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CDBO releases proposed commercial financing disclosure regulations
On September 11, the California Department of Business Oversight (CDBO) initiated the formal rulemaking process with the Office of Administrative Law (OAL) for the proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018). In September 2018, California enacted SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances (covered by InfoBytes here). In July 2019, California released the first draft of the proposed regulations (covered by InfoBytes here) to consider comments prior to initiating the formal rulemaking process with the OAL.
The new proposed regulations, which have been modified since the July 2019 draft, provide general format and content requirements for each disclosure, as well as specific requirements for each type of covered transaction. Additionally, the proposed regulations provide information on calculating the annual percentage rate (APR), including additional details for calculating the APR for factoring transactions, as well as calculating the estimated APR for sales-based financing transactions, among other things. Additional details about the proposed regulations can be found in the CDBO’s initial statement of reasons. Comments on the proposed regulations will be accepted through October 28.
SBA clarifies PPP forgiveness for certain business owners, non-payroll costs
On August 27, the Small Business Administration (SBA) issued a new interim final rule (IFR), which provides additional guidance for Paycheck Protection Program (PPP) lenders on the treatment of business owners and the forgiveness of certain non-payroll costs. The new IFR specifies that “owner-employees with less than a 5 percent ownership stake in a C- or S- Corporation are not subject to the owner-employee compensation rule.” The SBA explained that the exemption, which was decided upon in consultation with the Secretary of Treasury, is intended to cover owner-employees who “have no meaningful ability to influence decisions over how loan proceeds are allocated.” With respect to the forgiveness of certain non-payroll costs, the SBA clarified that costs attributable to the business operations of tenants or sub-tenants of a PPP borrower or, for household expenses of home-based businesses, do not qualify for forgiveness. However, rent payments to a related third party are eligible for loan forgiveness under certain conditions. The IFR takes effect upon publication in the Federal Register. Comments on the provisions are due within 30 days.
CFPB issues CARD Act RFI
On August 25, the CFPB announced a Request for Information (RFI) on the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), consistent with the requirements of Section 610 of the Regulatory Flexibility Act (RFA), which specifies that agencies should review certain rules within 10 years of their publication to consider the rules’ effect on small businesses. Specifically, the Bureau is seeking comments from stakeholders on the economic impact of the CARD Act on small entities and whether regulations should be adjusted to address those impacts. Additionally, the RFI seeks information, pursuant to section 502(a) of the CARD Act, related to the consumer credit card market. Among other things, the Bureau requests stakeholders comment on (i) the terms of credit card agreements; (ii) the effectiveness of credit card disclosures; (iii) the cost and availability of credit cards; and (iv) credit card product innovation.
Comments on the RFI will be due 60 days after publication in the Federal Register.
CFPB says it is on track to meet data collection deadlines
On August 24, the CFPB filed another status report in the U.S. District Court for the Northern District of California as required under a stipulated settlement reached in February with a group of plaintiffs, including the California Reinvestment Coalition. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. Details on the Bureau’s first status update can be found here.
Among other things, the Bureau noted in the status report that (i) on July 22, it released a “survey of lenders to obtain estimates of the onetime costs that lenders would incur to prepare to collect data required by Section 1071”; and (ii) on August 11, it provided the SBA and the Office of Management and Budget’s Office of Information and Regulatory Affairs a draft Small Business Regulatory Enforcement Fairness Act (SBREFA) outline regarding proposals under consideration and alternatives considered. The status report emphasizes that the Bureau is “on track” to release a SBREFA outline by September 15 and convene a SBREFA panel by October 15, as required by the settlement.
Pennsylvania governor announces disbursal of small business grants, opening of second funding round
On August 10, the Pennsylvania governor announced that $96 million in state grants have been awarded to small businesses impacted by Covid-19 through the Covid-19 Relief Statewide Small Business Assistance fund. The announcement notes that the second and final round of funding has opened and will run through August 28. Eligible applicants that did not receive funding in the first round do not need to reapply and will be considered in the second round. The grants may be used to cover operating expenses during the shutdown and transition to re-opening, including for technical assistance and training related to the stabilization and reopening of businesses.
FTC charges merchant cash advance provider with deceptive and unfair practices
On August 3, the FTC filed a complaint against two New York-based merchant cash advance providers and two company executives (collectively, “defendants”) for allegedly engaging in deceptive practices by misrepresenting the terms of their merchant cash advances (MCAs), using unfair collection practices, making unauthorized withdrawals from consumers’ accounts, and misrepresenting collateral and personal guarantee requirements. The FTC’s complaint alleges that when marketing and offering MCAs to small business customers, the defendants, among other things, (i) falsely advertised that MCAs do not require collateral or personal guarantees, but when consumers defaulted on their financing agreements, the defendants frequently filed lawsuits against them, including against individual business owners who provided personal guarantees, to collect the unpaid amount; (ii) misrepresented the amount of total financing in the contract that consumers would receive by withholding fees that are deducted from the promised funds; and (iii) made unfair, unauthorized withdrawals from customers’ bank accounts in excess of consumers’ authorization without express informed consent, and routinely continued to debit customers’ bank accounts after the MCAs were fully repaid. According to the FTC, the “unauthorized overpayments have been a typical occurrence for [the defendants’] customers, and have impacted at least thousands of them, in amounts ranging from hundreds to thousands of dollars.”
The FTC seeks a permanent injunction against the defendants, along with monetary relief including “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
SBA issues new FAQs on forgiving PPP loans
On August 4, the Small Business Administration (SBA) issued new FAQs on Paycheck Protection Program (PPP) loan forgiveness. The FAQs note that borrowers and lenders may rely on the FAQs as the SBA’s interpretation of the CARES Act, the Paycheck Protection Program Flexibility Act (Flexibility Act), and all of the Paycheck Protection Program Interim Final Rules (available here). The FAQs cover various topics including (i) general loan forgiveness; (ii) loan forgiveness of payroll and nonpayroll costs, and types of costs that constitute payroll and nonpayroll costs; and (iii) loan forgiveness reductions. For continued InfoBytes coverage on PPP loan forgiveness see here.
Fed extends temporary exception to allow bank insiders access to PPP
On July 15, the Federal Reserve Board adopted an interim final rule (IFR) extending a temporary exception from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O for certain loans guaranteed under the Small Business Administration’s Paycheck Protection Program (PPP). The IFR extends the exception to August 8—the new date on which the PPP is set to expire (covered by InfoBytes here). The original extension was announced on April 17 (covered by InfoBytes here) and permits banks to extend credit to bank insiders, but only for PPP loans. However, the IFR does not except a PPP loan from other restrictions that may apply, including those under section 22(g) the Federal Reserve Act, section 215.5 of Regulation O, or applicable SBA PPP lending restrictions. The IFR takes effect immediately, and comments will be accepted for 45 days after publication in the Federal Register.
SBA updates guidance on collecting PPP lender processing fees
On July 13, the Small Business Administration (SBA) issued Procedural Notice 5000-20036 concerning Form 1502 that lenders must file in order to report fully disbursed Paycheck Protection Program (PPP) loans and request payment of eligible PPP processing fees. As previously covered by InfoBytes, the SBA began accepting Form 1502 on fully disbursed or cancelled PPP loans on May 22. Among other things, the notice provides updated guidance to lenders on (i) the amount of lenders fees the SBA will pay for processing PPP loans; (ii) the process for submitting Form 1502 and how to report loans that are fully disbursed or cancelled; (iii) the procedure for reporting PPP loans that are voluntarily terminated and repaid after disbursement; (iv) situations in which a lender is not eligible to receive a processing fee, as well as clawback circumstances; (v) lender service provider responsibilities; and (vi) ongoing PPP loan reporting requirements.
SBA completes $20 billion in funding for EIDL Advance program
On July 11, the Small Business Administration announced the conclusion of the Economic Injury Disaster Loan (EIDL) Advance program after the agency allocated the full $20 billion appropriated by Congress. As previously covered by InfoBytes, the EIDL Advance program provided up to $10,000 ($1,000 per employee) of emergency economic relief to businesses that were experiencing temporary difficulties due to the Covid-19 pandemic. The emergency funds under the EIDL Advance program do not have to be repaid. While the EIDL Advance program is now discontinued, non-Advance EIDL loan applications are still being processed. These loans carry interest rates of 3.75 percent for small businesses and 2.75 percent for non-profits and have terms up to 30 years, with the first payment deferred for one year.