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SBA must release PPP and EIDL borrower information by December 1
On November 24, the U.S. District Court for the District of Columbia denied the U.S. Small Business Administration’s (SBA) request for stay and ordered the release of the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) by December 1. As previously covered by InfoBytes, the court ordered the SBA to supplement their July disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020,” concluding that the SBA’s claimed FOIA exemptions do not cover the requested information disclosures. The SBA moved to stay the order to “preserve [the] SBA’s right to appeal and to avoid irreparable harm to [the] SBA and to privacy and business confidentiality interests of the millions of individuals and businesses….” The court initially granted a temporary stay to review the motion (covered by InfoBytes here). Upon review, the court denied the stay, concluding that staying the disclosure through an appeal “would deprive the public of information critical to an ongoing national debate of considerable importance, as well as basic details surrounding an unprecedented federal relief effort financed by taxpayer dollars.” The SBA must release the supplemental information by December 1, however, the court noted that “nothing in this decision prevents SBA from seeking its desired relief in the Court of Appeals before that date.”
Updated PPP loan data available here.
Treasury: Expenses paid from PPP loans are not deductible
On November 18, the U.S. Treasury Department and Internal Revenue Service (IRS) clarified the tax treatment of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. According to the IRS revenue ruling, businesses are not taxed on the proceeds of a forgiven PPP loan, thus the business expenses paid from those proceeds are not deductible. The revenue ruling illustrates multiple taxpayer scenarios, which conclude that if the PPP loan has not yet been forgiven by the end of 2020, but the business reasonably believes the loan will be forgiven in the future, the expenses are not deductible. This applies whether the business has filed for forgiveness yet or not. However, if a PPP loan was expected to be forgiven, and was not, the expenses are deductible.
Court stays PPP and EIDL borrower disclosure
On November 13, the U.S. District Court for the District of Columbia temporarily stayed the U.S. Small Business Administration's (SBA) mandatory release of the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) borrowers until the court rules on the motion to stay filed by the SBA. As previously covered by InfoBytes, the court ordered the SBA to supplement their July disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020,” concluding that the SBA’s claimed Freedom of Information Act (FOIA) exemptions do not cover the requested information disclosures. The SBA moved to stay the order to “preserve [the] SBA’s right to appeal and to avoid irreparable harm to [the] SBA and to privacy and business confidentiality interests of the millions of individuals and businesses….” The SBA requested the order be stayed until December 7 or pending appeal, if filed by that date. In response, the court issued a minute order, granting a temporary stay until it rules on the motion.
Another district court dismisses PPP agent fee class action
On November 16, the U.S. District Court for the Central District of California issued an order dismissing a putative class action against several large banks over whether agents providing consulting, legal, accounting, and tax preparation services are entitled to “agent fees” from lenders for helping businesses secure loans under the Paycheck Protection Program (PPP). The agents argued that the banks received lender fees from the government and funded PPP loans for borrowers but failed to and refused to pay any agent fees. The court found, however, that the agents failed to allege facts sufficient to establish standing or to “inform any Defendant of its particular role in the alleged general harm,” and instead relied “merely on generalized, conclusory allegations.” While the court gave the agents 21 days to amend their complaint, it noted that “[b]ecause the CARES Act does not provide a private cause of action to recover agent fees absent an agreement between agent and lender, it appears unlikely that Plaintiffs can overcome the [identified] deficiencies.” The court’s decision follows decisions issued by other federal courts, which have also dismissed similar agent fee class actions (see InfoBytes here and here).
Regulators update Senate on Covid-19
On November 10, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of Financial Regulators,” which primarily focused on Covid-19-related actions taken by the Federal Reserve Board (Fed), OCC, FDIC, and NCUA since the federal financial regulators last testified in May (covered by InfoBytes here). Committee Chairman Mike Crapo (R-ID) opened the hearing by applauding the actions taken by the regulators after the passage of the CARES Act to help mitigate the economic impact of the pandemic. Crapo cautioned, however, that the regulators should continue to review and adjust their regulatory and supervisory frameworks to support economic recovery, including by “alleviat[ing] the regulatory burdens associated with a variety of asset-based regulatory thresholds on [] banks and credit unions temporarily experiencing growth from participation in recovery-orientated programs” such as the Paycheck Protection Program (PPP).
In his written statement, Fed Vice Chair for Supervision Randal K. Quarles discussed actions taken by the Fed, such as (i) issuing a set of key principles concerning Covid-related credit accommodations; (ii) updating guidance on bank examinations to “consider the unique, evolving, and potentially long-term issues that institutions face”; (iii) clarifying the Fed’s approach to Covid-related activity under the Community Reinvestment Act; and (iv) supporting the ability of banks to meet customer needs by issuing PPP loans, underwriting loans in the Main Street Lending Program, and acting as counterparties in several other facilities.
OCC Acting Comptroller Brian Brooks also discussed activities undertaken by the agency, and noted that the regulators are working on an interagency basis “on a set of rule[s] that would relieve for a period of time certain asset thresholds being tripped that trigger heightened scrutiny and heightened compliance requirements at different levels.” According to Brooks, this relief would “cap out at $10 billion, most likely, based on current conversations.” Brooks agreed with Quarles that while larger banks are “fully capable of managing those risks,” smaller banks will face difficulties.
FDIC Chairman Jelena McWilliams also provided an update on actions undertaken to provide banks flexibility while maintaining safety and soundness. McWilliams discussed five key areas: (i) responding to Covid-19 economic risks; (ii) “enhancing [] resolution readiness”; (iii) supporting communities; (iv) “fostering technology solutions and encouraging innovation”; and (v) “finalizing outstanding rulemakings,” including approving an interim final rule to provide regulatory relief to insured depository institutions that have experienced significant, but temporary, asset growth due to government stimulus efforts (covered by InfoBytes here).
NCUA Chairman Rodney E. Hood also discussed updated agency measures in response to the pandemic, such as adjusting supervision priorities to ensure that credit unions’ good-faith efforts to comply with the CARES Act are reviewed. Hood further emphasized in his written statement that “NCUA’s examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight.” Hood also discussed, among other things, NCUA’s cybersecurity efforts in response to the pandemic and significant rulemaking actions, including an interim final rule that provides relief to credit unions that temporarily fall below the well-capitalized level.
The House Financial Services Committee also held a hearing later in the week to discuss the regulators' responses to the pandemic.
Court orders SBA to release more PPP and EIDL information
On November 5, the U.S. District Court for the District of Columbia ordered the U.S. Small Business Administration (SBA) to release the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) borrowers. According to the opinion, national-news organizations filed an action against the SBA seeking disclosure of the loan recipient information, after the rejection of their Freedom of Information Act (FOIA) requests. In July, the SBA released the business information of certain PPP loan recipients (covered by InfoBytes here). For any loan over $150,000, the SBA data release included business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, name of lender, jobs supported, and a loan amount range. For loans under $150,000, the SBA withheld the business names and addresses in the release. Additionally, the SBA did not release the names and addresses of sole proprietorships and independent contractors receiving EIDL loans. The parties filed cross-motions for summary judgment as to the propriety of SBA’s withholdings.
The court agreed with the plaintiffs, concluding that the SBA’s claimed FOIA exemptions do not cover the requested information disclosures. Specifically, the court determined that SBA’s invocation of Exemption 4 of FOIA, which “shields from disclosure ‘commercial or financial information obtained from a person and privileged or confidential,’” was not applicable because the SBA did not give borrowers the assurance of privacy. In fact, according to the court, the government explicitly told the borrowers that the information would be disclosed in a form disclaimer. The court further rejected the SBA’s claim of Exemption 6 of FOIA, concluding that the “weighty public interest in disclosure easily overcomes the far narrower privacy interest of borrowers who collectively received billions of taxpayer dollars in loans.” Thus, the court ordered the SBA to supplement the earlier disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020.”
Fed lowers Main Street Lending Program minimum loan size
On October 30, the Federal Reserve Board (Fed) announced an adjustment to the terms of the Main Street Lending Program (MSLP) in order to expand support to smaller businesses during the Covid-19 pandemic. Specifically, the Fed reduced the minimum loan size for the three Main Street facilities from $250,000 to $100,000 and adjusted the associated fees.
Additionally, the Fed and the U.S. Department of Treasury issued an FAQ clarifying that up to $2 million of Paycheck Protection Program (PPP) loans may be excluded for purposes of determining the maximum loan size under the MSLP. If a borrower has applied for forgiveness, the amount that is eligible for forgiveness may be excluded from the “existing outstanding and undrawn available debt” calculation under the MSLP program. If the borrower has not yet applied for forgiveness, the amount to be excluded from the calculation is the amount that “its principal executive officer has a reasonable, good-faith basis to believe will be forgiven in accordance with applicable PPP requirements.”
SBA clarifies loan forgiveness application deadline
On October 13, the Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) loan forgiveness FAQs to include a new question covering the PPP loan forgiveness application forms (3508, 3508EZ, and 3508S). Specifically, the SBA notes that even though the application forms display an expiration date of October 31, that is not a deadline to apply for forgiveness. Rather, the date posted on the forms is displayed for Paperwork Reduction Act purposes and will be extended when the same forms are re-approved. Borrowers may submit loan forgiveness applications any time before the maturity date of the loan, which can be either two or five years after origination.
SBA simplifies PPP forgiveness for loans under $50K
On October 8, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, announced a more streamlined loan forgiveness application for Paycheck Protection Program (PPP) loans of $50,000 or less. According to the interim final rule released with the application and application instructions, lenders may rely on the borrower representations of the forgiveness amount, stating that a “lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.” Moreover, should a borrower apply for forgiveness of costs exceeding the borrower’s PPP loan amount, the lender should confirm the borrower’s calculations on the loan forgiveness application, “up to the amount required to reach the requested [f]orgiveness [a]mount.” The SBA notes that it began approving PPP forgiveness applications and remitting payments to lenders on October 2 and “will continue to process all PPP forgiveness applications in an expeditious manner.”
Additionally, on October 7, the SBA updated the PPP FAQs to add a question on the payment deferral extension granted by the PPP Flexibility Act. As previously covered by InfoBytes, the PPP Flexibility Act extends the six-month payment deferral period to at least 10 months after the program expires. Specifically, the FAQs confirm that the extension of the deferral period will automatically apply to all PPP loans, requiring lenders to “give immediate effect to the statutory extension and [] notify borrowers of the change to the deferral period.” Moreover, the FAQs emphasize that the SBA does not require a formal modification of the promissory note.
SBA issues notice on PPP loan ownership changes
On October 2, the Small Business Administration issued a procedural notice providing guidance for Paycheck Protection Program (PPP) lenders when a recipient of a PPP loan experiences a change in ownership. According to the guidance, a “change of ownership” occurs when (i) at least 20 percent of common stock or other ownership interest of a PPP borrower is sold or transferred; (ii) the PPP borrower sells or transfers at least 50 percent of its assets; or (iii) the PPP borrower merges with or into another entity. Borrowers must notify their PPP lenders in writing before the closing of any change in ownership. The guidance specifies that, regardless of the change of ownership circumstances, the loan terms still apply and PPP lenders are “required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.” Among other things, the guidance explains that the PPP borrower remains responsible for performing all PPP loan obligations and PPP-related certifications (including the certification of economic necessity), as well as complying with all other applicable PPP requirements. Additionally, PPP borrowers are still required to obtain, prepare, retain, and provide all required documentation to their PPP lender or lender responsible for servicing the PPP loan or to the SBA upon request.