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On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which amends provisions of the CARES Act (covered by a Buckley Special Alert) and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period to the earlier of 24 weeks after origination or December 31, 2020, rather than the current eight weeks; (ii) maintains forgiveness amounts for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year; (iv) sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness; (v) allows borrowers to defer principal and interest payments on PPP loans until the Small Business Administration remits the amount of determined forgiveness to the lender, instead of the current six-month deferral period (borrowers that do not apply for forgiveness will be given at least 10 months after the program expires to begin making payments); and (vi) allows businesses with forgiven loans to defer payroll taxes. The Act takes effect immediately.
On May 19, a group of 34 state attorneys general wrote to congressional leaders urging the inclusion of the SAFE Banking Act in any future Covid-19 relief package. As previously covered by InfoBytes, the SAFE Banking Act was passed by the House in September 2019 and would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry. In the letter, the attorneys general outline three reasons legislative action for cannabis banking is needed based on the Covid-19 pandemic: (i) cash-intensive business models could be a target of increased criminal activity; (ii) large cash transactions place the public and government officials at heightened risk of virus exposure; and (iii) tax revenue from over $15 billion in sales in 2019 could provide critical relief for state and local governments. The letter reminds congressional leaders that support for the SAFE Banking Act, or similar legislation, “is not a call for the legalization of medical or retail marijuana in  jurisdictions that choose not to pursue such an approach,” instead it would be a reflection that “our federalist system of government that is flexible enough to accommodate divergent state approaches.”
On Tuesday, March 31, the Department of the Treasury and the Small Business Administration released initial details regarding the nearly $350 billion Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act. Under the program, private lenders will offer SBA-guaranteed loans to small businesses that require capital to meet payroll and other expenses.
The SBA published a COVID-19-specific webpage with additional information about programs and resources, and Treasury posted four documents outlining key features of the program, as well as information for borrowers and lenders:
- The PPP Overview describes the program’s scope, eligibility requirements, and application process. It notes that no-fee loans used to meet payroll and to pay mortgage interest, rent, or utilities may be forgiven, with payments deferred for up to six months. Businesses in all industries with up to 500 employees are eligible, and larger businesses in certain industries may also be eligible. Applications will be accepted starting April 3, 2020.
- The PPP Lender Information Fact Sheet provides details regarding lenders that are eligible to make the SBA-guaranteed loans. Importantly, all existing SBA-certified lenders are granted “delegated authority” to originate loans eligible for the SBA guarantee (subject to eligibility and other requirements). Federally insured depository institutions and credit unions, as well as Farm Credit System institutions, may also make SBA-guaranteed loans under the program. Lenders that currently do not hold SBA certification may submit applications to participate to the address noted in the Lender Fact Sheet. We expect additional detail regarding the application process in the near future.
- The PPP Borrower Fact Sheet sets forth information for potential small-business borrowers. One important condition of obtaining a loan under the program: Employee and compensation levels must be maintained. However payroll costs are capped at $100,000 on an annualized basis for each employee, so any amounts above $100,000 paid to a single employee will not be calculated in the loan amount nor towards meeting a potential threshold for loan forgiveness (e.g., SBA indicates non-payroll costs may be limited to not more than 25% of the forgiven amount). Additional details regarding an exact percentage of the loan that must be used for payroll are forthcoming.
- The PPP Application Form is now available online. Small businesses will need to provide basic information and respond to disclosure questions, including whether the business is delinquent on any federal debt. The application form requires that the borrower respond to seven certification statements that relate to the intended use of funds, the necessity of the loan to support ongoing obligations of the business, the total number of employees, and that the information in the application is correct. It appears that lenders will calculate loan amounts by referencing the businesses’ prior-year tax returns. Due to the federal extension on filing taxes, most businesses will likely submit 2018 tax returns for review.
Please see Buckley’s March 30 Special Alert for additional information on the program. We will continue to provide timely updates regarding any guidance published on this topic on our dedicated SBA page, which includes additional SBA resources you may find helpful. If you have any questions regarding the matters discussed in this alert, please contact a Buckley attorney with whom you have worked in the past.
Special Alert: CARES Act places significant burdens on servicers of consumer debt but provides some relief to depositories
President Trump late last week signed the Coronavirus Aid, Relief, and Economic Security Act that attempts to soften the negative economic effects of the Covid-19 pandemic on consumers, including by suspending payments for certain student loan borrowers and enabling mortgage loan borrowers to easily obtain temporary forbearances. The act also provides certain limited regulated relief for banks and credit unions.
This Special Alert summarizes the provisions providing relief to borrowers with federal student loans and the provisions of Title IV that dictate the manner in which servicers and collectors report borrowers to consumer reporting bureaus; provide forbearance, foreclosure, and eviction relief throughout the housing market; and provide limited regulatory relief to depository institutions.
Buckley issued a separate Special Alert on the Small Business Administration-related provisions contained in Title I of the act and will be covering separately the new Special Inspector General’s office created by the act, False Claims Act considerations, and other liability risks that we expect to arise.
Special Alert: CARES Act “Paycheck Protection Program” offers relief and opportunities for small businesses and lenders
On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act). The legislation’s first title, the “Keeping American Workers Paid and Employed Act,” provides a host of relief measures for small businesses, including $349 billion for Small Business Administration (SBA) loan forgiveness, guarantees, and subsidies. This Special Alert summarizes pertinent SBA-related provisions of the Paycheck Protection Program (PPP) and potential opportunities for both (i) small businesses, and (ii) existing and new SBA lenders to grow their small business lending portfolios. We will provide an update on the relief measures following the Treasury Department’s (Treasury) release of additional program details, which is expected imminently.
We will provide timely updates regarding any guidance published on this topic on our dedicated SBA page, which includes additional SBA resources you may find helpful. If you have any questions regarding the matters discussed in this Alert, please contact a Buckley attorney with whom you have worked in the past.
On March 27, the CFPB issued guidance on the student loan provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Pursuant to the Act, borrowers with federally held student loans will automatically have their loan principal and interest payments paused until September 30. Borrowers do not need to take any action to have their payments suspended and interest will not accrue during this period. The CFPB also provided additional guidance on the impact on privately held student loans and federal loans held by commercial lenders, and provided information to help borrowers avoid student loan debt relief scams.
On March 18, Senator Mitch McConnell (R-KY) proposed relief legislation which, among other things, would temporarily allow fintechs to offer “small business interruption loans” for as long as the Covid-19 national emergency is in effect. The “CARES Act” or Corornavirus Aid, Relief and Economic Security Act, would provide nearly $300 trillion in additional funds to the SBA in order to provide emergency government-backed loans. Under the proposal, small businesses eligible for the SBA Section 7(a) loans with 500 or fewer employees, could use the loans to fund, such things as (i) paid sick, medical, or family leave; (ii) group health care benefits; (iii) employee salaries; (iv) mortgage payments; and (v) utilities. In addition, the proposal provides for loan deferment for a year and loan forgiveness for loans used to cover payroll expenses.
On March 11, the U.S. Senate, in a 53-42 vote, joined the House in passing H.J. Res. 76, which provides for congressional disapproval of the Department of Education’s 2019 Borrower Defense Rule (the Rule). As previously covered by InfoBytes, the Rule, published last September and set to take effect July 1, revises protections for student borrowers that were significantly misled or defrauded by their higher education institution and establishes standards for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” If signed by the president, H.J. Res. 76 would undo changes made by the Rule that, among other things, would have required individuals to apply to the Department for a defense to repayment (under the 2016 Rule, applications could be submitted on behalf of an entire group). H.J. Res. 76 would also undo the Rule’s elimination of automatic closed-school discharges and its ban on pre-dispute arbitration and class action waivers that were previously contained within the 2016 Rule.
CFPB announces advisory opinion program, updates business conduct bulletin, proposes whistleblower award legislation
On March 6, the CFPB announced three new measures it is undertaking to prevent customer harm, including (i) implementing an advisory opinion program; (ii) updating its bulletin regarding responsible business conduct; and (iii) advancing whistleblower award legislation through engagement with Congress. Details of each measure are as follows:
- Advisory Opinion Program. As previously covered by InfoBytes, the Bureau issued three new innovation policies last September to reduce regulatory uncertainty and improve compliance. Similarly, the Bureau’s March 6 announcement states that the advisory opinion program should “provide clear guidance to assist companies in better understanding their legal and regulatory obligations.” The program directs that requests for advisory opinions should be submitted through the CFPB website. The opinions will then be published in the Federal Register and on its website.
- Responsible Business Conduct Bulletin. The amended bulletin, originally released in 2013, “clarif[ies] [the Bureau’s] approach to responsible business conduct” and emphasizes “the importance of such conduct.” The updated bulletin presents four categories of “responsible conduct” that entities are encouraged to adopt to improve the culture of compliance and that the CFPB will use to evaluate whether credit is warranted in an enforcement investigation or supervisory matter, including (i) self-assessment; (ii) self-reporting; (iii) remediation; and (iv) cooperation.
- Whistleblower Award Legislation. The proposed legislative language would amend Title X of the Dodd-Frank Act and authorize the Bureau to create a whistleblower award program. For individuals that volunteer information leading to a “successful enforcement action,” the program would enable the Bureau to provide a monetary award of between 10 to 30 percent of the collected penalty amount, up to $10 million.
On December 30, President Trump signed S. 151—the “Telephone Robocall Abuse Criminal Enforcement and Deterrence Act” (TRACED Act, Public Law 116-105)—which, among other things, grants the FCC authority to promulgate rules to combat illegal robocalls and requires voice service providers to develop call authentication technologies. The TRACED Act, Public Law No. 116-105, also directs the FCC to issue regulations to ensure that banks and other callers have effective redress options if their calls are erroneously blocked by call-blocking services.
Highlights of the TRACED Act include:
- STIR/SHAKEN implementation. Within 18 months of enactment, the FCC must require voice service providers to implement “STIR/SHAKEN” caller ID authentication framework protocols at no additional charge to consumers. Providers will be required to adopt call authentication technologies to enable telephone carriers to verify the authenticity of the calling party’s calls. (Previously covered by InfoBytes here.)
- Increased enforcement authority. The FCC will be able to levy civil penalties of up to $10,000 per violation, with additional penalties of as much as $10,000 for intentional violations. The TRACED Act also extends the window for the FCC to take enforcement action against intentional violations to four years.
- FCC requirements. The TRACED Act directs the FCC to (i) initiate a rulemaking to protect subscribers from receiving unwanted calls or texts from callers who use unauthenticated numbers; (ii) initiate a proceeding to protect parties from “one-ring” scams “in which a caller makes a call and allows the call to ring the called party for a short duration, in order to prompt the called party to return the call, thereby subjecting the called party to charges”; (iii) submit annual robocall reports to Congress; and (iv) establish a working group to issue best practices to prevent hospitals from receiving illegal robocalls.
- Agency collaboration. The TRACED Act directs the DOJ and the FTC to convene an interagency working group comprised of relevant federal departments and agencies, such as the Department of Commerce, Department of State, Department of Homeland Security, FTC, and CFPB, which must consult with state attorneys general and other non-federal entities, to identify and report to Congress on recommendations and methods for improving, preventing, and prosecuting robocall violations.
- Criminal prosecutions. The TRACED Act encourages the DOJ to bring more criminal prosecutions against robocallers.
Earlier on December 20, the FCC issued a public notice seeking industry input on current practices for blocking unwanted calls as part of a study required by last June’s declaratory ruling and proposed rulemaking (covered by InfoBytes here; Federal Register notice here). The FCC will use the information collected in an upcoming report on the current state of call blocking efforts. Comments will be accepted until January 29, and reply comments are due on or before February 28.
- Jonice Gray Tucker to discuss “Getting your company ready: Managing fair lending for IMBs” at the Mortgage Bankers Association Independent Mortgage Bankers Conference
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program
- Jonice Gray Tucker and Kari Hall to discuss “Equity, equality, regulation and enforcement – The evolving regulatory landscape of fair lending, redlining, and UDAAP” at the ABA Business Law Committee Hybrid Spring Meeting