A small, minority-owned business in suburban Westchester has filed a federal class action lawsuit against JP Morgan Chase, alleging that the giant bank unfairly prioritized large corporations over small businesses in the process of administering the first round of federal Paycheck Protection Program loans earlier this month. 

Stacey Hawkins-Armstrong, the owner and manager of Sha-Poppin Gourmet Popcorn, said that she has been a JP Morgan Chase client for well over 20 years and had already held a small business account with the lender at the time she applied for PPP funding. 

But her bad experience with trying to get a federal loan with the bank has prompted her to sue and she’s hoping more small businesses, especially minority-owned businesses, in the Chicago area that have experienced similar treatment by Chase during the PPP application process join her as plaintiffs in the lawsuit. 

The funding, which included a $349 billion loan program for small businesses with fewer than 500 employees, was part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) signed into law by President Donald Trump on March 27.

The small business loans were supposed to be distributed on a “first-come, first -served” basis to qualifying small businesses in order to provide them with roughly two months’ worth of financial assistance to cover basic expenses like payroll, benefits and rent.

Most of the long will be forgiven, as long as the business spends at least 75 percent of the loan on payroll and agrees not to cut the wages and salaries of workers making less than $100,000 in the first year of the loan by more than 25 percent, the lawsuit explains. Otherwise, “the loan matures in two years and carries a 1 percent interest rate.”

According to the lawsuit filed on behalf of Sha-Poppin, Hawkins-Armstrong, whose business employs five people, including herself, “diligently attempted to submit Sha-Poppin’s application through Chase’s online portal” the very day the PPP loan application window opened on April 3.

But the website “returned error messages each time she attempted to submit her application, with instructions indicating that she should not call Chase customer services.”

Meanwhile, multimillion dollar corporations like sandwich chain Potbelly, pharmaceutical company MannKind and steakhouse chain Ruth’s Chris were jumping the line for federal loans, as JP Morgan Chase made “all efforts to prioritize processing the loan applications of its favored customers first” while deciding to “deal with the remainder later, if they ever managed to make it through Defendant’s failing website.”

During an interview earlier this month, Hawkins-Armstrong said that the error messages “continued for days, several times a day.” Eventually, the business owner said that she got a call from a Chase Midwest vice president who “was apologetic that my application didn’t go through. Her answer was that, if I wanted, I could change banks and she’d understand, which was really unacceptable to me. It lets me know that they really don’t care.” 

Hawkins-Armstrong ended up applying for a PPP loan through a much smaller institution — Seaway, a division of Self-Help Federal Credit Union. She said she successfully secured $6,000 through Seaway, much less than she needs.

“As a result of Defendants’ actions, Sha-Poppin is now at a severe risk of having to lay off its employees and shutter its business — the very result Congress sought to avoid in creating a first-come, first-served loan program to be deployed by [the Small Business Administration] banking partners with all deliberate speed,” the lawsuit explains. “At minimum, Sha-Poppin lost out on $19,000 in PPP loan funds it would have otherwise received, but for Defendants’ misconduct.”

Ruth’s Chris, a company with annual revenue of $450 million, 5,700 employees and 150 locations across the country received two $10 million PPP loans, the lawsuit notes. The company eventually returned the loans after public outrage, “but the damage was done.” Many of its workers — including busboys, dishwashers and hosts — have already been laid off, the lawsuit states.

The $20 million that Ruth’s Chris received “could have instead funded $25,000 loans to 800 actual small businesses” like Sha-Poppin.

Chase’s alleged actions have drawn the ire of state Rep. Emanuel “Chris” Welch (7th), a Westchester resident whose district encompasses Sha-Poppin. Earlier this month, Welch created a Change.org petition to demand that Chase and other large banks “treat black and brown businesses equitably during the COVID-19 crisis.” As of April 30, the petition had garnered 261 signatures.

The federal lawsuit, which was filed April 24, in the Northern District of Illinois, Easter Division, claims that Chase, the retail banking company of parent company JP Morgan, knowingly made it more difficult for smaller businesses to apply for the loans through a “carefully executed plan.”

The lawsuit references a nationwide conference call “to provide workers with directions on how to handle customers, and to discourage branch employees from getting involved in customers’ PPP loan applications. As a result, Chase’s favored customers (as well as its parent company’s favored customers) got the special treatment they desired.”

The bank had an incentive to reach this outcome, the lawsuit claims. For each loan processed and approved, “the bank would receive an origination fee of 5 percent on loans up to $350,000; 3 percent on loans between $350,000 and $2 million; and 1 percent on loans between $2 million and $10 million.”

“If they know that they get 1 percent off of $20 million or 5 percent off of $20,000, they’re going with the former,” Hawkins-Armstrong said during an interview on April 30. “For them to give the concierge treatment to those large corporations that should not have been involved with this money in the first place was disgraceful.”

The lawsuit states that “nearly all of the 8,500 commercial and private banking clients who applied for a loan got one” while “only 18,000 [or roughly 6 percent] of more than 300,000 small -business banking customers who applied through Chase’s retail bank, where they normally did business, got loans, according to the bank.

“In all, Chase handed out $14 billion through the program — more than any other bank, but still less than half of the $36 billion that customers had sought.”

The lawsuit names JP Morgan Chase and three other corporations, including Ruth’s Chris Steak House Operations, as defendants and seeks an unspecified amount of damages for the defendants’ “efforts to cheat Plaintiff and countless small businesses out of their right to apply for and receive federal stimulus funding in a moment of national crisis.”

So far, at least 100 other small businesses have joined Hawkins-Armstrong’s class action lawsuit, but she said she’s hoping more small businesses in the Chicago area particularly black and brown businesses, come on board.

“I’m getting overwhelmed with emails and calls from business owners in different states who are upset and want to be part of this,” she said. 

Hawkins-Armstrong’s lawsuit against Chase is just one among “a series of lawsuits lodged by small businesses against big banks such as Wells Fargo, Bank of America and Bancorp citing unfair business practices and false advertising,” according to an article in USA Today.

The federal government recently passed an additional $310 billion of PPP funds for small businesses, as part of a $484 billion COVID-19 emergency funding bill signed by President Trump on April 24. Because she already secured a loan in the first round of funding, Hawkins-Armstrong is not eligible for this second round of PPP funds.

Chase representatives were not immediately available for comment on April 30, but in a letter posted to the bank’s website that was last updated on April 27, Jennifer Roberts, the CEO of Chase Business Banking, said that the bank “will work diligently with the SBA and Treasury to serve as many small businesses as possible.

“I wish we could help every business through this program, but funds could run out again quickly and we have preexisting applications in our queue.  We know how important this funding is to your business, and will continue to process and submit applications until funds are exhausted.”

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