A legal battle has erupted when lenders have to pay accounting firms and other “agents” for preparing borrowers’ loan applications under the Paycheck Protection Program.

Banks across the country face lawsuits from agents, such as accountants, lawyers and loan brokers, who seek to be paid for services rendered, sometimes in cases where a lender fails. not even know that an agent was providing PPP loan application services.

The controversy stems from the first PPPs advice of the Treasury Department and the Small Business Administration, which says lenders would pay agents fees out of their own loan processing fees.

Some agents argue in court that lenders must pay these fees regardless of whether or not there was a prior agreement. But the banks say there should be a contractual relationship between the two parties before they are required to pay.

“We just don’t agree that they should get a fee in the absence of an explicit agreement,” Chris Cole, executive vice president of Independent Community Bankers of America, told S&P Global Market Intelligence .

A Florida federal district court appeared to agree with this view on Aug. 17. The District Court for the North Florida District, Pensacola Division, ruled that the accounting firm Sport & Wheat was not entitled to ServisFirst Bancshares Inc.’s fees “in the absence of an agreement.”

This is an important decision that provides additional insight into how the courts will interpret P3 law and regulations, said Graham Ryan, partner at Jones Walker LLP, at S&P Global Market Intelligence. He said the case will not determine the outcome of other court cases, however.

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And that may not be the last legal word on this issue. Ryan said the court left the door open by allowing Sport & Wheat to seek clearance for another amended complaint. The case could also be taken to the 11th Circuit Court of Appeals. Appeals court rulings will “undoubtedly” happen in PPP expense cases, Ryan said in a note.

Before the ruling was handed down, Cole, also a senior lawyer for the ICBA, said early class actions against some of the larger banks had had an impact on smaller institutions.

“Accountants use big names and file all lawsuits they can” to try to intimidate banks into settling their lawsuits, Cole said. “Class actions put a lot of pressure on [smaller] banks. “

One such class action lawsuit is a lawsuit filed in May against a number of banks, including Wells Fargo and Bank of America. This case has not yet been decided.

From an agent perspective, Erik Asgeirsson, president and CEO of CPA.com, an affiliate of the American Institute of Certified Public Accountants, said there was a “wave of activity” early on. PPP due to fears that the program would be strapped for cash. As a result, borrowers have turned to their advisers to submit requests to the banks, but they may have done so without a written agreement in place.

He said that in some cases banks have refused to pay agent fees.

“Banks must operate in good faith and not have a policy of not bearing agent fees,” he said.

The AICPA now recommends on its website that agents make written agreements with banks before providing services to ensure they are paid. The group also advised accounting firms to contact the lender before providing PPP services to its clients and to disclose to its clients whether the lender agrees to compensate the firm for its services.

In separate letters, the ICBA and the American Banking Association have sought advice from the Treasury and the SBA on the matter of agent fees.

In its July 31 letter, the ABA said its members were concerned “that the line was blurred between an agent providing a legitimate service to the borrower and helping to process the loan and agents entering into that relationship. without the consent of the lender and then requesting payment back. finish. “

Likewise, the ICBA, in its August 7 letter, stated that an interim final rule is needed that requires that a formal agreement between the agent and the lender be in place that specifies “who each party represents, what are their respective duties, and the amount of the agent’s fees. “

The letters came weeks after Treasury Secretary Steven Mnuchin testified on June 30 in Congress in which he said banks could pay agents, not that they had to.

“What our boards said was that banks could pay agent fees out of the fees they received,” he told the House Financial Services Committee. “It had to be based on a contractual relationship between the agent and the bank.

“And as there is confusion about this, we will seek to clarify that,” Mnuchin said.

So far, these directions have not materialized.

If released, the guidelines may not completely resolve the legal controversy, but they could put the brakes on it, according to Ryan and a partner of Jones Walker.

“As these lawsuits progress, the Treasury’s position cannot prevent agent fee litigation, especially where lawsuits have raised claims of state law,” the partners said. Robert Carothers Jr. and Ryan in a recent newsletter. a contractual relationship for the payment of agent fees can hamper the viability of many agent fee claims. “