bank of America accounts.
This then improves Bank of America’s liquidity, says Informatech.
The coronavirus loan application class action lawsuit states that the Bank of America chose to wrongly capitalize on this relief program under the belief that they would bear no risk on the loans.
Not only did the bank not incur risk by giving loans funded by the Small Business Administration, but Bank of America did “less work to vet applications than for traditional SBA or other loans,” says the BOA COVID-19 class action lawsuit.
Lawmakers have allegedly taken note of this unlawful practice by Bank of America and other banks.
Informatech cited a formal letter from Senator Marco Rubio, Chairman of the Committee of Small Business & Entrepreneurship, to Bank of America in which the senator reminded the bank of its obligations to distribute loans without bias and on a first-come, first-served basis.
The senator allegedly stressed the importance of ensuring a “neutral distribution of assistance.”
Informatech says that, when applying for a PPP loan, the IT company was unaware that Bank of America made a practice of unlawfully prioritizing wealthy clients and those with existing BOA accounts.
The large banks COVID-19 business loans class action lawsuit says that Informatech and other loan applicants have suffered “enormous and potentially irreversible damages” because of the bank’s unfair lending practices.
The Bank of America class action lawsuit seeks compensation for damages on behalf of Informatech and similarly affected businesses, as well as an induction barring the bank from continuing to engage in these illegal practices around COVID-19 business loans.
Informatech Consulting Inc. is represented by Alex R. Straus, Daniel K. Bryson, Scott C. Harris, and Patrick M. Wallace of Whitfield Bryson Law LLP; Benjamin Galdston of Berger Montague PC; Robert K. Shelquist of Lockridge Grindal Nauen PLLP; and Lisa A. White of Greg Coleman Law PC.
The Bank of America CARES Act Class Action Lawsuit is Informatech Consulting Inc. v. Bank of America Corporation, et al., Case No. 3:20-cv-02892, in the U.S. District Court for the Northern District of California.
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