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Iowa Division of Banking issues statement to bank presidents and CEOs
On April 22, the Iowa Division of Banking issued a statement to bank presidents and CEOs. The statement encourages banks to consider the Paycheck Protection Program Lending Facility created by the Federal Reserve as a liquidity option for Paycheck Protection Program loan activity. The announcement also addresses off-site examinations of financial institutions; the interagency statement on appraisals and evaluations for real estate affected by Covid-19; tracking payment extensions, deferrals, and modifications when working with customers; and loan loss reserve analysis, among other topics.
NCUA amends capital regulation to conform to CARES Act
On April 22, the NCUA approved an interim final rule (IFR) amending its capital adequacy regulation to align with the CARES Act. The NCUA amended its risk-based capital requirements to provide for a zero percent risk weight for Paycheck Protection Program (PPP) loans. Further, to neutralize the effect of the PPP loans on credit unions, the IFR will allow credit unions to omit covered loans from their total assets calculation when determining their net worth ratios. However, the covered loans must be “pledged as collateral for a non-recourse loan that is provided as part of the [Fed’s] PPP Lending Facility.” The IFR also amended “the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule” to exclude PPP loans. This IFR is effective upon publication in the Federal Register, after which comments will be accepted for 30 days.
Data breach exposes SBA Emergency Injury Disaster Loan program applicants
On April 21, according to reports, the Small Business Association (SBA) acknowledged that it notified almost 8,000 applicants of the Economic Injury Disaster Loan (EIDL) program that their information may have been exposed as part of a data breach. Specifically, the agency stated that on March 25, the personal information of business owners applying for the EIDL program was potentially exposed to other applicants on the SBA’s website. The information exposed included names, social security numbers, birth dates, certain financial information, email addresses, and phone numbers. According to the SBA, there is no evidence that the exposed information has been misused. Notably, the breach only effected the applicants of the EIDL program, not the Paycheck Protection Program, which did not begin accepting applications until April 3.
Banks face class actions for prioritizing large customers for PPP loans
On April 20, five class action lawsuits were filed in the U.S. District Court for the Central District of California against six of the nation’s largest banks, alleging that the banks prioritized existing, large customers over smaller businesses for the Small Business Administration’s (SBA's) Paycheck Protection Program (PPP) loans. The suits claim that the banks submitted PPP applications for existing large customers first, failing to process applications in the order they were received. Moreover, pursuant to the CARES Act, the SBA provided PPP lenders with origination fees on a sliding scale, from 1 percent to 5 percent, based on the amount of each loan. The complaints allege that higher origination fees provided incentive for the banks to process higher dollar loans ahead of smaller dollar loans. See the complaints here, here, here, here, and here.
Fed provides FAQs on PPP liquidity facility
On April 20, the Federal Reserve Board (Fed) released a series of frequently asked questions (FAQs) and answers relating to the agency’s newly launched Paycheck Protection Program Liquidity Facility (PPPLF). As previously covered by InfoBytes, the PPPLF was up and running on April 16 to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The SBA-guaranteed PPP loans are used as collateral for term financing provided by the PPPLF. The PPPLF extends credit to financial institutions participating in the PPP at a fixed rate of 35 basis points. Additional information regarding the PPPLF, including a term sheet, borrowing documentation, and operational documentation including samples can be found on the Fed website here.
OCC bulletin highlights Covid-19 assistance to businesses, consumers, and governments through Fed facilities
On April 20, the OCC issued a bulletin to spotlight the many Federal Reserve (Fed) lending programs established to provide relief from the effects of the Covid-19 pandemic and to highlight how the programs benefit consumers, businesses, and state and local governments. The Fed has supported the economy in a number of ways, particularly through establishing or expanding loan, credit, and liquidity facilities including (i) the Paycheck Protection Liquidity Facility (PPPLF); (ii) the Term Asset-Backed Securities Loan Facility (TALF); (iii) the Primary and Secondary Market Corporate Credit Facilities (PMCCF) and (SMCCF); (iv) the Municipal Liquidity Facility (MLF); and (v) the new Main Street Facility. As previously covered by a Buckley Special Alert, the PPPLF provides liquidity to banks to enable them to lend to small business owners so they can keep their businesses running and pay their employees. The TALF, PMCCF, and SMCCF ensure the flow of credit to consumers and businesses for things such as auto loans, credit card loans, and student loans. The MLF facilitates the flow of cash into states, counties, and cities so that their governments may continue to provide services to residents. Finally, the Main Street Facility—like the PPPLF—supports lending to businesses, in which banks originate Main Street Lending Program loans to small and medium-sized businesses by selling the majority of the loans to the Main Street Facility. Further details about the Main Street Facility can be found in a Buckley Special Alert here.
OFAC advises risk-based compliance approach during Covid-19 crisis
On April 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a statement reminding businesses—including financial institutions—to adhere to a risk-based administration of their sanctions compliance plans. The release notes that, in light of Covid-19, businesses may need to reassign resources otherwise dedicated to sanctions compliance to other areas. If apparent violations are made due to this reallocation of resources, OFAC asserts that it will take this into consideration when determining the appropriate response to the business. Also, businesses and persons subject to OFAC regulatory authority are urged to contact OFAC if the businesses anticipate any delays in satisfying deadlines or in filing required submissions and reports, including meeting the 10-day deadline for filing reject reports. The statement provides OFAC contact information appropriate to a number of situations, including matters related to reject reports, subpoenas, license reports, requests for reconsideration, and self-disclosures.
Fed issues rule to temporarily allow bank insiders access to PPP
On April 17, the Federal Reserve Board (Fed) announced an interim final rule to allow “certain bank directors and shareholders” to apply for loans from the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The rule will temporarily suspend some of the requirements of Federal Reserve Act Section 22(h) and Regulation O, to permit banks to extend credit to bank insiders, but only for PPP loans. This announcement comes after the SBA recently issued its own interim final rule regarding eligibility of directors and shareholders to apply for PPP loans for their own small businesses. The Fed’s interim final rule is effective upon publication in the Federal Register and comments must be received within 45 days of publication.
FTC seeks injunction against company posing as SBA lender
On April 17, the FTC filed a complaint against a Rhode Island-based company and its owner (defendants) for allegedly violating the FTC Act by claiming to be an approved lender for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) even though the defendants are neither affiliated with the SBA nor are they an SBA-authorized lender. The FTC alleges in its complaint that the defendants made deceptive statements on their websites, such as “WE ARE A DIRECT LENDER FOR THE PPP PROGRAM,” and directly contacted small businesses claiming to be representing the SBA in order to solicit loan applications on behalf of the businesses’ banks. The FTC states that the defendants have received hundreds, if not thousands, of loan applications from businesses and continue to claim they can make PPP loans despite receiving a cease-and-desist letter earlier this month from the SBA. The FTC seeks injunctive relief to prevent the defendants from continuing to engage in the unlawful acts and practices, as well as “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief” that the court deems necessary to redress any consumer harm, and an award of the costs for bringing the action.
Fed's PPP Liquidity Facility is fully operational
On April 16, the Federal Reserve announced that its Paycheck Protection Program Liquidity Facility is fully operational and available to provide liquidity to eligible financial institutions as they help support small businesses. In particular, the facility will extend credit to financial institutions that make PPP loans, with such loans acting as the collateral.