• The paycheck protection program ran out of money last Thursday and the White House and Democrats have yet to reach agreement on replenishing it
  • The most recent lawsuit was filed in California against Wells Fargo, accusing it of violating an SBA promise the loan applications would be processed in the order received
  • Some 5,000 banks participated in the program


Frustrated small business owners across the country are filing lawsuits against banks and the federal government, accusing them of playing favorites under the coronavirus Small Business Administration paycheck protection program, accusing them of giving priority to larger loans and discriminating against women and minorities.

The most recent such suit was filed late Sunday by a California company and comes as Democrats and the White House say they are close to a deal that would replenish the $349 billion paycheck protection fund created by the March 27 CARES Act with $400 billion. The program, which is aimed at encouraging small businesses to keep their employees on the payroll, ran out of money last Thursday, less than two weeks after banks began accepting applications. The loans are to be forgiven if at least 75% go toward salaries.

Some 5,000 banks participated in the program and the government also authorized fintech companies, including Square and PayPal, to help distribute the funds.

The class-action suit filed Sunday was lodged against Wells Fargo, accusing the bank of giving priority to businesses seeking large loans – limited to $10 million under legislation authorizing the program – despite SBA promises applications would be processed in the order in which they were received.

“Wells Fargo concealed from the public that it was reshuffling the PPP applications it received and prioritizing the applications that would make the bank the most money,” the lawsuit alleges.

An earlier Texas suit filed by Houston businessman Edward Scherer against Wells Fargo and Frost Bank accused the latter of picking and choosing who would gain access to the loans.

“The priority of access to these limited funds is material – the demand is overwhelming as America responds to the economic tsunami of COVID-19 upon small businesses,” the suit said.

A lawsuit filed in Greenbelt, Maryland, accused the SBA and the U.S. Treasury Department of discriminating against women and minorities, saying many never even had the chance of submitting applications because larger businesses gobbled up the cash.

“These nonemployer businesses were effectively shut out of the program because of the actions of the SBA and the Treasury Department,” an attorney who filed the lawsuit told the Annapolis Capital Gazette.

A federal judge in Baltimore, however, ruled against a class-action lawsuit accusing Bank of America of blocking some small businesses from applying for the loans based on eligibility criteria. The judge said though she was sympathetic to the plight of the businesses, the bank’s conduct did not “run afoul of the CARES Act.”