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FDIC’s proposal addresses deposit insurance assessment effects of PPP, PPPLF, and MMLF participation
On May 12, the FDIC announced a proposed rulemaking that addresses the deposit insurance assessment effects of participating in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) and the Federal Reserve Board’s Paycheck Protection Program Lending Facility (PPPLF) and Money Market Mutual Fund Liquidity Facility (MMLF). The FDIC notes that because PPP loans are fully guaranteed by the SBA, and PPPLF and MMLF transactions are conducted with the Board on a non-recourse basis, the proposed rule ensures that participating banks are not subjected to “significantly higher deposit insurance assessments.”
According to FDIC’s Financial Institution Letter, FIL-56-2020, the proposed rule would remove the effect of participating in the programs (i) on various risk measures used to calculate a bank’s assessment rate; (ii) on certain adjustments to a bank’s assessment rate; (iii) by providing an offset to a bank’s assessment for the increase to its assessment base attributable to participation in the MMLF and PPPLF; and (iv) when classifying banks as small, large, or highly complex for assessment purposes. The FDIC is proposing an effective date by June 30 with an application date of April 1 to ensure the changes cover assessments starting in the second quarter of 2020.
Comments on the proposed rule will be accepted for seven days after publication in the Federal Register.
Federal Reserve published updates to the Municipal Liquidity Facility term sheet
On May 11, the Federal Reserve Board issued a press release to publish updates to the Municipal Liquidity Facility (MLF) term sheet. As previously covered by InfoBytes (here and here), the MLF was established to provide liquidity to state and local governments so they could continue to provide services for their citizens. The Federal Reserve Board also published FAQs regarding the MLF and a Pricing Appendix.
District court grants preliminary injunction against PPP Ineligibility Rule
On May 11, the U.S. District Court for the Eastern District of Michigan granted a preliminary injunction against the enforcement of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) Ineligibility Rule, concluding that the rule—which excludes “banks, political lobbying firms, certain private clubs with restrictive admissions practices, and sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature” from PPP loan eligibility—contravenes the purpose of the PPP. According to the opinion, a group of businesses that “provide lawful ‘clothed, semi-nude, and/or nude performance entertainment’” filed suit against the SBA seeking a preliminary injunction against the enforcement of the PPP Ineligibility Rule, after they were prevented from obtaining the loans and/or participating in the PPP because their businesses were deemed to be “of a ‘prurient sexual nature.’” The SBA argued that Congress could not have intended to support businesses that the SBA has historically denied financing, saying it would lead to “absurd results.” The court rejected this argument, stating, “these are no ordinary times, and the PPP is no ordinary legislation.” The court reasoned that because the intent of the CARES Act, which houses the PPP, is to protect workers in need, it is “not absurd to conclude” that in order to support workers from all businesses, Congress would temporarily permit SBA financial assistance to previously excluded business types. Finding that the Rule is in conflict with the Congressional purpose of the PPP, the court granted the preliminary injunction barring the SBA from enforcing the Rule.
Agencies jointly release fact sheets for services and consumers regarding CARES Act forbearance
The Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service have jointly issued fact sheets for servicers and for consumers outlining certain requirements and obligations under CARES Act mortgage payment forbearance. The fact sheet for servicers provides guidance for assisting and educating borrowers and explains that loss mitigation options will vary based on the program under which the loan is insured or guaranteed. The fact sheet for consumers provides guidance on requesting forbearance and information on the forbearance program.
Fed report discusses banking system, cancels non-critical examinations
On May 8, the Federal Reserve Board (Fed) issued its Supervision and Regulation Report, which summarizes banking system conditions and the Fed’s supervisory and regulatory activities. The annual report discusses the safety and soundness of the banking industry, and explains the Fed’s response to Covid-19 pandemic. The report notes that actions taken by the Fed “use existing flexibility in the regulatory and supervisory framework and do not roll back the measures that allowed the banking sector to enter this crisis as a source of strength….” The report emphasizes that the banking system started 2020 in a healthy financial position, which helped enable institutions to “absorb higher credit losses will continuing to lend during times of stress.” The report notes that banks are facing significant operational challenges as a result of social distancing measures, and that during the first quarter of 2020, U.S. bank earnings declined sharply; however, strains in bank funding markets have somewhat eased since their stressed condition in March. As for the Fed’s supervisory activities, the report states that the Fed has deferred or cancelled non-critical examinations at large financial institutions for the remainder of the year. Specifically, the report notes that “examination activity will reflect operating conditions and will continue to target areas of heightened risk due to containment measure-related developments as well as known deficiencies that existed prior to the current crisis.”
SBA, Treasury extend PPP certification safe harbor
During the week ending May 8, the Small Business Administration (SBA) in consultation with the Treasury Department (Treasury) updated the Paycheck Protection Program (PPP) Frequently Asked Questions (FAQs) to, among other things, provide guidance on the PPP safe harbor and counting a small business’s employees for the 500 or fewer employee requirement. As previously covered by InfoBytes, the SBA will deem that the borrower certification on a loan application was made in good faith if a recipient of a PPP loan prior to April 24 determines it may have other forms of liquidity and repays the loan by the safe harbor deadline of May 7. SBA extended the safe harbor for repayment from May 7 to May 14. The FAQs also provide that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. Additionally, the updated FAQs also explain that a PPP loan recipient that makes a good faith attempt, in writing, to rehire a furloughed employee, will not be penalized by a reduction in loan forgiveness it receives if that employee rejects the offer. New FAQs also cover how to calculate maximum PPP loan amounts for seasonal employers and whether nonprofit hospitals qualify for PPP loans.
FDIC encourages relief for South Carolina borrowers affected by severe weather
On May 7, the FDIC issued FIL-53-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of South Carolina affected by severe storms, tornadoes, and straight-line winds from April 12 through April 13. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather, provided the measures “[are] done in a manner consistent with sound banking practices, can contribute to the health of the local community and serve the long-term interests of the lending institution.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain filing and publishing requirements.
Find continuing InfoBytes coverage on disaster relief guidance here.
FTC reports on FCRA education and enforcement
On May 5, the FTC released a report updating Congress on the agency’s FCRA education and enforcement efforts. The report, titled “Efforts to Promote Consumer Report Accuracy and Disputes,” was requested by Congress as part of the 2020 spending bill that funds the FTC. The report details the agency’s efforts to inform consumers and businesses regarding their rights and obligations under the FCRA, including educating consumers on disputing errors and identity theft. For businesses, the report discusses the guidance provided by the FTC for furnishers and users, including the 2016 publication Consumer Reports: What Information Furnishers Need to Know. The report notes that over the last decade. the FTC has brought over 30 enforcement actions under the FCRA against consumer reporting agencies (CRAs), users of consumer reports, and furnishers of information to CRAs. The FTC notes that once supervisory authority over the nationwide CRAs was transferred to the CFPB in 2011, the FTC has focused its FCRA enforcement on other entities in the credit reporting area, noting that 14 of its FCRA cases involved allegations related to handling consumer disputes of inaccurate information or procedures for ensuring the accuracy of information furnished in reports. A complete list of the 14 cases can be found in the report’s Appendix B. The FTC states that it will continue to look for education and enforcement opportunities, citing a joint workshop with the CFPB held last December, which discussed current trends in consumer reporting accuracy and sought public comments to assist the agency in targeting its efforts in the future.
FDIC updates Covid-19 FAQs
On May 7, the FDIC updated its list of frequently asked questions for financial institutions affected by Covid-19. The recent updates include the addition of one FAQ describing amendments to Regulation D that remove the six-per-month limit on transfers and withdrawals from savings deposits and one FAQ that discusses additional grace periods for force-placed flood insurance.
FINRA issues proposed rule change regarding timing, method of service, and other procedural requirements
On May 7, FINRA filed a proposed rule change with the SEC to provide temporary relief from certain timing, method of service, and other procedural requirements in FINRA rules during the outbreak of Covid-19. The proposed rule change would (i) allow or require, as applicable, FINRA to serve certain documents by email, (ii) require applicants, respondents, and other parties to file or serve documents by email for certain proceedings and processes, unless otherwise agreed by the parties, (iii) provide extensions of time to FINRA staff, respondents, and other parties in connection with certain adjudicatory and review processes, and permit oral arguments before the National Adjudicatory Council to be conducted by video conference.