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NCUA issues off-site exam and supervision letter
In March, the NCUA issued a release expanding its March 16 off-site policy by extending off-site examinations through May 1. In the release, the NCUA outlined its top three priorities during the Covid-19 pandemic, which include: (i) “credit unions experiencing significant financial or operational problems”; (ii) outreach by examiners to all credit unions regarding “the institution’s operational and financial status” during the pandemic; and (iii) the continuation of off-site examinations. The NCUA added that “[i]f credit unions are occupied with addressing the impact of the COVID-19 pandemic on their operations, employees, and members, they should not be required to address an offsite examination request unless it is a serious or time-sensitive matter.”
FTC and student loan debt relief operation agree to permanent injunction
On March 30, the FTC announced a settlement with three student loan debt relief companies and their owner for violating the FTC Act and the Telemarketing and Consumer Fraud and Abuse Act by allegedly engaging in deceptive practices when marketing and selling their debt relief services. The complaint alleges that the defendants, among other things, (i) falsely promised consumers that they could permanently lower or eliminate student loans by enrolling in an income-driven repayment plan for an upfront fee; (ii) offered consumers incentives for positive reviews; (iii) failed to advise consumers to state that they were offered payment for reviews, and failed to disclose that consumers were paid when responding to reviews; and (iv) incorrectly advised consumers on how to report family sizes on applications for student loan debt relief, or falsified consumers’ family size without their knowledge.
According to the FTC, the defendants agreed to a pending stipulated final order that would, among other things, permanently ban the defendants from providing unsecured debt relief services and from making misrepresentations or unsubstantiated claims related to any products and services. However, the defendants will be allowed to continue to assist existing consumers prepare and submit applications to the Department of Education as part of the yearly recertification process, provided the consumers have provided an opt-in confirmation. The stipulated order also requires the defendants to pay $350,000, with the total judgment of approximately $23.9 million suspended due to inability to pay.
Special Alert: Treasury and SBA release initial details on Paycheck Protection Program
On Tuesday, March 31, the Department of the Treasury and the Small Business Administration released initial details regarding the nearly $350 billion Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act. Under the program, private lenders will offer SBA-guaranteed loans to small businesses that require capital to meet payroll and other expenses.
The SBA published a COVID-19-specific webpage with additional information about programs and resources, and Treasury posted four documents outlining key features of the program, as well as information for borrowers and lenders:
- The PPP Overview describes the program’s scope, eligibility requirements, and application process. It notes that no-fee loans used to meet payroll and to pay mortgage interest, rent, or utilities may be forgiven, with payments deferred for up to six months. Businesses in all industries with up to 500 employees are eligible, and larger businesses in certain industries may also be eligible. Applications will be accepted starting April 3, 2020.
- The PPP Lender Information Fact Sheet provides details regarding lenders that are eligible to make the SBA-guaranteed loans. Importantly, all existing SBA-certified lenders are granted “delegated authority” to originate loans eligible for the SBA guarantee (subject to eligibility and other requirements). Federally insured depository institutions and credit unions, as well as Farm Credit System institutions, may also make SBA-guaranteed loans under the program. Lenders that currently do not hold SBA certification may submit applications to participate to the address noted in the Lender Fact Sheet. We expect additional detail regarding the application process in the near future.
- The PPP Borrower Fact Sheet sets forth information for potential small-business borrowers. One important condition of obtaining a loan under the program: Employee and compensation levels must be maintained. However payroll costs are capped at $100,000 on an annualized basis for each employee, so any amounts above $100,000 paid to a single employee will not be calculated in the loan amount nor towards meeting a potential threshold for loan forgiveness (e.g., SBA indicates non-payroll costs may be limited to not more than 25% of the forgiven amount). Additional details regarding an exact percentage of the loan that must be used for payroll are forthcoming.
- The PPP Application Form is now available online. Small businesses will need to provide basic information and respond to disclosure questions, including whether the business is delinquent on any federal debt. The application form requires that the borrower respond to seven certification statements that relate to the intended use of funds, the necessity of the loan to support ongoing obligations of the business, the total number of employees, and that the information in the application is correct. It appears that lenders will calculate loan amounts by referencing the businesses’ prior-year tax returns. Due to the federal extension on filing taxes, most businesses will likely submit 2018 tax returns for review.
Please see Buckley’s March 30 Special Alert for additional information on the program. We will continue to provide timely updates regarding any guidance published on this topic on our dedicated SBA page, which includes additional SBA resources you may find helpful. If you have any questions regarding the matters discussed in this alert, please contact a Buckley attorney with whom you have worked in the past.
Fed establishes temporary repurchase agreement facility
On March 31, the Federal Reserve announced the establishment of a temporary repurchase agreement facility (FIMA Repo Facility) to be available to foreign and international monetary authorities. The FIMA Repo Facility will allow central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York to enter into repurchase agreements with the Federal Reserve to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. The facility is intended to provide an alternative temporary source of U.S. dollars other than sales of securities in the open market. The Federal Reserve also issued FAQs that answer question about, among other things, the purpose of the facility, eligibility to participate in the facility, and how the facility is structured.
Treasury launches Employee Retention Credit to encourage employment
On March 31, the Treasury Department and the Internal Revenue Service launched the Employee Retention Credit, a resource designed to encourage businesses to keep employees on their payroll during the Covid-19 outbreak. The resource is a refundable tax credit of 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by Covid-19. Employers of all sizes, including tax-exempt organizations may qualify to receive the employee retention credit if either: (i) the employer’s business is fully or partially suspended by government order due to Covid-19 during the calendar quarter; or (ii) the employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019 they no longer qualify after the end of that quarter. State and local governments and their instrumentalities, and small businesses who take Small Business Loans are not eligible for the employee retention credit. The credit applies to wages paid after March 12, 2020 and before January 1, 2021, and cover both cash payments and a portion of the cost of employer provided health care.
Special Alert: CARES Act places significant burdens on servicers of consumer debt but provides some relief to depositories
President Trump late last week signed the Coronavirus Aid, Relief, and Economic Security Act that attempts to soften the negative economic effects of the Covid-19 pandemic on consumers, including by suspending payments for certain student loan borrowers and enabling mortgage loan borrowers to easily obtain temporary forbearances. The act also provides certain limited regulated relief for banks and credit unions.
This Special Alert summarizes the provisions providing relief to borrowers with federal student loans and the provisions of Title IV that dictate the manner in which servicers and collectors report borrowers to consumer reporting bureaus; provide forbearance, foreclosure, and eviction relief throughout the housing market; and provide limited regulatory relief to depository institutions.
Buckley issued a separate Special Alert on the Small Business Administration-related provisions contained in Title I of the act and will be covering separately the new Special Inspector General’s office created by the act, False Claims Act considerations, and other liability risks that we expect to arise.
FHFA eases loan processing for GSEs
On March 31, the FHFA announced that it has provided flexibility to Fannie Mae and Freddie Mac (GSEs) in processing loans. According to the announcement, the GSEs will now be allowed to (i) use “desktop appraisals on new construction loans”; (ii) accept an “alternative to the Completion Report” to show that construction is complete; (iii) rely on documents from borrowers to allow draws instead of requiring inspections; and (iv) utilize remote online notarizations and powers of attorney to a greater extent. Fannie Mae updated LL-2020-04 to specifically address temporary appraisal requirements, identification of Fannie Mae loans, and alternatives to complete report Form 1004D. Additionally, Fannie Mae updated LL-2020-03 for single-family sellers, adding remote online notarization, verification of self-employment, age of documentation, market-based assets, powers of attorney, and lender QC requirements. Freddie Mac also covered the FHFA topics in Bulletin 2020-8 with Covid-19-related selling guidance.
SEC to host to virtual discussion on raising capital for small businesses
On March 31, the SEC announced that the Office of the Advocate for Small Business Capital Formation will begin hosting a series of virtual discussions, each on “a particular area of the market, incorporating feedback from entrepreneurs, investors, and other market participants.” The first “Online Investment Capital Raising Virtual Coffee Break” will focus on the impact Covid-19 is having on raising capital, and will be held on April 3 at 11 am EDT. Additional information about the event can be found here, and participants can join the event by clicking here.
CFPB issues guidance for Covid-19 mortgage relief options
On March 31, the CFPB released guidance for consumers who have been negatively impacted by the Covid-19 pandemic and may have difficulty making mortgage or rent payments. Pursuant to the recently passed CARES Act, for homeowners with federally backed mortgages, no foreclosures may be initiated for 60 days beginning on March 18, and homeowners financially impacted by Covid-19 have the right to a forbearance of up to 180 days. The guidance lays out mortgage relief options as well as the process for homeowners to determine the programs for which they qualify. According to the guidance, the CARES Act also protects renters by suspending evictions for 120 days beginning on March 27 if the landlord has a federally backed mortgage. The guidance notes that even if the landlord does not have a federally backed mortgage, most states have also suspended evictions during the pandemic. The guidance also includes information on how homeowners can request mortgage relief from their servicers, including sample questions and other tips. Further, the guidance cautions homeowners to carefully monitor their mortgage statements and credit reports and describes how to avoid scams.
Fed delays revised control framework until September
On March 31, the Federal Reserve Board (Fed) announced that its control and divestiture proceedings final rule—set to take effect April 1—would be delayed for six months. As previously covered by InfoBytes, the Fed revised the bank control framework to clarify the rules used to determine if a firm controls a bank pursuant to the Bank Holding Company Act and the Home Owner’s Loan Act. The Fed stated that “[t]he delay will reduce operational burden and allow institutions to focus on current economic conditions” created by the Covid-19 pandemic. No changes were made to the final rule, which will now become effective on September 30.