[co-author: Allison Raley]
Last week, Arkansas saw its first class action lawsuit in which “agents” claimed fees under the Payment Protection Program (PPP). This class action lawsuit illustrates another area of confusion surrounding the administration of the CARES Acts (the “Law”). Congress created the PPP as part of the law to help small businesses survive the economic turmoil caused by Covid-19. Section 1102 of the Act introduced the PPP into Section 7 (a) of the Small Business Act (SBA) as part of the federal government’s small business loan program. The PPP has significantly expanded the pool of small businesses eligible for SBA-backed loans to cover payroll and other costs through 2020. While the SBA would guarantee these loans, Congress asked private lenders to process and fund them. Several class action lawsuits have been filed against PPP lenders across the country by agents claiming they are eligible for automatic payment of the lender’s fee for helping to prepare an application for a small business that has received a PPP loan Have helped. This latest class action lawsuit is directed against numerous Arkansas-based financial institutions.
JEK Services Inc. et al. v. Simmons Bank et al.
James E. Kusturin, Jr. and JEK Services Inc., (collectively, “JEK”), as individuals and in a representative capacity, are suing various lenders in Arkansas for alleged violations of the CARES Act, the SBA’s 7 (A) credit program, collected, 15 USC § 636 (a) and 13 CFR Part 120 as well as for unjust enrichment and conversion. JEK provided accounting services to small businesses applying for PPP loans in Russellville, Arkansas. JEK claims they are owed brokerage fees from lenders who fund the more than $ 5 million PPP loans for applications filed between March 25, 2020 and June 30, 2020. JEK cites three primary pieces of legislation to justify their overall harm.
Refund from the lender
The law expressly stipulates that lenders would be reimbursed by the SBA for the financing of borrower loans – provided that “[t]he [SBA] The administrator reimburses a lender who is authorized to make a covered loan. “ The law also listed specific rates that the SBA must pay lenders “based on the balance of outstanding funding at the time the covered loan is disbursed”. According to this legal provision, the SBA must reimburse lenders at one rate:
(I) 5 percent for loans not exceeding $ 350,000;
(Ii) 3 percent for loans greater than $ 350,000 and less than $ 2,000,000; and
(III) 1 percent for loans not less than $ 2,000,000.
In the clear text of the law, every lender who processes a PPP loan is therefore expressly entitled to repayment in a fixed amount by the SBA within five days of the loan being paid out.
SBA’s Approach to Brokerage Fees
Congress approached brokerage fees differently. While CARES law requires that the SBA reimburse a lender a certain amount based on the size of the loan in the affirmative, the law only deals with the fee caps that apply to agents. According to the statutes “[a]n Agent assisting a beneficiary [PPP] the beneficiary preparing an application for a covered loan may not charge a fee that exceeds the limits set by the administrator. “ Congress delegated to the SBA the power to set a cap on the fees an agent can charge under the PPP. However, Congress in particular has not provided that agents target charge a fee, nor does it require any particular party to pay the agents a fee. Instead, the rules describe three types of agents that borrowers or lenders can authorize to assist them with the loan process. The party that decides to use an agent and authorizes him to act as his representative is the party that pays the agent. For the agent type in question in the JEK Services Inc.In, matter (a “package” that helps a borrower prepare their application), the borrower has authorized the broker and is therefore the party responsible for paying the brokerage fee, not the lender processing the loan. This authorization must take the form of a “compensation agreement” that governs the agreement between the borrower and the intermediary.
First provisional final rule
The SBA exercised its power to cap brokerage fees when it issued the first provisional definitive rule (the “First IFR”). The First IFR sets maximum limits on brokerage fees and states that the fees (1) are to be paid by the lender out of the commitment fees received from the SBA and (2) not to be collected from the borrower or from the PPP loan proceeds. The First IFR focuses on what an affirmative agent must not do: it must not collect any fees from the borrower from the PPP loan proceeds or beyond the set amounts. In contrast, the IFR’s reference to fees “paid” out of lenders’ fees does not impose an explicit obligation on lenders to read paying agents in the clear text of the legislation. Instead, it provides the amounts listed that would be “reasonable” should a lender authorize an agent and decide to pay them.
No cause of action created by law
It is important to note that the law does not expressly or tacitly provide a private right to sue for PPP agent fees. Profiles, the only court to have issued a written ruling on this issue, found that the law does not add or create a private right of action. Furthermore, there does not appear to be anything in the law to reflect the intention of Congress to create a cause for action for agents. The law only reflects the intent to prohibit agents from charging excessive fees. Without the legal proof of an intention to allow the intermediaries to assert fee claims, the Erste IFR does not offer any private cause of action.
From the first reading of the JEK Services Inc. Complaint, it appears that the borrowers, rather than the lenders named in the lawsuit, are the parties actually responsible for paying the brokerage fees as there JEK worked as a packager in the preparation of his customers’ loan applications. However, more judicial and legislative guidance is needed to determine whether the reimbursement of brokerage fees is automatic, which party should pay the brokerage fee, and whether a private cause of action can be included in the law. We will continue to pursue them JEK Services Inc. Matter, as well as the other similar class action lawsuits across the country, as this issue will continue to affect lenders and agents until clarification is established.
This article was co-authored by Mitchell Williams Attorney Allison E. Raley JD, CAMS, CGSS
 JEK Services Inc. et al. v. Simmons Bank et all., No. 4: 20-cv-00836-KGB (ED Ark).
 See 15 USC § 636 (a) (36) (A), (D), (F).
 ID card. Section 636 (a) (36) (F) (iii).
 JEK Services Inc. et al. v. Simmons Bank et al., No. 4: 20-cv-00836-KGB * 4.
 ID card. 15 USC § 636 (a) (36) (P) (i).
 ID card. Section 636 (a) (36) (P) (iii).
 ID card. Section 636 (a) (36) (P) (ii).
 ID card. (Emphasis added).
 See id. Section 103.1 (a) (2); Together with “packagers”, the regulations describe a “loan service provider” who assists and is paid by a lender and a “credit broker” who assists either a borrower or an agent and is paid by the party he assists. ID card. Section 103.1 (a) (1), (3).
 ID card. Section 103.1 (a) (2); see also JEK Services Inc., et al. v. Simmons Bank et al., No. 4: 20-cv-00836-KGB (ED Ark);
 See id. Section 103.5 (a).
 The First IFR states that “[t]The PPP program requirements identified in this rule temporarily supersede any conflicting credit program requirements (as defined in 13 CFR 120.10). ”85 Feed. Registration number. 20.811, 20.812 (April 15, 2020). The First IFR specifically stipulated that PPP lenders would not need to meet the stringent credit criteria of Program 7 (a) when reviewing PPP loans and could instead rely on borrowers’ attestations to determine eligibility. ID card.
 85 feeds. Registration number. at 20,816.
 Apart from the fact that lenders would pay agents who assisted borrowers – a change in the existing framework that required borrowers to pay such “packagers” – the First IFR contained no further provisions for agents who clashed with pre-existing requirements. In particular, the First IFR did not issue a provision contradicting or overriding the requirements that a representative be empowered to enter into a written compensation agreement in order to receive payments.
 See United States v Fidelity Capital Corp., 920 F.2d 827, 838 n.39 (11th Cir. 1991); Bulluck versus Newtek Minibus. Fin., Inc., 808 F. App’x 698, 2020 WL 1490702, * 3 (11th Cir. 27th March 2020).
 Profiles, Inc. v Bank of Am. Corporation, -F. Soup 3d—, No. 20-0894, 2020 WL 1849710, at * 7.
 See McDonald v S. Farm Bureau Life Ins. Co., 291 F.3d 718, 723 (11th Cir. 2002) (“There must be clear evidence of the intention of Congress to create a cause of action.”); Love v. Delta Air Lines, 310 F.3d 1347, 1352 (11. Cir. 2002) (Courts seldom assume the intention to create a private right of action when a law is missing “[r]ights-creating language. . . expressly transfers a right directly to a group of persons to which the plaintiff also belongs in a case ”).
See love, 310 F.3d at 1353 (if a law does not confer a private right of action, “such a right cannot be created or conferred by ordinances issued for its interpretation and enforcement”).