August 6, 2020

Lenders may owe thanks to strip club

The financial security of small U.S. auto lenders during the COVID-19 crisis may be owed, in part, to the advocacy of a Michigan strip club.

A U.S. district judge sided with the owner of the Little Darlings topless club in Flint, declaring the business eligible to participate in the federal Paycheck Protection Program. The decision could open the gate for auto lenders and other financial institutions that were excluded from the program on the basis of recent guidance from the U.S. Small Business Administration.

It is unclear how many auto lenders took funds through the SBA or how many returned them by the May 18 deadline. Under the most recent guidance, businesses won’t be penalized for returning the funds.

An April revision to the loan criteria retroactively excluded a variety of businesses — including auto lenders. The change also targeted businesses that feature live performances or sell products of a “prurient sexual nature,” leading to a federal lawsuit from the Little Darlings owner.

U.S. District Judge Matthew Leitman issued a preliminary injunction May 11 barring the SBA from excluding private clubs.

The American Financial Services Association wrote in a blog that the ruling may offer clarity for lenders about whether returning the funds is required.

“While that is obviously not the business that AFSA members are engaged in,” the association said, “the judge also said the SBA cannot exclude other businesses, i.e. banks, because Congress intended to support all qualified small businesses, including those it might have ‘disfavored’ before the pandemic.”