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HUD works with online search platform to improve FHA compliance
On June 11, HUD announced that it worked with an online search platform to better align the platform’s advertising policies with the requirements of the Fair Housing Act (Act)—specifically, the Act’s prohibition on discriminatory advertising in connection with the sale, rental, or financing of housing, with HUD noting that the prohibition “includes restricting who sees housing-related ads on these bases.” HUD states that the online search platform adopted a policy that prohibits “advertisers from engaging in certain discriminatory practices when placing housing-related ads using [the platform]’s advertising services” and has indicated that it will continue to work with HUD to uphold the principles of the Act in the online and targeted advertising space. The announcement notes that HUD will continue to review online advertising platforms to ensure compliance with the Act.
SBA issues PPP “EZ” loan forgiveness application
On June 16, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, released the Paycheck Protection Program (PPP) EZ Loan Forgiveness Application. According to the PPP Loan Forgiveness Application Form 3508EZ instructions, a borrower may use the streamlined form if it meets one of three criteria: (i) the borrower is self-employed, an independent contractor, or sole proprietor with no employees at the time of application; (ii) the borrower did not reduce salary or wages of any employee by more than 25 percent during the covered period and did not reduce the number of employees or the average paid hours of employees; or (iii) did not reduce salary or wages of any employee by more than 25 percent during the covered period and was unable to operate during the covered period at the same business activity level as prior to February 15, 2020, due to compliance with certain government requirements. Recently, a group of bipartisan senators urged the SBA to streamline the loan forgiveness form arguing that the “11-page forgiveness application” was “beyond the program’s intent” and that it was unnecessarily onerous (covered by InfoBytes here).
Additionally, the SBA released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the PPP, to reflect changes made by the PPP Flexibility Act of 2020. InfoBytes coverage regarding the PPP Flexibility Act changes can be found here.
SEC temporarily allows municipalities to sell securities to banks
On June 16, the SEC released a temporary exemptive order, which provides a temporary conditional exemption for registered municipal advisors to sell municipal securities to banks, their wholly-owned subsidiaries engaged in commercial lending and financing activities, and credit unions. Specifically, the order, which is intended to “address disruption in the municipal securities market” due to Covid-19, provides municipal advisors a temporary exemption from broker registration under Section 15 of the Securities Exchange Act of 1934. The order notes that most municipal issuers facing “significant budget shortfalls” do not meet the eligibility criteria for the Federal Reserve Board’s Municipal Liquidity Facility, and therefore, the temporary exemption will help to “facilitate more timely and efficient access to bank financing alternatives by municipal issuers.” The order details the permitted activities allowed under the temporary exemption, along with written representations the municipal advisor must obtain. Additionally, the order restricts the aggregate principal amount of a municipal security to $20 million. The temporary exemption expires on December 31.
CFPB issues CARES Act credit reporting FAQs
On June 16, the CFPB released a set of Frequently Asked Questions (FAQs) concerning the Bureau’s previously issued policy statement addressing consumer reporting agencies’ (CRAs) and furnishers’ credit reporting responsibilities under the CARES Act amendments to the Fair Credit Reporting Act (FCRA). The policy statement also emphasized that the Bureau is taking a “flexible supervisory and enforcement approach during this pandemic regarding compliance with the [FCRA] and Regulation V,” including refraining from citing in examinations or bringing enforcement action against CRAs or furnishers acting in good faith. (Covered by InfoBytes here.)
Addressed within the FAQs are topics for furnishers to consider when complying with the CARES Act requirements. These include: (i) reporting as current certain accounts for consumers affected by the Covid-19 pandemic; (ii) citing or suing furnishers that violate the FCRA by failing to investigate disputes; (iii) defining an “accommodation” for purposes of the FCRA amendments, and clarifying whether furnishers are required to provide accommodations to impacted consumers, and if so, what their consumer reporting obligations will be; (iv) clarifying that “using a special comment code to report a natural or declared disaster or forbearance” is not a substitute for complying with the CARES Act credit reporting requirements; (v) warning that reporting forbearances on accounts that are not delinquent, or for which a consumer has not requested a forbearance, “increases the risks of inaccurate reporting and consumer confusion”; and (vi) specifying account status reporting requirements after a CARES Act accommodation ends.
Main Street Lending Program opens for lender registration
On June 15, the Federal Reserve Bank of Boston (Boston Fed) announced the opening of lender registration for the Main Street Lending Program. The Main Street Lending Program is administered by the Boston Fed and was established pursuant to the CARES Act to support small and medium-sized businesses (covered by a Buckley Special Alert). Recently, the Federal Reserve expanded the program to extend five-year loans with principal payments deferred for two years and interest payments deferred for one year. Additionally, the Fed (i) lowered the minimum loan size for certain loans to $250,000 from $500,000; and (ii) raised the purchase rate to 95 percent of each eligible loan (covered by InfoBytes here).
According to the announcement, lenders must register for the program using the lender portal. The program will begin purchasing loans soon, and, once purchases begin, all the necessary documents will be submitted through the portal. The Boston Fed encourages lenders to begin making program loans immediately.
Fed proposes expansion of Main Street Lending Program to nonprofit organizations
On June 15, the Federal Reserve Board (Fed) announced plans to seek public feedback on a proposal to expand the Main Street Lending Program to tax-exempt, nonprofit organizations. The proposed expansion would allow small and medium-sized nonprofits to apply for loans for additional liquidity, provided they were in sound financial condition prior to the start of the Covid-19 pandemic. The loan terms would be the same as those for Main Street business loans, which include (i) a minimum loan size of $250,000 and a maximum loan size of $300 million; and (ii) principal payment deferments for the first two years of a loan, and interest payment deferments for one year. The proposed expansion would also provide two loan options with modified borrower eligibility requirements that “reflect the operational and accounting practices of the nonprofit sector.” Feedback on the proposal may be submitted through June 22. The Fed’s announcement also contains a chart covering the detailed changes and term sheets for the program’s Nonprofit Organization Expanded Loan Facility and Nonprofit Organization New Loan Facility.
SBA reopens economic injury disaster loans and advance program
On June 15, the Small Business Administration (SBA) reopened the Economic Injury Disaster Loan (EIDL) and the EIDL Advance program portal to new applicants experiencing economic impacts due to the Covid-19 pandemic, including qualified small businesses and U.S. agricultural businesses. The EIDL program offers long-term, low-interest federal disaster loans for small businesses or non-profit organizations that can be used to cover payroll and inventory, pay debt, or fund other expenses not already covered by a Paycheck Protection Program loan. The loans carry interest rates of 3.75 percent for small businesses and 2.75 percent for non-profits and have terms up to a maximum of 30 years. The first payment on these loans will also be deferred for one year. In addition, as part of the loan process, qualified applicants may also apply for an EIDL Advance, which “will provide up to $10,000 ($1,000 per employee) of emergency economic relief to businesses that are currently experiencing temporary difficulties.” These “emergency grants,” SBA notes, do not have to be repaid.
FTC settlement requires retailer to provide transaction records to identity theft victims
On June 10, the FTC announced a settlement to resolve Fair Credit Reporting Act (FCRA) allegations against a Wisconsin-based retailer for failing to provide the proper transaction records to identify theft victims. According to the FTC, this is the first time the Commission has used its authority under Section 609(e) of the FCRA, which requires companies to provide identity theft victims with “‘application and business transaction records’ evidencing any transactions that the victim alleges to be the ‘result of identity theft’” within 30 days of being requested. The FTC’s complaint alleged that from February 2017 through March 2019, the retailer implemented several changes to its policy, which limited the information that identity theft victims could obtain. The retailer also allegedly refused to directly provide victims with detailed order information, stating it would only share information if the request came directly from law enforcement. Moreover, the FTC claimed that the retailer did not provide the information it was supplying within the 30-day window required by the FCRA, and on several occasions, failed to issue a denial of a victim’s request within 30 days. These unlawful actions, the FTC alleged, violated the FTC Act and the FCRA, and only ended six months after the retailer received a civil investigative demand from the FTC. Under the terms of the settlement, the retailer has agreed to pay a $220,000 civil penalty to settle the claims and must provide identify theft victims, within 30 days, valid verification of their identity and the identity theft, including business transaction records related to the theft. The retailer must also provide a notice on its website to provide identity theft victims information on how to obtain application and business records, and certify that it has provided all such records to victims who were previously denied access.
FTC charges small-business financing operation with deceptive and unfair practices
On June 10, the FTC filed a complaint against two New York-based small-business financing companies and a related entity and individuals (collectively, “defendants”) for allegedly engaging in deceptive practices by misrepresenting the terms of their merchant cash advances (MCAs), using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts. The FTC’s complaint alleges that the defendants purported “to provide immediate funds in a specific amount in exchange for consumers’ agreement to repay a higher amount from future business revenues” to be “remitted over time through daily debits from consumers’ bank accounts.” However, the defendants allegedly, among other things, (i) made false claims on their websites that their MCAs require “no personal guaranty of collateral from business owners,” when in fact, the contracts included such provisions; (ii) withheld various upfront fees ranging from hundreds to tens of thousands of dollars prior to disbursing funds to consumers (according to the complaint, these fees were either poorly disclosed in the contracts or not disclosed at all); (iii) directed agents to charge higher fees to consumers than permitted by the contracts; (iv) required businesses and their owners to sign confessions of judgment (COJs) as part of their contracts, and unlawfully and unfairly used the COJs to seize consumers’ personal and business assets, including in circumstances where consumers could not make payments due to technical issues outside their control, or in instances not permitted by the defendants’ financing contracts; (v) made threatening calls to borrowers, including threats of physical violence or reputational harm, to compel consumers to make payments; and (vi) made unauthorized withdrawals from consumers’ accounts. The FTC seeks a permanent injunction against the defendants, along with monetary relief including “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
The same day, the FTC published a blog post highlighting the Commission’s ongoing efforts to combat questionable financing practices targeting small businesses. The FTC also held a forum in 2019 on marketplace lending to small businesses, which analyzed the potential for unfair and deceptive marketing, sales, and collection practices in the industry, and released a follow-up staff perspective paper earlier this year (see InfoBytes coverage here and here). In addition, over the past few years, several states have introduced legislation and advisories on MCAs and small business financing (see prior InfoBytes coverage here).
SBA codifies PPP flexibility guidance
Recently, the Small Business Administration (SBA) released an interim final rule (IFR) to incorporate key revisions made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act, as previously covered by InfoBytes, took effect June 5. Many of the Flexibility Act’s provisions, such as those related to loan forgiveness and deferral periods for PPP loans, are retroactive to March 27, 2020. The provision related to the maturity date of PPP loans took effect June 5, 2020, and the remaining provisions will take effect upon publication in the Federal Register.
The IFR codifies several changes made to the PPP, including the following:
- Reiterates that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
- Amends the end date of the “covered period” for a PPP loan from June 30, 2020 to December 31, 2020.
- Provides a minimum maturity of five years for all PPP loans made on or after the enactment of the Flexibility Act, and provides an option for borrowers and lenders to mutually agree to extend maturity from two years to five years for loans made before June 5.
- Clarifies that if a borrower submits its loan forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not be required to make any payments on the loan before the date SBA remits the forgiven amount to the lender or notifies the lender that loan forgiveness is not allowed.
- Extends the deferral period on PPP loans by extending the loan forgiveness period from eight weeks to 24 weeks beginning on the date the loan is disbursed. However, borrowers may opt to keep the forgiveness period at eight weeks for loans made prior to June 5, 2020.
- Sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness, but provides that—consistent with a safe harbor in the Flexibility Act—the SBA, in consultation with Treasury, will “interpret[] this requirement as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.” Revisions to the SBA’s IFRs on loan forgiveness and loan review procedures addressing these amendments are forthcoming.
The SBA also released an updated borrower application form, as well as a revised lender application.