Can SBA Deny Loans to Payday Lenders? Judge Asks for Its Rules

(Bloomberg) -- A U.S. judge is expected to rule soon on whether payday lenders can tap Paycheck Protection Program loans disbursed by the Small Business Administration under the $2.2 trillion pandemic rescue bill.

Payday Loan LLC, which engages in lending and check cashing in 22 stores in California, sued the SBA on April 25 after its request for a $644,000 forgivable loan was denied. The application was rejected on the grounds that PPP funds can't be distributed to companies that profit mostly from making loans.

U.S. District Judge Amy Berman Jackson on Sunday asked the SBA to file a copy of its standard operating procedures before she can rule on the agency's motion to dismiss the case. Payday Loan has asked her to deny the request and instead rule that the SBA cannot block the industry's PPP loans.

Payday Loan employs more than 80 people and “is not immune from the financial hardships that COVID-19 has inflicted on the nation,” the company said in the complaint, filed in federal court in Washington.

The SBA said in an April 27 filing responding to the lawsuit that the Cares Act directs the agency to distribute PPP money based on its existing internal rules, which it says have long prohibited loans to payday lenders.

“Given that the funds underlying SBA-backed loans are limited, the public interest weighs in favor of adherence to the CARES Act's terms, rather than diverting funds to Payday from the small-business firms that the PPP is intended to aid,” the SBA said in the filing.

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