Law firm Rifkin Weiner Livingston LLC has filed an amended complaint against Bank of America (BofA), alleging that the bank showed preferential treatment under the Paycheck Protection Program (PPP) to applicants that are already BofA lending clients, PYMNTS reports.
It also alleged that the bank denied or limited access for depository clients and other small firms. BofA's policy was initially to only extend PPP loans to existing lending clients, but it changed the policy on April 4 to let depository-only customers apply as well. Still, the lawsuit states the policy remains unfair, as it stipulates that applicants aren't allowed to have a credit card or loan with another bank.
BofA previously came under fire from consumer banking customers as well for issues connected to its coronavirus response measures. The bank faced backlash at the end of March over the terms of mortgage deferments it was offering, as customers took to Twitter to complain that a three-month deferment would leave them owing a lump sum at the end of the period as opposed to the payments being reworked to the end of the loan. BofA told CNBC at the time that it was handling deferment requests on a case-by-case basis.
The bank has a big opportunity to benefit from facilitating PPP loans, as demand is sky high and fellow major lender Wells Fargo is constricted by its federal asset cap. BofA could see its loan book balloon due to PPP loans: It reported on Monday that it had already received applications from a whopping 177,000 SMBs, totaling $32.6 billion in potential loans.
While these loans will be forgiven for businesses that use the full amount for payroll, mortgage interest, rent, or utilities within two months of receiving the money, banks still stand to reap billions in processing fees paid by the government for facilitating those loans. Further widening the opportunity for BofA, competitor Wells Fargo is being forced to limit the amount it lends to just $10 billion, as its capacity to lend is limited by its asset cap imposed by the Federal Reserve in 2018.
But the benefits of stepping up to assist in facilitating PPP loans will be undercut if banks' implementations have problems beyond the expected growing pains of the program. Processing loan applications has gotten off to a rocky start: Technical glitches prevented some banks from being able to accept loan applications on April 3, when the PPP officially launched.
That makes it even more important for banks to be as transparent and proactive as possible to avoid creating additional problems. If BofA's consumer and SMB protection efforts continue to draw controversy due to unclear repayment terms or perceived preferential treatment, it could lose out on one of the biggest benefits banks stand to gain from assisting with coronavirus relief efforts: greater trust from consumers, businesses, and regulatory bodies.
