Can a government loan application be a “false claim”?

Yes.  If an application for a government loan contains misinformation, and that misinformation leads the government to lend money it would not have lent based on the truth, then the application is a false claim. 

Government programs typically require that a borrower meet certain criteria to receive a loan.  For example, the government made loans under the Paycheck Protection Program (“PPP”) during the COVID-19 pandemic available only to companies that, among other things, had fewer than 500 employees and were not owned by foreign corporations or people convicted of crimes. 

Some borrowers who did not meet the criteria applied for and received PPP loans.  The Department of Justice later brought suits under the False Claims Act (FCA), asserting that the borrowers’ loan applications contained knowingly false representations of eligibility.  In at least one instance, the Department of Justice also sued a lender for submitting a PPP loan application when it knew the prospective borrower was ineligible. 

Following the 2008 financial crisis, the Department of Justice brought FCA cases against lenders for falsely certifying that mortgages qualified to receive insurance from the Department of Housing and Urban Development (“HUD”).  HUD publishes standards for underwriting mortgages, and it requires lenders who submit loans for insurance to certify compliance with those standards. 

The Department of Justice alleged that many lenders recklessly pressured underwriters to approve loans for HUD insurance, even when the loans did not comply with HUD’s standards.  The government ultimately recovered more than $4.75 billion from over 20 lenders, including many household names. 

The Department of Justice’s past actions show that government loan applications can constitute false claims.  But whether any particular application makes false claims requires a detailed analysis of the application and the government loan program’s requirements. 

To learn more about the False Claims Act and other whistleblower programs, go to www.mololamken.com and follow us on LinkedIn.  “Brilliant lawyers with courtroom savvy” — Benchmark Litigation.  Copyright MoloLamken LLP 2023.