Wells Fargo Class Action Says Small Shops Denied PPP Loans

A class action lawsuit has been filed against Wells Fargo by small businesses who claim that the bank prioritized Paycheck Protection Program (PPP) loans to those businesses who were seeking larger loan amounts as those applications would generate larger loan origination fees for the banks.

Plaintiffs BSJA Inc., an automotive repair shop in Glendale, Calif., and Alexhd LLC, a frozen yogurt business in Montrose, Calif., say that Wells Fargo was supposed to process the PPP loans on a “first come, first served” basis, but instead processed loan applications from larger companies first.

The plaintiffs allege that, on April 10, they submitted an application to Wells Fargo in order to obtain a PPP loan. They claim that they believed Wells Fargo representations that the bank would be focusing their efforts on small businesses with 50 employees or less as those companies were the most impacted by the coronavirus pandemic.

The Wells Fargo lawsuit argues that, after the plaintiffs submitted their applications, they waited to get funding and made strategic business decisions based on Wells Fargo’s statements that they would be focusing their lending on smaller businesses and providing loans on a “first come, first served” basis.

Did you apply for a PPP loan at Wells Fargo but it wasn’t processed? Get legal help here.

However, Wells Fargo allegedly did not follow the Small Business Association (SBA) regulations when processing loans. The bank did not focus their loans on smaller businesses and did not process the loans on a “first come, first served” basis, according to the Wells Fargo class action lawsuit.

The plaintiffs maintain that Wells Fargo instead moved higher dollar applications from large and mid-sized companies to the “front of the line” in order to maximize their origination fees on the federally backed loans.

In response to the coronavirus pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was signed into law by the President on March 27, 2020.

The legislation included $377 billion in loans to small businesses and established a $500 billion government lending program for distressed companies.

$349 billion in loans were directed to a program called the “Paycheck Protection Program” (PPP) which aims to provide loans to small businesses during a period of time from Feb. 15 to June 30, 2020, the Wells Fargo class action lawsuit states.

The plaintiffs say that one of the most important parts of the PPP loans is that it incentivizes companies to keep employees on staff and not lay them off during the coronavirus crisis.

The United States Department of Treasury announced that, starting April 3, 2020, small businesses could apply for and receive money from the PPP to cover payroll and other expenses through SBA lenders, of which Wells Fargo was one. 

Unfortunately, Wells Fargo allegedly failed to follow regulations when processing PPP loan applications. Even though they did not focus their attention on small businesses with 50 employees or fewer or process the loans on a “first come, first served” basis, Wells Fargo made numerous representations that they were in fact performing these tasks as they were intended by Congress, the plaintiffs allege.

“Wells Fargo tried to cultivate public good will and to communicate they were following the law, when in fact the process was rigged so that the banks could maximize origination fees,” says the Wells Fargo class action lawsuit.

The plaintiffs state that, if they had known that Wells Fargo would be prioritizing loans from larger businesses, they would have avoided harm by applying for a loan from a different bank such as a local community bank.

The Wells Fargo class action lawsuit notes that no eligible borrower can receive more than one loan and, if a borrower applies for multiple PPP loans from different lenders, a law enforcement fraud alert will be triggered.

This is not the first lawsuit that has been filed against Wells Fargo related to the PPP loans. The bank was recently sued by a small business owner in Texas who claims that the bank prioritizes giving loans to those who already have a checking account with Wells Fargo.

Even though the plaintiff in that case meets the requirements for a PPP loan, he was unable to get one because he does not have a business checking account with the bank.

Prospective Class Members include: “All businesses in the State of California that met the criteria for receiving a loan under the PPP, i.e. met the criteria for eligibility and were not otherwise ineligible, between February 15 and June 30, 2020, who timely applied for a PPP loan through Wells Fargo, whose applications were not processed and/or who were not issued loans in accordance with SBA Regulations.”

The plaintiffs are represented by Dylan Ruga, Ji-In Houck and David Angeloff of Stalwart Law Group.

The Wells Fargo PPP Loan Class Action Lawsuit is BSJA Inc., et al. v. Wells Fargo & Co, et al., Case No. 2:20-cv-03588, in the U.S. District Court for the Central District of California.

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