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Maryland regulator: Banks and credit unions should lift automated holds imposed on CARES Act recovery rebates
On April 30, the Maryland commissioner of financial regulation issued guidance to banks and credit unions in light of the April 29 executive order prohibiting garnishment or setoff of CARES Act recovery rebates. The guidance “strongly” urges Maryland-chartered depository institutions to “immediately” review their automated systems to ensure that they do not intercept, hold, or set-off against CARES Act recovery rebate payments made through direct deposit. The guidance also urges depository institutions to cash CARES Act recovery rebates issued as checks for customers and non-customers alike, and to do so without charging any fees to consumers. Any entity that seeks to engage in collection efforts against CARES Act rebate payments would be in violation of the Maryland Debt Collection Practices Act.
Louisiana Commissioner of Financial Institutions extends several Covid measures until mid-May
On April 30, Louisiana’s Commissioner of Financial Institutions issued an emergency declaration extending several prior Covid-19 related measures until May 15 (previously covered here, here, and here). The extensions pertain to lending limits for the SBA’s PPP program, changes in branch operations, and annual meetings for state-chartered financial institutions.
PPP loan application agent files suit against lenders for compensation
On April 30, an Illinois financial advising and consulting services business (company) filed a putative class action in the U.S. District Court for the Northern District of Illinois against several financial institutions (defendants) claiming that the defendants owe the business certain fees for assisting Paycheck Protection Program (PPP) loan applicants with applying for PPP loans under the CARES Act. The complaint alleges that the PPP SBA regulations specify that the lender must provide compensation of between one quarter of a percent and one percent of a loan’s value to an agent—which includes loan brokers, applicant representatives, consultants, accountants, and attorneys—for preparing PPP loan applications for small business applicants. Additionally, the company states that the PPP regulations prohibit it from collecting application fees directly from small business applicants that it assists. The company alleges that the defendants, in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, failed to compensate it for assisting with the preparation of applications submitted to the defendants for processing. The company seeks certification of the class, disgorgement, and punitive damages, among other things.
Fed expands Main Street Lending Program
On April 30, the Federal Reserve (Fed) announced plans to expand the Main Street Lending Program in order to “help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic.” As previously covered by a Special Alert, the Main Street Loan Program was established pursuant to the CARES Act to support small and medium-sized businesses by extending four-year loans with deferred principal and interest payments for the first year. Loan amounts started at $1 million and businesses with up to 10,000 employees or up to $2.5 billion in annual revenues could apply, with the majority of the loans then sold to a Main Street facility, while the lenders retained a 5 percent share of the loans. The Main Street Lending Program utilized a Main Street New Loan Facility (MSNLF) to provide an option for new loans, and a Main Street Expanded Loan Facility (MSELF) to provide a second option for increasing the amount of existing loans. After the Main Street Lending Program was introduced, the Fed received a large amount of feedback, which it used to make a number of modifications to the program. The modifications include:
- Increasing the size of eligible businesses to those with up to 15,000 employees or up to $5 billion in annual revenues for 2019;
- Adding a third loan option called priority, which increases “risk sharing by lenders for borrowers with greater leverage”;
- Increasing the percentage share of loans that lenders retain in the priority loan option to 15 percent; and
- Lowering the starting loan amount to $500,000 for the new loan and priority loan options.
Additional information can be found in the announcement and in the Main Street Lending Program Frequently Asked Questions here. See term sheets for the New Loan Facility here, Priority Loan Facility here, and the Expanded Loan Facility here.
FFIEC discusses cloud computing risk management practices
On April 30, the FFIEC released a statement on risk management principles for cloud computing security in the financial services sector. The FFIEC emphasizes that the statement does not contain new regulatory expectations, but rather highlights examples of risk management practices for the safe and sound use of cloud computing services, along with safeguards for protecting customers’ sensitive information from risks that may cause potential consumer harm. Among other things, the statement stresses that management should understand the division of responsibilities between a financial institution and a cloud service provider in order to assess and implement appropriate controls over operations to prevent the increased risk of operational failures or security breaches. The FFIEC also addresses the importance of protecting customer-sensitive information from unsafe or unsound practices by implementing “an effective risk management process for cloud computing commensurate with the level of risk and complexity of the financial institution’s operations residing in a cloud computing environment.” The statement provides a list of government and industry resources and references to assist financial institutions when using cloud computing services.
SBA to limit maximum PPP loans to $20 million for corporate groups
On April 30, the Small Business Administration (SBA) issued an Interim Final Rule (IFR) prohibiting a “single corporate group” from receiving more than $20 million in the aggregate from the Paycheck Protection Program (PPP). Businesses are considered to be a part of a single corporate group “if they are majority owned, directly or indirectly, by a common parent.” Small businesses must adhere to this loan cap by withdrawing or cancelling any PPP loan application or approval above $20 million for any loan that is not fully disbursed as of April 30. Failure to follow the IFR, will make such loans ineligible for loan forgiveness. The IFR assures lenders that they are not responsible for a small business’s compliance with this rule, and further, that the IFR does not alter lender obligations required to procure an SBA loan guarantee. In addition, the IFR allows a non-bank lender to be a PPP lender, subject to certain criteria, if the non-bank lender is “either a community development financial institution…or a majority minority, women, or veteran/military owned lender.” The IFR is effective as of May 4, and comments must be received by June 3.
Fed permits SBA-approved non-depository PPP lenders to utilize liquidity facility
On April 30, the Federal Reserve (Fed) announced that expanded access to the Paycheck Protection Program Liquidity Facility (PPPLF) beyond depository institutions to include all Small Business Administration (SBA) approved PPP lenders. Non-depository lenders, “includ[ing] banks, credit unions, Community Development Financial Institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms” are now eligible to borrow from the PPPLF using PPP loans as collateral. In addition, the Fed announced that, in addition to using originated PPP loans as collateral, eligible borrowers can also use purchased whole PPP loans as collateral for credit extended by the Federal Reserve Banks under the facility “at a rate of 35 basis points.” The Fed’s announcement clearly states that an eligible borrower that pledges a purchased PPP loan must provide SBA documentation to prove that the lender “is the beneficiary of the SBA guarantee for the loan.” The announcement includes a PPPLF Term Sheet and a link to PPPLF frequently asked questions for additional details.
Alabama State Banking Department issues memorandum to licensees to work with customers
On April 29, the Alabama State Banking Department issued a memorandum encouraging licensees to work proactively with customers and to keep the department apprised of such efforts. Licensees are also reminded to work with customers to make sure they are aware of the potential for scams during the COVID-19 pandemic. The department should be notified of any suspicious lending-related activity.
West Virginia extends remote working for depository and non-depository entities
West Virginia’s Department of Financial Services Commissioner extended guidance enabling employees of regulated entities to work remotely through June 15 as a result of the Covid-19 crisis. The initial guidelines were announced on March 13 (previously discussed here) and were set to expire on May 1.
Illinois Department of Financial and Professional Regulation issues guidance to student borrowers
The Illinois Department of Financial and Professional Regulation has issued responses to frequently asked questions regarding the expansion of payment relief for student borrowers. The FAQs provide guidance to borrowers regarding relief options with respect to student loans.