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Financial Services Law Insights and Observations


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  • SBA releases updated Covid-19 EIDL program guidance

    Federal Issues

    On November 19, the Small Business Administration (SBA) announced updated guidance for Covid-19 Economic Injury Disaster Loan (EIDL) program applicants while funding remains available. The updated guidance provided that (i) the deadline to submit EIDL loans and targeted advance applications will be December 31 (loans will continued to be processed after this date until funds are depleted); (ii) supplemental targeted advance applications will also be accepted through December 31, however SBA noted that it may not be able to process applications submitted near the deadline due to legal requirements (SBA encouraged applicants to apply by December 10 to allow for adequate processing time); (iii) borrowers may request increases “up to their maximum eligible loan amount for up to two years after their loan origination date, or until the funds are exhausted, whichever is soonest”; and (iv) appeal requests for Covid-19 EIDL applications that are received on or before December 31 will be accepted and reviewed provided they are received within the regulation’s timeframes (i.e., “six months from the date of decline for reconsiderations and 30 days from the date of reconsideration decline for appeals—unless funding is no longer available”). SBA further directed applicants to review enhancements made to the EIDL program in September.

    Federal Issues SBA Small Business Lending EIDL Covid-19

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  • SBA issues final rule on PPP appeals process

    Federal Issues

    On September 16, the SBA published a final rule in the Federal Register informing Paycheck Protection Program (PPP) borrowers and lenders of the appeal process for certain SBA loan review decisions under the PPP to the SBA Office of Hearings and Appeals. The final rule adopts, with changes, certain portions of an interim final rule published in August 2020 (covered by InfoBytes here). Among other things, the final rule dispenses the 30-day delayed effective date to allow SBA to immediately issue decisions and provide certainty concerning the appeals process to potential appellants without further delay. Because the final rule further “provides increased accessibility to borrowers in response to comments previously received by the public, allowing the borrowers that receive an appealable final SBA loan review decision to immediately appeal under the final rule is in the best interests of the borrowers.” The final rule became effective September 14.

    Federal Issues SBA Covid-19 CARES Act Small Business Lending

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  • OCC issues bulletin to community banks on SBA lending activities

    Agency Rule-Making & Guidance

    On August 5, the OCC issued Bulletin 2021-34 to inform banks and examiners on risk management principles consistent with safe and sound banking practices when engaging in SBA guaranteed lending programs. According to the OCC, “[a] bank’s SBA lending activities, including purchasing investments backed by SBA-guaranteed loans, should be consistent with the bank’s overall business plans, strategies, risk appetite, and sound risk management.” The bulletin notes that primary risk areas associated with SBA lending activities are credit, operational, compliance, liquidity, price, and strategic risks. The bulletin also highlights sound risk management principles, such as strategic planning, policies and processes, personnel, and control systems, and highlights that the bank’s board “should have satisfactory knowledge of and engage in sound oversight of SBA lending.”

    Agency Rule-Making & Guidance OCC Small Business Lending SBA Bank Regulatory

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  • SBA explains discontinuation of loan necessity questionnaires

    Federal Issues

    On July 29, the SBA added question #69 to its Paycheck Protection Program (PPP) frequently asked questions explaining why the agency is discontinuing the use of two Loan Necessity Questionnaires (SBA Form 3509 or 3510). Borrowers that received PPP loans of at least $2 million were required to complete the questionnaires to back up their good faith certification “that economic uncertainty made the loan request necessary to support ongoing operations.” However, SBA noted that following a notice and comment period, the majority of commentators objected to the questionnaires. Based on the results of completed loan reviews so far, the agency believes that “audit resources will be more efficiently deployed across all loans if the loan necessity questionnaire is discontinued.” The SBA noted that these reviews “are lengthy and have caused delays beyond the 90-day statutory timeline for forgiveness, thus negatively impacting those borrowers that made their loan necessity certification in good faith.”

    Federal Issues Covid-19 SBA CARES Act

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  • SBA to open PPP direct borrower forgiveness platform

    Federal Issues

    On July 28, SBA announced the launch of a streamlined application program to allow borrowers with Paycheck Protection Program (PPP) loans of $150,000 or less to apply for direct forgiveness through SBA, thereby reducing the burden on participating lenders to service forgiveness applications. The new direct forgiveness platform will start accepting applications from borrowers on August 4. Under the interim final rule (IFR), lenders who choose to participate will be required to opt-in to the program and will be provided a single secure location for all of their borrowers with loans of $150,000 or less to apply for loan forgiveness using the electronic equivalent of SBA Form 3508S. When notice is received that a borrower has applied for forgiveness through the platform, lenders will review both the borrower’s loan forgiveness application and issue a forgiveness decision to SBA inside the platform. Additional procedural guidance will be released in the near future to provide information on (i) the opt-in process; (ii) how qualified borrowers can access the platform and submit loan applications; and (iii) how lenders can access and review forgiveness applications, issue forgiveness decisions, and request forgiveness payments from SBA. During the transition period after the launch of the platform, SBA expects lenders that opt-in “to complete the processing of any loan forgiveness applications that have already been submitted by borrowers to the lender and should inform such borrowers not to submit a duplicate loan forgiveness application through the [p]latform.”

    The IFR also extends the loan deferment period for PPP loans in circumstances where a borrower timely files an appeal of a final SBA loan review decision with SBA’s Office of Hearings and Appeals. Additionally, the IFR permits lenders to use a “COVID Revenue Reduction Score” at the time of forgiveness in order to document the required revenue reduction for second draw PPP loans of $150,000 or less, exempting those borrowers from supplying required documentation demonstrating a 25 percent revenue reduction or more in at least one quarter of 2020 compared to the same quarter in 2019.

    The IRF takes effect immediately.

    Federal Issues SBA CARES Act Small Business Lending Covid-19 Agency Rule-Making & Guidance

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  • SBA outlines guaranty purchase, charge-off process for PPP loans

    Federal Issues

    On July 15, the SBA issued Procedural Notice 5000-812316 to remind lenders of their servicing responsibilities and provide guidance on the agency’s guaranty purchase process for Paycheck Protection Program (PPP) first-draw and second-draw loans. Lenders may submit requests for SBA to purchase and charge off PPP loans in instances where a borrower (i) is past due 60 days or more on scheduled loan payments where the default has not been cured; (ii) has permanently closed and does not intend to submit a forgiveness application; (iii); has filed for bankruptcy; or (iv) is deceased in the case of self-employed individuals, sole proprietors, single-member LLCs, or independent contractors. In circumstances where a borrower or any owner of 20 percent or more of the borrower has been indicted for, or convicted of, a felony related to a PPP loan, or in a case where a borrower has appealed an SBA loan review decision, the lender may request guaranty purchase without charge-off from SBA. Additionally, SBA outlines procedures for lenders when a borrower submits a forgiveness application after the lender has submitted a request to SBA for guaranty purchase. Guidelines for submitting guaranty purchase and charge-off requests are provided in the procedural notice.

    Federal Issues SBA PPP Covid-19 CARES Act Small Business Lending

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  • Fed extends PPP Liquidity Facility for a final time

    Federal Issues

    On June 25, the Federal Reserve Board announced the extension of the Paycheck Protection Program Liquidity Facility (PPPLF) for a final time to July 30. As previously covered by InfoBytes, the PPPLF was rolled out last year to provide liquidity to banks making loans to small businesses pursuant to the SBA’s Paycheck Protection Program at the start of the Covid-19 pandemic. In March, the Fed extended the PPPLF to June 30 (covered by InfoBytes here). The Fed noted that the most recent extension is being made as an “operational accommodation” for banks, community development financial institutions, and other financial institutions.

    Federal Issues Federal Reserve SBA Covid-19 Bank Regulatory

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  • FinCEN recognizes law enforcement agencies for use of BSA data

    Financial Crimes

    On June 24, the Financial Crimes Enforcement Network (FinCEN) honored the recipients of its 2021 Law Enforcement Awards Program, which recognizes agencies that use Bank Secrecy Act (BSA) data provided by financial institutions to successfully pursue and prosecute criminal investigations. The awards were presented in eight different categories related to: (i) Covid-19 fraud; (ii) cyber threats; (iii) transnational organized crime; (iv) transnational security threats; (v) state and local law enforcement; (vi) third-party money launderers; (vii) a suspicious activity review team; and (viii) significant fraud. Awards work included investigation into Paycheck Protection Program fraud that resulted in the seizure of case over $3 million, seizure of over $47 million dollars in narcotics proceeds, and seizure of 300 cryptocurrency accounts, among other work. FinCEN acting Director Michael Mosier stated that “[t]he law enforcement work that we recognize today highlights both the importance of an effective partnership between FinCEN, financial institutions, and our law enforcement agencies, and the value of BSA reporting in protecting the American people from fraud, cybercrime, and the illicit finance threats confronting our nation.”

    Financial Crimes FinCEN Of Interest to Non-US Persons Bank Secrecy Act Enforcement Investigations Anti-Money Laundering Covid-19 SBA Cryptocurrency Fraud

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  • SBA updates PPP FAQs

    Federal Issues

    On June 8, the SBA updated its Paycheck Protection Program (PPP) frequently asked questions to clarify certain conditions related to whether a nonprofit organization that has received approval of an application for tax exemption from the Puerto Rico Departamento de Hacienda qualifies as a “nonprofit organization” under section 7(a)(36)(A)(vii) of the Small Business Act. The FAQ discusses exemption criteria for certain nonprofit organizations, and specifies that SBA will treat a nonprofit organization that has obtained approval of its application for tax exemption from the Puerto Rico Departamento de Hacienda as meeting the definition of “nonprofit organization” under section 7(a)(36)(A)(vii) of the Small Business Act “if the nonprofit organization reasonably determines, in a written record maintained by the nonprofit organization, that it would be an organization described in section 501(c)(3) of the Internal Revenue Code (without regard to the notification requirement in section 508(a) of the Internal Revenue Code) and is therefore within a category of organizations that are eligible to be exempt from taxation under section 501(a), regardless of whether the nonprofit organization has applied for recognition from the Internal Revenue Service.” However, these nonprofit organizations must meet all other applicable eligibility criteria in order to receive a PPP loan and loan forgiveness, SBA emphasizes.

    As previously covered by InfoBytes, the SBA stopped accepting new PPP loan guarantee applications on June 1.

    Federal Issues SBA Covid-19 Small Business Lending

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  • 6th Circuit: SBA can’t prioritize race or sex for Covid relief


    On May 27, the majority of the U.S. Court of Appeals for the Sixth Circuit held that the Small Business Administration (SBA) cannot allocate limited Covid-19 relief funds based on the race and sex of the applicants. The plaintiff filed a lawsuit claiming the SBA’s practice of giving priority to certain Restaurant Revitalization Fund applicants (i.e. restaurants owned and controlled at least 51 percent by women, veterans, or the “socially and economically disadvantaged”) during the first 21 days violates the U.S. Constitution’s equal protection clause by impermissibly granting priority based on race and gender classifications. The plaintiff applied for funding on the first day the application period opened, but because the restaurant he co-owned 50/50 with his Hispanic wife was not owned 51 percent by a woman or a veteran, he faced an added evidentiary burden to show he qualified as “socially and economically disadvantaged” to get priority status. The plaintiff requested a temporary restraining order and a preliminary injunction to prohibit the SBA from granting funds unless it did so in a manner that ignored race and sex. The district court denied the request, as well as subsequent requests made by the plaintiff, ruling that he was unlikely to succeed on the merits of his claims.

    On appeal, the majority of the Sixth Circuit disagreed, concluding that the district court should have issued an injunction pending appeal since the SBA “failed to justify its discriminatory policy.” According to the majority, the SBA “injected explicit racial and ethnic preferences into the priority process” by “presume[ing] certain applicants are socially disadvantaged based solely on their race or ethnicity.” Additionally, the majority stated that the “added evidentiary burden faced by white men and other non-presumptively disadvantaged groups stands in marked contrast with lenient evidentiary standards set by the American Rescue Plan Act,” and pointed out that “broad statistical disparities cited by the government are not nearly enough” to suggest intentional discrimination. Because “an effort to alleviate the effects of societal discrimination is not a compelling interest,” the majority stated, “the government’s policy is not permissible.” The majority also rejected the SBA’s argument that the issue was moot because the priority period for the program has ended, commenting that race and sex preferences continue to factor in whether an applicant receives funds before the program’s money runs out.

    The dissenting judge argued, however, that the “Constitution permits the government to use race-based classifications to remediate past discrimination,” and added that the plaintiff has not demonstrated that he will be irreparably harmed by the way the program’s funds are distributed.

    Courts Appellate Sixth Circuit Covid-19 SBA

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