Payday Lender Drops Suit Challenging Paycheck Protection Program Loan Eligibility Burr & Forman



A payday lender recently filed a lawsuit against the Small Business Administration (“SBA”) in the United States District Court for the District of Columbia regarding its Paycheck Protection Program (“PPP”) loan application under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). See Payday Loan, LLC v. United States Small Business Administration, Civil Action # 1: 20-cv-1084 (DDC April 25, 2020) The lender operated twenty-two stores in California that provided loans, check cashing, money orders, money transfers and other services financial, while employing approximately 88 employees. After the adoption of the CARES law, the lender applied for a PPP loan from its SBA lender. The payday lender has certified that it is otherwise eligible and affected by the coronavirus and the current economic crisis. His SBA lender, however, denied his claim based on existing SBA regulations that prohibit “financial activities.[es] whose main activity is to lend ”to participate.

Under the CARES law, participation in the PPP is limited to companies with no more than 500 employees, which were in operation on February 15, 2020 and who certify the negative effect of the pandemic on their operations and the authorized use of the loan proceeds. The CARES Act did not expressly authorize the SBA to impose additional requirements on PPP applicants. The payday lender argued that the SBA’s regulations impermissibly limited its ability to participate in the program in violation of Congress’ contrary intent in the CARES Act. The payday lender has sought an injunction allowing it to participate in the PPP and declaring the SBA settlement illegal.

Before the district court could rule on the payday lender’s preliminary injunction request, he received a firm offer for a PPP loan that required him to certify that he was “eligible” to participate in the program. The payday lender has notified the court of its intention to execute the demand and accept the loan proceeds. The court then asked if the payday lender’s claims had been rendered moot as a result of this P3 loan. Although he argued that they were not moot as he could still be required to repay the proceeds or repay the loan, the payday lender nonetheless voluntarily rejected his claims on May 11, 2020.

Therefore, it currently remains an open question whether the SBA can impose additional requirements on applicants or exclude PPP companies that otherwise meet the legal requirements of the CARES Act.

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