By Jon Hill

Law360 (April 7, 2020, 10:41 PM EDT ) A fight over Bank of America's handling of would-be applicants for a $349 billion federal coronavirus relief loan program escalated on Tuesday as a group of small businesses asked a Maryland federal court for an emergency order blocking the bank from conditioning applicant eligibility.

Baltimore-based public relations firm Profiles Inc. and several other small businesses are suing Bank of America Corp. and its national bank subsidiary, accusing the bank of wrongfully limiting access to the Paycheck Protection Program, which seeks to provide stop-gap funding to help small businesses keep workers employed during the COVID-19 pandemic.

Launched on Friday, the program enlists banks to make low-interest, forgivable loans of up to $10 million to qualified small businesses, but Bank of America initially would only accept paycheck protection loan applications from small business clients that were active borrowers at the bank.

Although the bank has since loosened this policy to accept applications from non-borrower clients so long as they aren't borrowers at other banks, the small business plaintiffs argue in their suit that these restrictions are unlawful because they go beyond the eligibility requirements set out in PPP regulations and the CARES Act, the federal coronavirus relief legislation that created the program.

And unless the court intervenes now to stop what the suit calls Bank of America's "discriminatory policies of corporate greed," the plaintiffs said in a Tuesday motion for injunctive relief that they "will be effectively precluded from applying before the June 30, 2020 deadline for these 'first-come, first-served' loans."

"BOA's unlawful barriers to entry must be removed immediately to prevent irreparable harm to the eligible businesses that the CARES Act was designed to save," the plaintiffs told the court.

In an order late Tuesday, U.S. District Judge Stephanie A. Gallagher directed Bank of America to respond by close of business Wednesday to the plaintiffs' motion, which seeks a temporary restraining order and preliminary injunction forbidding the bank from placing restrictions on PPP applicant eligibility other than what's specified in the CARES Act.

The motion was filed the same day as a newly amended complaint adding claims and plaintiffs to the case. Together, the businesses are seeking to represent a proposed class of PPP-eligible borrowers who were either blocked outright or chilled from applying for PPP loans from Bank of America because of the bank's restrictions.  

Profiles initially sued over Bank of America's original gating policy from the first day that applications were being accepted. Even though it allegedly has a Bank of America deposit account and should have been eligible for a PPP loan, Profiles said the bank refused to let it apply on Friday because it wasn't already an active borrower.

The new plaintiffs in the case — Proline Products Inc., Diaspora Salon LLC and Elite Security Group LLC —similarly claim the bank wrongfully blocked them from applying for a PPP loan, even after the gating policy was changed over the weekend.

According to the latest eligibility requirements on Bank of America's website, applicants either must have an established small business lending and checking relationship with the bank or they must have a small business checking relationship and no "business credit or borrowing relationship with another bank."

But Tuesday's complaint argues this modified policy is still impermissible and claims the bank is trying to use the PPP to mitigate credit risk on its books "by giving priority to its clients with preexisting BOA debt at the expense of small business customers who have lending relationships with other banks."

"BOA has no legal authority under the CARES Act to deny access to, restrict or otherwise impede the access of small businesses to these critically important business-saving funds," the plaintiffs said in their latest complaint.

"BOA's discriminatory practices are abhorrent and in violation of federal law. In this time of national need, BOA's discriminatory practices can only be described as corporate greed," they added.

As of Tuesday, Bank of America has received about 250,000 applications for $40 billion in PPP loans and was the first big bank to start taking the applications when the program launched at the end of last week.

But it has drawn criticism from Sen. Marco Rubio, R-Fla., and others after some small business clients reported being turned away because they didn't already have a credit card or other loan through the bank.

In a CNBC interview on Friday, Bank of America CEO Brian Moynihan explained that the prioritization of different sets of small business clients was intended to facilitate speedier and more efficient application processing so that the PPP loan money can be doled out more quickly.

"We have a million borrowing customers that we're trying to get through the system first," Moynihan said. "For those that borrow from the other 4,000 banks in the country, we're trying to get them to go back to their bank … it spreads the work out and the obligation and will make the whole system go faster."

A Bank of America representative declined Tuesday to comment on the lawsuit.

Profiles is represented by M. Celeste Bruce, Charles S. Fax, Alan M. Rifkin, Liesel J. Schopler and Barry L. Gogel of Rifkin Weiner Livingston LLC.

Counsel information for Bank of America was not immediately available.

The case is Profiles Inc. v. Bank of America Corp. et al., case number 1:20-cv-00894, in the U.S. District Court for the District of Maryland.

--Editing by Amy Rowe.

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