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 recently sided with the owner of the Flint, Mich., topless club Little Darlings, who went toe-to-toe with the federal government about his business's eligibility to participate in the federal Paycheck Protection Program. The decision could open the gate for auto lenders and other financial institutions excluded from the federal program following updated 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 on or before the May 18 deadline. Under the most recent guidance, businesses won't be penalized for returning the funds.
An April revision to the PPP loan criteria retroactively excluded a variety of businesses — including auto lenders — from participating in the stimulus. 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.
The club's owner filed the lawsuit April 8 against the SBA, its administrator Jovita Carranza and Treasury Secretary Steven Mnuchin, the Detroit News first reported, alleging the guidance discriminated against strip club workers.
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 post 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 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," the post said.