Payday Lender Resigns Claiming Eligibility for Paycheck Protection Program Loans | Burr & Forman


A payday lender recently filed a lawsuit against the Small Business Administration (“SBA”) in the US District Court for the District of Columbia in connection with its loan application for the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security Pending Law (“CARES Law”). See Payday Loan, LLC v United States Small Business Administration, Civil Claim No. 1: 20-cv-1084 (DDC April 25, 2020) The lender operated twenty-two California businesses providing lending, check cashing, money orders, money transfers, and other financial services while employing approximately 88 people. After the CARES law was passed, the lender applied to their SBA lender for a PPP loan. The payday lender certified that he was otherwise eligible and affected by the coronavirus and the current economic crisis. However, his SBA lender denied his application due to existing SBA regulations that forbid “financial dealings”[es] mainly active in the lending business ”depends on participation.

Under the CARES Act, participation in the PPP is limited to companies with no more than 500 employees that were in operation on February 15, 2020 and that certify the negative impact of the pandemic on their operations and the permitted use of loan proceeds. The CARES Act did not specifically authorize the SBA to impose additional requirements on PPP applicants. The payday lender argued that the SBA’s rules unduly restricted his ability to participate in the program in violation of the clear contrary intention of Congress in the CARES Act. The payday lender filed for an injunction allowing him to participate in the PPP and declared the SBA regulation unlawful.

Before the district court could decide on the payday lender’s application for an injunction, the lender received a binding offer for a PPP loan in which he had to certify his “eligibility” to participate in the program. The payday lender notified the court of its intention to execute the application and accept the loan proceeds. The court then asked whether this PPP loan had rendered the payday lender’s claims null and void. Although she argued that they were not in dispute because she might still be required to return the proceeds or repay the loan, the payday lender nonetheless voluntarily dismissed his claims on May 11, 2020.

It is therefore currently unclear whether the SBA can impose additional requirements on applicants or exclude companies from the PPP that otherwise meet the legal requirements of the CARES Act.

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