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There has been plenty of discussion over whether the Paycheck Protection Program is getting to the right businesses. The PPP, which Congress enacted as part of the CARES Act, provides money for small businesses to continue paying employees during the quarantine. If a business uses the loan to pay employees, the loan is forgiven. Congress initially set aside $349 billion before adding over $300 billion more in April.
There have been allegations of businesses abusing the program. But what you may not have heard – understandably – is how strip clubs have been excluded from PPP loans based on Small Business Administration regulations. Recent lawsuits challenging these regulations have proven successful. That was the case recently, when a group of strip clubs in Flint, Michigan, were successful in obtaining a preliminary injunction against the SBA.
Congress appeared to be casting a wide net in creating the program, excluding only businesses with 500 or more employees. Still, shortly after it passed into law, the SBA enacted emergency regulations to distribute the money Congress set aside. This included adopting existing regulations that prohibited the SBA from lending to strip clubs. Namely, a 2019 “Standard Operating Procedure" that deems ineligible any business that presents live performances or sells goods “of a prurient sexual nature." These exclusions also include certain other businesses, such as payday loan providers, which have historically not received SBA loans.
A group of strip clubs sued the SBA, claiming that the SBA regulations contradicted the CARES Act and violated the strip clubs' First Amendment rights.
On Tuesday, May 12, a federal district court judge in Michigan agreed in part, writing that:
Congress provided temporary paycheck support to all Americans employed by all small businesses that satisfied the two eligibility requirements – even businesses that may have been disfavored during normal times.
The judge did not reach any decision on the constitutionality of the regulations, instead finding that the regulations conflicted with language in the CARES Act.
District Court Judge Matthew Leitman was clear that he was not issuing a nationwide injunction. He did, however, issue a preliminary injunction against the SBA, requiring them to process the plaintiffs' PPP loans as they would any other business.
And while there is no nationwide injunction, the only other court to have decided this issue reached a similar result. On May 1, a federal judge in Milwaukee issued a similar preliminary injunction against the SBA. In that case, the judge held that the SBA's prohibition violated strip clubs' First Amendment rights.
The decision could also encompass other businesses excluded by the SBA. The SBA may appeal, but for now, the “first come, first served" policy of issuing PPP loans may include strip clubs and payday loan providers.
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