Bank of America slapped with lawsuit for misleading statements about PPP

The news: A class-action lawsuit alleges that Bank of America (BofA) consistently made misleading statements about the Paycheck Protection Program (PPP) and is now trying to recover loans that should be forgiven, per a press release.

Unforgivable: The lawsuit, brought on behalf of small businesses in California, claims that BofA marketed the loans as fully forgivable as long as the funds were used according to the stated terms of the CARES Act.

• The businesses, which use their payrolls to pay independent contractors, or 1099 workers, said BofA marketed and approved these PPP loans without telling them that independent contractors had a separate application process.
• They later learned that the loans were ineligible for forgiveness because BofA allegedly didn’t tell them how to complete the correct application process.
• The businesses also allege that BofA encouraged them to take out loans in larger amounts than needed and said the extra amount would also be forgivable if used according to terms.

The lawsuit claims BofA is attempting to collect payment on the loans even though the loans were incorrectly originated at the bank’s fault.

Not the first time: BofA has faced criticism in the past for how it handled pandemic relief.

• Last year, the Consumer Financial Protection Bureau (CFPB) fined BofA $100 million for alleged mishandling of California residents’ unemployment benefits during the pandemic.
• The CFPB alleged that BoA’s faulty fraud detection program “automatically and unlawfully” froze customer accounts. The regulator also claimed the bank didn’t offer customers any recourse, even if it didn’t detect fraud related to their accounts.

The big takeaway: The execution of PPP and other pandemic relief programs has been rife with hiccups.

Financial institutions blame the sloppiness on the government, which rushed them to get the funds out as quickly as possible, cutting down on the time they had to run their usual checks. The government refutes that claim, saying FIs should have followed all of their normal processes.

BofA will likely blame the complaints on the pressure it faced to move quickly, and the government will likely deny the blame. But if the CFPB’s fine is any indication, the bank won’t be able to use its excuse as easily as it may think.