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FTC provides advice to mortgage borrowers impacted by Covid-19
On April 14, the FTC released guidance entitled “Coronavirus and your mortgage” to provide financial information to consumers affected by the Covid-19 pandemic. The guidance points out that many mortgage borrowers facing Covid-19-related financial hardships may benefit from CARES Act protections. Starting on March 18, borrowers with federally-backed mortgages cannot have foreclosure proceedings instituted against them for 60 days. The CARES Act also provides borrowers the right to request forbearance for up to 180 days in order to temporarily freeze or lower mortgage payments. After the forbearance period ends, borrowers may request an additional forbearance for up to 180 days if they are still having trouble making mortgage payments as a result Covid-19. The FTC’s guidance provides contact information for the GSEs so borrowers can determine if their mortgages are federally backed. In addition, the guidance encourages all borrowers to contact their servicers for available payment options and assistance. The FTC suggests that approved housing counselors may also help, and can be found on the Department of Housing and Urban Development’s website here, while the Homeownership Preservation Foundation may be able to assist borrowers in making payment arrangements with their mortgage servicers. (See website here.) The FTC advises borrowers to check state government websites for state-specific information, though the agency warns borrowers to be wary of mortgage relief scams. Finally, the guidance reminds borrowers never to pay up-front for help with their mortgage payments and provides additional links for more detailed information.
FINRA adds PPP question to Covid-19 FAQs
On April 13, FINRA updated its FAQs on regulatory relief due to Covid-19 to include an FAQ that addresses Paycheck Protection Program loans. The FAQ answers a question relating to loan forgiveness for registered persons, stating that the loan forgiveness amount will not be considered a “compromise with a creditor” and will not need to be reported on Form U4 for question 14K.
CFPB issues guidance allowing pandemic relief payment distribution with prepaid cards
On April 13, the CFPB issued an Interpretive Rule (IR) addressing the “Treatment of Pandemic Relief Payments Under Regulation E and Application of the Compulsory Use Prohibition.” Pursuant to the CARES Act, many consumers are entitled to pandemic relief payments, generally provided through direct deposit to the consumer’s bank account. When that information is unavailable, or when the consumer does not have a bank account, the IR allows government agencies to provide the economic impact payments via alternative means, including by issuing prepaid account cards. However, the Electronic Fund Transfer Act and implementing Regulation E prohibit government agencies from requiring consumers to “establish accounts for receipt of electronic fund transfers with a particular financial institution as a condition of receipt of a government benefit. ” According to the IR, the “compulsory use prohibition” will not apply to prepaid cards and the Covid-19 relief payments will not be classified as government benefits, provided the cards fulfill certain requirements. In order to not be considered “government benefits” the payments must: (i) be to aid consumers impacted by Covid-19; (ii) not be “part of an already-established government benefit program”; (iii) be distributed “on a one-time or otherwise limited basis”; and (iv) not require consumers to apply for the funds.
CFPB announces regulatory flexibility after remittance transfer rule exception expires
On April 10, the CFPB announced the release of a policy statement “Supervisory and Enforcement Practices Regarding the Remittance Rule in Light of the COVID-19 Pandemic” addressing the implementation of the Electronic Fund Transfer Act (EFTA), and the Regulation E Remittance Rule (Rule). EFTA’s consumer protections, implemented by the Rule, require financial companies handling international money transfers, or remittance transfers, to disclose the exact exchange rate, fees, and amount delivered to the consumer making the transfer. However, it also provides a temporary exception, which allows institutions that provide remittance transfers to estimate these fees to consumers. (Covered by InfoBytes here.) The temporary exception is set to expire on July 1, and section 919 of the EFTA does not authorize the Bureau to extend it past that date. Accordingly, “[i]n order to minimize the impact of the pandemic on the remittances market…the Bureau will neither cite supervisory violations nor initiate enforcement actions against certain remittance transfer providers” for disclosing estimated fees and exchange rates from July 1 until January 21, 2021.
FFIEC releases updated instructions for call reports and FFIEC 101
On April 9, the FFIEC released two depository institution reports—Capital-related Revisions to the Consolidated Reports of Condition and Income (Call Report) and the FFIEC 101 Report, and Consolidated Reports of Condition and Income for First Quarter 2020. The reports reiterate the agencies’ March 25 statement (covered by InfoBytes here) that March 31, 2020 Call Reports submitted after the filing deadline will not result in agency action, if “the report is submitted within 30 days of the official filing date.” Additionally, they explain that Call Report instructions were impacted by three interim final rules (IFRs) the agencies recently released due to issues caused by Covid-19. The regulatory capital IFRs cover: (i) the Money Market Mutual Fund Liquidity Facility (MMLF) IFR (covered here); (ii) the Standardized Approach for Calculating the Exposure Amount of Derivative Contracts (SA-CCR rule) IFR (covered here); and (iii) the transition of Current Expected Credit Losses (CECL) IFR (covered here). A notice regarding eligible retained income, along with the three IFRs, not only affected the instructions for March 31, 2020 Call Reports, but also impacted calculation instructions for regulatory capital on Schedule RC-R, and FFIEC 101 for regulatory capital reporting for institutions that use the advanced capital adequacy framework. The FFIEC’s updated instructions for the first quarter call report may be found here, and the updated instructions for the first quarter FFIEC 101 may be found here.
CARES Act information was also added to the appendix of the Quarterly Call Report Supplemental Instructions to include section 2302, “Modifications for Net Operating Losses,” section 4013, “Temporary Relief from Troubled Debt Restructurings,” and section 4014, “Optional Temporary Relief from Current Expected Credit Losses.”
OCC to move ahead with CRA modernization proposal; Senate Democrats request new proposal
On April 9, OCC Comptroller Joseph M. Otting issued a statement thanking stakeholders for commenting on the joint notice of proposed rulemaking (NPR) to modernize the Community Reinvestment Act (CRA) issued by the OCC and FDIC last December. (See Buckley Special Alert discussing the NPR.) Otting emphasized that the OCC anticipates releasing a final rule during the first half of the year, explaining that the Covid-19 pandemic has highlighted communities’ need for even greater access to lending, capital, and services. “It is our intention to craft a final rule that will encourage banks to lend and invest more in the communities they serve, including low- and moderate-income neighborhoods,” Otting stated. “Further delay would only prevent these valuable resources from reaching those who need them most in this time of national emergency.”
However, 42 Senate Democrats, led by Senator Sherrod Brown (D-OH), sent a letter the same day asking the agencies to rescind the NPR, which, according to the lawmakers, currently “threatens to undermine more than 40 years of access to sustainable mortgage credit, small business loans, community development, and partnerships between financial institutions and the communities they serve.” According to the Senators, the NPR’s proposal to give banks a presumptive CRA grade based mainly on the ratio of the dollar value of all CRA activity to deposits is “inconsistent with the clear Congressional intent of the CRA,” in that it would force “dollar values onto activities that are not easily measured in monthly balance sheet totals,” and would also, among other things, encourage “banks to meet their CRA obligations with activities that produce the maximum dollar figure with the least effort.” Additionally, the Senators stressed that the NPR fails to address the lack of investment in rural areas, Indian Country, and currently underserved CRA markets, despite Otting noting in his statement that the OCC seeks “to increase support to small businesses, small and family-owned farms, Indian country, and distressed areas.” The Senators urged the agencies “to develop a new proposal that reflects evidence, community input, and Congressional intent.”
As previously covered by InfoBytes, on April 8, NYDFS Superintendent Linda Lacewell also sent a letter to the OCC expressing “strong opposition” to the NPR. A coalition of state attorneys general submitted a comment letter urging the agencies to withdraw the NPR as well.
CFPB updates Covid-19 student loan debt relief guidance for borrowers
On April 9, the CFPB released updated guidance for student loan borrowers during the Covid-19 pandemic. As previously covered by InfoBytes, the Bureau first released student loan borrower information on March 27, which covered debt relief provided by the CARES Act, including the automatic freeze on student loan payments until September 30 for those with federally held loans. Servicers will send required notices detailing the payment freeze to borrowers by the middle of April. The guidance notes that some federal student loans—including some Federal Family Education Loans—may be held by commercial lenders. These loans and other privately held loans do not qualify for automatic suspension of payments, and the Bureau encourages borrowers to contact their servicers for debt relief options such as deferment or forbearance if borrowers have difficulty making payments at this time. Borrowers with Perkins loans may also request loan forbearance from the borrowers’ institution for up to three months without submitting documentation.
Agencies revise reporting guidance during Covid-19 pandemic
On April 7, the Federal Reserve (Fed), FDIC, OCC, CFPB, and NCUA (agencies) issued a revised interagency statement for financial institutions regarding loan modifications for customers affected by Covid-19. As previously covered by InfoBytes, the agencies issued the initial interagency statement on March 22, which stated that the agencies would not require loan modifications made as a result of Covid-19 to be categorized as troubled debt restructurings (TDRs), and additionally that the agencies would not criticize implementation by financial institutions of credit risk mitigation procedures.
Among other things, the revised interagency statement encourages financial institutions to continue to adhere to consumer protection laws, such as fair lending laws, as they assist borrowers who have been negatively impacted by Covid-19. The agencies take a favorable view of loan modification programs intended to assist borrowers affected by Covid-19 and note that financial institutions will not be criticized “for working with borrowers in a safe and sound manner.” In addition, with respect to credit risks, examiners will refrain from issuing automatic adverse risk ratings when reviewing loan modifications impacted by Covid-19. The revised statement explains that the CARES Act created a forbearance program for borrowers affected by Covid-19, and that under Section 4013 of the Act, financial institutions are not required to “report section 4013 loans as TDRs in regulatory reports.” Furthermore, deferrals granted to borrowers affected by Covid-19 do not need to be classified as “past due because of the deferral.”
Federal regulators temporarily lower community bank leverage ratio
On April 6, federal regulators issued two interim final regulatory capital rules that will modify the framework of the Community Bank Leverage Ratio (CBLR) in order to enable qualifying community banking organizations (banks) to support lending during the Covid-19 pandemic. The first rule implements Section 4012 of the CARES Act, making temporary changes to the framework of the CBLR so that banks with a leverage ratio of at least eight percent starting in the second quarter of 2020 “may elect to use the community bank leverage ratio framework.” The rule also provides a two-quarter grace period for community banks whose leverage ratios fall below the eight percent requirement, provided that the bank’s leverage ratio does not fall below seven percent. The second interim final rule allows for the temporary CBLR gradually to transition to eight and one-half percent in 2021, and then back to nine percent at the beginning of 2022.
SEC highlights the need for top-quality financial reporting due to Covid-19
On April 3, the SEC Office of the Chief Accountant (OCA) released a statement regarding “the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19.” In the statement, the SEC Chief Accountant states that capital markets cannot function optimally without the free flow of “high quality financial information” that enables informed decision-making from lenders, investors, and other stakeholders. The statement points out that accounting and financial reporting may be challenging due to Covid-19 and that financial institutions may have to make “significant judgments and estimates,” but that the OCA does not intend to oppose “well-reasoned judgments.” Accounting areas that may require these judgments and estimates include (i) “[f]air value and impairment”; (ii) “[l]eases”; (iii) “[d]ebt modifications or restructuring”; (iv) “[h]edging”; (v) “[r]evenue recognition”; (vi) “[g]oing concern”; (vii) “[s]ubsequent events”; and (viii) “[a]doption of new accounting standards.” Regarding auditing, the OCA advises that auditor independence is of paramount importance to financial institutions and notes its willingness to consult on these issues. The statement also emphasizes the OCA’s engagement with the Financial Accounting Standards Board and the Public Company Accounting Oversight Board, as well as with international accounting groups regarding issues created by Covid-19. Finally, the OCA encourages those involved in the financial reporting system to collaborate, and reiterates the OCA’s willingness to answer Covid-19 related questions.