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False Claims Act Nabs PNC Bank’s SBA Loan Underwriting Practices

January 28, 2013

In a move that affects all SBA Lenders, PNC Bank has agreed to pay the United States $7.1 million to settle claims under the False Claims Act.

With this agreement, the False Claims Act clearly extends to SBA loan underwriting for PLP lenders.

Says the Department of Justice, “In 2005, under the Preferred Lender Program, PNC issued 64 SBA-guaranteed loans for the purchase of 98 Uni-Marts stores located primarily in the mid-Atlantic region. The United States alleges that in connection with these loans, PNC relied upon unaudited financial statements without further verifying whether the information contained in the financial statements was accurate. Of the 64 SBA-guaranteed loans issued by PNC, 36 have defaulted, triggering SBA’s obligations to pay PNC 75 percent of the balance of the defaulted loans. In May 2008, Uni-Marts filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.”

‘“Banks that are SBA preferred lenders have a duty to prudently guard the public funds they commit to borrowers,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division of the Department of Justice. “The government will pursue vigorously lenders that fail to adequately safeguard public funds due to deficient lending standards.”

“The claims settled by this agreement are allegations only; there has been no determination of liability.”

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