By Jon Hill

Law360 (April 30, 2020, 10:34 PM EDT) -- Wells Fargo has beaten a bid by two small-business owners to force changes to the bank's Paycheck Protection Program lending practices, with a Texas federal judge ruling Wednesday that he won't grant the emergency court order that the pair sought.

In a brief order, U.S. District Judge David Hittner rejected a request to temporarily restrain Wells Fargo Bank NA from requiring that businesses must have a pre-existing checking account at the bank in order to be eligible for one of its loans under the federal coronavirus relief loan program.

Business owners Edward Scherer and Donald Kowall made this request last week as part of a proposed class action against Wells Fargo, arguing the bank's account requirement improperly restricted access to the loan program and threatened to shut them and others out from desperately needed aid.

But Judge Hittner said the pair hadn't persuaded him that his immediate intervention was needed.

"Plaintiffs fail to show how plaintiffs would suffer irreparable injury if not given access to a loan specifically from Wells Fargo," the judge wrote, noting that nearly 5,000 other lenders are reportedly participating in the program. "Plaintiffs also fail to explain why plaintiffs could not obtain loans under the PPP through another lender."

Judge Hittner's denial of the temporary restraining order sought by Scherer and Kowall comes two weeks after a Maryland federal judge shot down a similar injunction bid from small businesses that have sued to block Bank of America from also requiring that PPP loan applicants be existing customers.

The cases against Wells Fargo and Bank of America both allege that such requirements go beyond what is allowed by the Coronavirus Aid, Relief, and. Economic Security Act, which authorized the program so small businesses could get stop-gap financing to avoid mass layoffs during the COVID-19 pandemic.

But the judge in the Bank of America case ruled that the CARES Act doesn't prohibit banks from setting their own additional eligibility criteria and doesn't contain a private right of action that would permit the suit against the bank. That decision is now being appealed.

Wednesday's ruling in the Wells Fargo case did not address the legal merits of Scherer and Kowall's underlying suit, nor did it resolve their additional request for a preliminary injunction aimed at the bank's account requirement. Judge Hittner said he plans to rule on that request later, after a hearing.

But Wells Fargo has started telling customers on its website that it is no longer accepting new PPP loan applications, though it is continuing to process previously received applications and the program has not yet exhausted its latest round of funding.

Originally launched in early April, the Paycheck Protection Program allows small businesses to take out loans of up to $10 million each and receive forgiveness on those loans if they use the money to keep paying their workers amid the widespread shutdowns and disruptions of the pandemic.

Although businesses generally just have to be below a certain size to be eligible for the loans, Wells Fargo and Bank of America are among a number of banks participating in the program that have established additional criteria allowing only existing customers to submit applications.

Lenders have argued that such policies are allowed under the CARES Act and are necessary to help them process applications efficiently in the face of overwhelming demand, but critics have continued to sound alarms about unequal access to the program and questioned how loan applications that do get across the threshold have been handled behind the scenes.

As of Wednesday evening, loans representing nearly $90 billion out of the program's $310 billion in replenished lending capacity had been approved, according to the Small Business Administration.

A representative for Wells Fargo declined to comment, and counsel for Scherer and Kowall did not immediately return a request for comment late Thursday. 

Scherer and Kowall are represented by Salar Ali Ahmed of Ali S. Ahmed PC.

Wells Fargo is represented by Charles B. Hampton of McGuireWoods LLP and Christopher M. Viapiano, Nicolas Bourtin and Sverker K. Högberg of Sullivan & Cromwell LLP.

The case is Scherer et al. v. Wells Fargo Bank NA, case number 4:20-cv-01295, in the U.S. District Court for the Southern District of Texas.

--Editing by Emily Kokoll.

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