I last wrote about why the SBA is denying finance company applications for forgiveness of PPP loans back in January. See Dentons - Back to Basics, Continued—Why Is the SBA Denying Finance Companies’ “Eligibility” for PPP Loans? I described the status of the appeals made to the SBA Office of Hearings and Appeals (OHA) and suggested that readers stay tuned. Well, there have been further developments.

Some consumer finance companies have skipped the OHA appeals process entirely and proceeded to federal court to seek declaratory relief with respect to eligibility for forgiveness. It remains too early to know if this approach will work. Generally speaking, when pursuing remedies against a federal agency, the doctrine of exhaustion of remedies seems to require that the party seeking relief first go through the administrative law process—that is, proceeding through the SBA Office of Hearings and Appeals to challenge the SBA’s determination of ineligibility for forgiveness.

Many finance companies of which I am familiar have gone through the SBA OHA process. Most of these agency actions have resulted in decisions by the administrative law judges (ALJs) that uphold the SBA’s determination of ineligibility for forgiveness of the PPP loans, based on ineligibility for the loans to begin with. Some of the ALJs have written well-reasoned opinions supporting their positions, while others have simply defaulted to the SBA’s position that an ALJ has no power to look at the basic regulation adopted by the agency and must merely apply the agency’s rule without undertaking an analysis of the fundamental argument that the SBA may have misconstrued the CARES Act PPP loan program.

In those cases in which the ALJs are taking a harder look, the issues of law are quite complex. For example, are federal district court preliminary injunction cases and federal appellate court decisions based on such cases “final decisions” with precedential authority binding on the ALJs? This is the type of question being considered.

From a lawyer’s point of view, these issues are fascinating, and why many lawyers go to law school. From a business owner’s perspective, these issues are maddening.

Hopefully, we will get some well-reasoned decisions that provide settled law in the near future. Perhaps even those finance companies that may not have appealed their loan forgiveness denials can use such a favorable decision to their advantage.

Please Note: This is the two hundred-ninth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.