Bank of America class action alleges bank misleadingly marketed PPP loans to small businesses

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Bank of America PPP loans class action overview: 

• Who: Three small businesses are suing Bank of America over its management of PPP loans.
• Why: The plaintiffs say the bank misled small business owners into taking out pandemic-era Paycheck Protection Program loans that would not be forgiven by the government.
• Where: The Bank of America PPP loans class action was filed in a California federal court.

Bank of America misled small business owners into taking out pandemic-era Paycheck Protection Program (PPP) loans that would not be forgiven by the government, when owners thought they would, a new class action lawsuit alleges. 

Plaintiffs Happy Puppy LA Inc., Brandamize LLC and Aurora Environmental Services Inc. filed the class action lawsuit against Bank of America on Feb. 22 in a California federal court, alleging violations of state and federal consumer law.  

The lawsuit refers to the government’s 2020 Paycheck Protection Program. The program was to provide forgivable loans to eligible small businesses, as long as they used the loan primarily to cover “eligible payroll” costs and met other specific requirements.

The government partnered with banks like Bank of America to process the loans. The banks profited because the government paid them processing fees in amounts based on the size of the loans they issued. Fees were awarded on a sliding scale, starting at 1% of loan amounts more than $2 million, and more for smaller loans, the lawsuit states.

As banks did not have to concern themselves with whether a loan could be paid back, because the loans were meant to be forgiven, they were incentivized to increase the amounts of each issued PPP Loan, the plaintiffs say. Bank of America was the second largest private originator of PPP Loans, originating approximately $35.4 billion in loans since April 2020, the lawsuit alleges.

Bank of America misled small business owners to take out loans that would never be forgiven, lawsuit alleges

To increase the number and amount of PPP Loans it originated, Bank of America marketed the program to small business owners in a deceptive and misleading way. 

For example, Bank of America knew the government would only approve forgiveness of loans to business owners that used PPP Loans to pay retained employees, not 1099 employees. 

Nevertheless, Bank of America marketed PPP Loans as a way for small businesses to borrow money to pay independent contractors, the lawsuit states. “Bank of America’s representations were false, as many small business owners have since discovered the hard way,” it says.

The bank also forced small businesses to apply for larger loans than what they needed, even when the extra amounts would not be forgiven, the plaintiffs say. 

“Through its misleading marketing and business practices, Bank of America convinced thousands (and potentially millions) of desperate small-business owners trying to save their businesses from collapse in the midst of a global pandemic to obtain loan amounts far higher than would ever be forgiven, even though the only reason applicants were taking out these loans was because forgiveness was being offered.”

The plaintiffs are suing on behalf of any California business that received a loan from Bank of America under the PPP and were denied loan forgiveness because they included payments to 1099 workers, as well as any California business that was pushed to take out a PPP loan by Bank of America beyond the level of forgiveness.

The plaintiffs are suing for breach of contract, negligent misrepresentation, fraud, and violations of California consumer law and seeks certification of the class action and damages, among other things.

In June, Bank of America was hit with a class action lawsuit alleging it does not notify account holders it does not protect them from fraud through payment platforms like Zelle and Venmo.

Did you get a PPP loan through Bank of America? Let us know in the comments. 

The plaintiff is represented by McCune Law Group APC, Tycko & Zavareei LLP and Kelly Uustal PLC. 

The Bank of America class action lawsuit is Happy Puppy LA Inc., et al. v. Bank of America NA, Case No. 2:23-cv-01354 in the U.S. District Court for the Central District of California.

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