BofA Defends Gating Policy In Virus Relief Loans Suit

By Jon Hill
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Law360 (April 10, 2020, 11:21 PM EDT) -- Bank of America on Friday urged a Maryland federal judge not to issue an emergency order requiring the bank to accept applications from a wider range of small businesses seeking loans under the $349 billion Paycheck Protection Program, warning of a potential "crippling effect" on the bank's participation in the federal coronavirus relief program.

At a telephonic hearing before U.S. District Judge Stephanie Gallagher, Bank of America pressed its case for rejecting a temporary restraining order sought by the plaintiffs in a proposed class action that alleges the bank is unlawfully limiting access to the loan program, which offers forgivable loans of up to $10 million each to help small businesses avoid layoffs during the COVID-19 pandemic.

The plaintiffs, which are small business clients of the bank, are challenging Bank of America's gating policy that restricts customers' eligibility to apply with the bank for a PPP loan. Under the bank's current policy, an applicant must be both a small business borrower and depositor with the bank, or it can be just a depositor so long as it is not a borrower at another bank.

The plaintiffs argue these criteria are impermissible and could fatally shut them out from the loan program, necessitating immediate court intervention.

But Williams & Connolly LLP partner Enu Mainigi, appearing for Bank of America, said the small business plaintiffs' fears of missing out on the chance to apply for a PPP loan are too speculative to justify immediate intervention when at least some of the roughly 2,400 other banks participating in the loan program are taking applications from new borrowers.

"I don't think this is a needle-in-the-haystack search for plaintiffs to either pursue a loan with an existing lender or find another lender that is … in fact accepting new borrowers," Mainigi said. "[The plaintiffs] can't even show right now that they cannot obtain a loan from another lender … If the plaintiffs don't know if they can get a loan from another bank, there cannot be irreparable harm here."

Mainigi also painted the small business plaintiffs' case as too weak to warrant an emergency court order, arguing that Bank of America's decision to institute a gating policy is actually "reasonable, appropriate and consistent" with the CARES Act, the $2.2 trillion federal coronavirus relief legislation that authorized the Paycheck Protection Program.

The small business plaintiffs have alleged that Bank of America's gating policy violated the CARES Act by essentially narrowing the scope of what was meant to be fast, broadly available aid, but Mainigi contended that the bank's restrictions actually further the law's goal of getting these loans out the door as quickly as possible.

"The decision to prioritize clients with existing relationships serves that purpose by streamlining the application process, meaning that more loans are processed faster," Mainigi said.

Mainigi said Bank of America will soon have 5,000 employees working on application processing and has already received applications for $40 billion in PPP loans, putting the bank on track to be the most prolific lender in the relief program.

But a court order blocking the bank's gatekeeping efforts "could have a huge, crippling effect on the system," according to Mainigi, who cautioned that other lenders have instituted similar gating policies and could be deterred from participating in the program depending on how the plaintiffs' bid plays out.

"This lawsuit ... should not create roadblocks for the larger small business community in getting the loans they need," Mainigi said.

But Rifkin Weiner Livingston LLC partner M. Celeste Bruce, appearing for the plaintiffs, pushed back on concerns that small businesses could ultimately lose out if larger banks aren't allowed to manage PPP loan demand with gating policies.

At worst, applications might take longer to process under that scenario, but if small businesses are boxed out from submitting applications, they won't even be able to "get into the queue to be considered for funding," according to Bruce.

"Congress did not intend to allow banks to favor a certain class of their customers over others," Bruce said. "I don't think we can walk away from the congressional intent and words in the statute simply because because it might create a problem for the banks."

Bruce also rejected the suggestion that the opportunity to apply at one of the many other banks participating in the loan program undercuts the plaintiffs' alleged irreparable harm of being denied the chance to apply at Bank of America.

For one, the loan program's funding capacity could be exhausted in as soon as 10 days, leaving little time for the plaintiffs to seek out new banks that will take them, according to Bruce. Those other banks could also have gating policies of their own.

"If every other bank requires you to have a depository relationship, how are you supposed to do this in the middle of the COVID-19 [pandemic] when we're told don't leave your house and don't go anywhere?" Bruce said.

Underscoring the urgency of their request, Bruce told the judge that a temporary restraining order may be the "only lifeline" the plaintiffs have left. Without action by the court, the plaintiffs won't be able to tap the loan program before it runs out and will have to close, Bruce said.

"If that is not irreparable harm, your honor, I don't know what is," Bruce said.

The small business plaintiffs are represented by M. Celeste Bruce, Charles S. Fax, Alan M. Rifkin, Liesel J. Schopler and Barry L. Gogel of Rifkin Weiner Livingston LLC.

Bank of America is represented by Enu Mainigi, Kenneth C. Smurzynski, Craig D. Singer and Beth A. Stewart of Williams & Connolly LLP.

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 Michael Watanabe.

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Case Title

Profiles, Inc. et al v. Bank of America Corporation et al

Case Number




Nature of Suit

Other Statutory Actions


Stephanie A. Gallagher

Date Filed

April 03, 2020

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