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SBA says larger nonprofits eligible for PPP loan forgiveness
On July 8, the SBA added question #71 to its Paycheck Protection Program (PPP) frequently asked questions clarifying whether 501(c)(3) nonprofit organizations with more than 500 employees are eligible for PPP loan forgiveness. SBA explained that while the CARES Act generally provided that “501(c)(3) nonprofit organizations with a total of 500 or fewer employees were eligible to receive a First Draw PPP Loan,” the American Rescue Plan Act (ARPA) later “increased the size eligibility standard for 501(c)(3) nonprofit organizations for First Draw PPP Loans from a total of 500 or fewer employees to no more than 500 employees per physical location of the 501(c)(3) nonprofit organization.” On March 22, 2021, SBA published an interim final rule (IFR) implementing recent PPP changes that were included in the ARPA enacted on March 11, 2021 (covered by InfoBytes here).
Exercising her broad authority under the PPP, and in light of litigation earlier this year, on July 8 the SBA administrator announced that “any 501(c)(3) nonprofit organization that received a loan before March 11, 2021, but submits a forgiveness application on or after March 11, 2021, will not be ineligible for forgiveness on the basis that they have more than 500 employees in multiple physical locations” provided it has otherwise complied with all applicable PPP rules.
SBA says nonprofit lenders are eligible for PPP loan forgiveness
On May 5, the SBA added question #70 to its Paycheck Protection Program (PPP) frequently asked questions explaining that 501(c)(3) nonprofit lenders are eligible for PPP loan forgiveness provided they have complied with all applicable PPP rules aside from 13 CFR 120.110(b). 13 CFR 120.110(b) provides that non-profit businesses and other financial businesses that are “primarily engaged in the business of lending” are ineligible for SBA business loans. While the CARES Act specifically allowed nonprofit organizations to be eligible for PPP loans, it did not mention financial businesses/lenders, which SBA interpreted as “allowing nonprofits to overcome the 13 CFR 120.110 restriction, but not lenders.” Following a review of the agency’s PPP loan records, SBA found that 501(c)(3) nonprofit lenders were confused as to whether they were eligible for PPP loans. In order to provide clarity, SBA “determined that 501(c)(3) nonprofit lender borrowers reasonably relied on the CARES Act’s nonprofit authority regarding their eligibility for a PPP loan. In addition, enforcing the Forgiveness and Loan Review IFR (86 FR 8283) that provides for denial of forgiveness to 501(c)(3) nonprofit lenders due to application of the PPP eligibility rule incorporating 13 CFR 120.110(b) will negatively affect the remaining small number of 501(c)(3) nonprofit lenders that have not yet received forgiveness.” As such, the SBA administrator has elected to exercise broad discretion “to decline to enforce the Forgiveness and Loan Review IFR rule providing for denial of forgiveness to ineligible borrowers for 501(c)(3) nonprofit lenders” and will allow such lenders to be eligible for forgiveness of their PPP loans.
SBA offers additional deferment for Covid-19 EIDL loans
On March 15, SBA extended the deferment period for the Covid-19 Economic Injury Disaster Loan (EIDL) program, to provide a total of 30 months deferment from inception on all approved Covid EIDL loans. The extended deferment of principal and interest payments on existing EIDL loans approved in calendar years 2020, 2021, and 2022 is intended to provide additional flexibility for small business owners affected by Covid-19. While borrowers are not required to make payments during the deferment period, interest will continue to accrue on the loans during the deferment. SBA warned that deferments may result in balloon payments and will not stop any established preauthorized debit or recurring payments on a loan. Borrowers will need to contact their SBA servicing center to pause recurring payments during the extended deferment period. Once the deferment period ends, borrowers will be required to make regular principal and interest payments beginning 30 months from the date of the note.
DOJ announces $31,000 FCA settlement for duplicative PPP loans
On February 11, the DOJ announced a $31,000 settlement with an IT services company to resolve allegations that it violated the False Claims Act (FCA) by obtaining more than one Paycheck Protection Program (PPP) loan in 2020. According to the settlement agreement, in April 2020 the company received two SBA-guaranteed PPP loans through two different banks. The company agreed to repay the duplicative PPP loan in full to its lender, relieving the SBA of liability. The settlement press release also noted that the settlement with the company resolved a lawsuit filed under the whistleblower provision of the FCA, which permits private parties to file suit on behalf of the U.S. for false claims and share in a portion of the government’s recovery.
Borrowers may request SBA loan review of partially forgiven PPP loans
On January 27, SBA issued Procedural Notice 5000-827666 outlining a new process for borrowers to request an SBA loan review of partially approved forgiveness decisions by their Paycheck Protection Program (PPP) lenders. Effective immediately, when a PPP lender receives a forgiveness remittance from SBA on a partial approval decision (including instances when the lender required a borrower to apply for forgiveness in an amount less than the full amount of the loan), the lender must inform the borrower that the borrower has 30 calendar days from receipt of the notification to seek an SBA loan review of the lender’s partial approval decision. The lender must then notify SBA within 5 calendar days of receiving the borrower’s timely request for review. If SBA selects the loan for review, the borrower must continue to make payments on the remaining balance. Additionally, SBA noted that borrowers should be aware that the agency “may determine that the borrower is entitled to forgiveness in an amount less than what the [l]ender decided (including zero if, for example, the borrower is determined to be ineligible for the PPP loan), an amount more than what the [l]ender decided, or the same amount as the [l]ender decided.” The SBA notice outlined details related to forgiveness payment remittances resulting from a partial approval loan review, and noted that SBA will provide lenders additional guidance through the platform, including step-by-step instructions. The notice expires January 1, 2023.
VA extends suspension of certain property inspection requirements for Covid-19 forbearance cases
On December 21, the Department of Veterans Affairs (VA) issued Circular 26-21-27 to extend the suspension of certain inspection requirements for properties purchased with loans guaranteed by the VA where the borrower has been negatively impacted by Covid-19. In 2020, the VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. Circular 26-21-27 sunsets on October 1, 2022.
CFPB, DOJ remind on servicemember protections
On December 20, the CFPB and the DOJ issued two joint letters reminding mortgage servicers and landlords to ensure that military homeowners and tenants are safeguarded during the Covid-19 pandemic and benefit equally as the U.S. economically recovers. One letter was sent to landlords and other housing providers on protections for military tenants, reminding property owners of the critical housing protections for military tenants, some of whom may have had to make alterations to their housing arrangements in response to the pandemic. The other letter was sent to mortgage servicers regarding military borrowers who have exited or will be exiting Covid-19 mortgage forbearance programs. The letter comes in response to complaints from military families and veterans on possible mortgage servicing violations, which include, among other things, inaccurate credit reporting and misleading communications to borrowers. According to the second letter, the CFPB and the DOJ warned, “[s]uch actions, if true, may be in violation of the legal protections under the CARES Act or contrary to administrative guidance issued by federal housing agencies,” and that the Bureau “is currently reviewing these complaints to determine if further investigation is warranted.” The announcement also reminded landlord and servicers that “[s]ervicemembers have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense,” which include, among other things, “a prohibition on foreclosing on certain servicemembers’ mortgages without court orders, the ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders, and a prohibition on evicting military families from their homes without court orders. In addition, under the CARES Act and Regulation X, servicemembers and veterans have the same protections available to all mortgage borrowers.” The announcement also noted that approximately 7.6 million homeowners entered forbearance during the Covid-19 pandemic and 1.25 million borrowers, many of whom are military borrowers, are still currently in forbearance programs that will expire at the end of the year.
District Court grants SBA’s summary judgment in Covid-19 relief disclosure case
On December 13, the U.S. District Court for the District of Columbia granted summary judgment in a Freedom of Information (FOIA) case in favor of the U.S. Small Business Administration (SBA) (defendant), resolving allegations that the agency improperly withheld loan payment status and tax-identification numbers for recipients of loans under its Paycheck Protection Program (PPP). As previously covered by InfoBytes, national-news organizations filed an action against the SBA seeking disclosure of loan recipient information, after the rejection of their FOIA requests. The court previously ordered the SBA to disclose some information—loan amounts, names, addresses—but later gave the SBA a second chance to argue against disclosure of default status and tax-identification numbers.
According to the most recent opinion, the SBA ultimately satisfied Exemption 4 to FOIA (related to confidential or privileged commercial or financial information) as to the current loan status of the PPP loans by filing declarations from lenders stating that they “customarily and actually treat interim PPP loan status as confidential.” The court also concluded that disclosure would concretely cause harm to an interest protected by the FOIA exemption, accepting the agency’s arguments that identifying a delinquent borrower, even if that status is temporary or ultimately irrelevant, could “negatively impact the borrower’s reputation or creditworthiness, or adversely affect its survivability and growth,” and that “disclosure would cause ‘regulated lenders [to] lose confidence in the agency’s future ability to protect confidential information . . . creat[ing] an incentive not to participate in the agency’s programs.’” Regarding tax-identification numbers, the court accepted the SBA’s assertion that it could not separate Social Security Numbers (SSN) from Employer Identification Numbers (EIN) and only release the EINs. Withholding the identification number data set was therefore permissible under Exemption 6 to FOIA, regarding “unwarranted invasion of personal privacy.” The SBA had attempted to get the help of the IRS and Social Security Administration to differentiate the numbers, but both agencies concluded they could not legally release that information to the SBA.
CFPB publishes fall 2021 rulemaking agenda
On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.
Key rulemaking initiatives include:
- Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
- Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
- Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”
Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.
CFPB supervisory highlights cover wide range of violations
On December 8, the CFPB released its fall 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. The report’s findings cover examinations that were completed between January and June of 2021 in addition to prior supervisory findings that led to public enforcement actions in the first half of 2021. Highlights of the examination findings include:
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse late fees after determining a missed payment was not credited to a consumer’s account; and (iii) conduct reasonable investigations into billing error notices concerning missed payments and unauthorized transactions. Examiners also identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors represented to consumers that their creditworthiness would improve upon final payment under a repayment plan and the deletion of the tradeline. Because credit worthiness is impacted by numerous factors, examiners found “that such representations could lead the least sophisticated consumer to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10).”
- Deposits. The Bureau discussed violations related to Regulation E, including error resolution violations related to misdirected payment transfers and failure to investigate error notices where consumers alleged funds were sent via a person-to-person payment network but the intended recipient did not receive the funds.
- Fair Lending. The report noted instances where examiners cited violations of ECOA and Regulation B by lenders "discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” which led to observed pricing disparities, specifically as compared to similarly situated non-Hispanic white and male borrowers. Among other things, examiners also observed that lenders’ policies and procedures contributed to pricing discrimination, and that lenders improperly inquired about small business applicants’ religion and considered religion in the credit decision process.
- Mortgage Servicing. The Bureau noted that it is prioritizing mortgage servicing supervision attributed to the increase in borrowers needing loss mitigation assistance due to the Covid-19 pandemic. Examiners found violations of Regulations Z and X, as well as unfair and deceptive acts and practices. Unfair acts or practices included those related to (i) charging delinquency-related fees to borrowers in CARES Act forbearances; (ii) failing to terminate preauthorized EFTs; and (iii) assessing fees for services exceeding the actual cost of the performed services. Deceptive acts or practices found by examiners related to mortgage servicers included incorrectly disclosed transaction and payment information in a borrower’s online mortgage loan account. Mortgage servicers also allegedly failed to evaluate complete loss mitigation applications within 30 days, incorrectly handled partial payments, and failed to automatically terminate PMI in a timely manner. The Bureau noted in its press release that it is “actively working to support an inclusive and equitable economic recovery, which means ensuring all mortgage servicers meet their homeowner protection obligations under applicable consumer protection laws,” and will continue to work with the Federal Reserve Board, FDIC, NCUA, OCC, and state financial regulators to address any compliance failures (covered by InfoBytes here).
- Payday Lending. The report identified unfair and deceptive acts or practices related to payday lenders erroneously debiting consumers’ loan balances after a consumer applied and received confirmation for a loan extension, misrepresenting that consumers would only pay extension fees on the original due dates of their loans, and failing to honor loan extensions. Examiners also found instances where lenders debited or attempted one or more duplicate unauthorized debits from a consumer’s bank account. Lenders also violated Regulation E by failing “to retain, for a period of not less than two years, evidence of compliance with the requirements imposed by EFTA.”
- Prepaid Accounts. Bureau examiners found violations of Regulation E and EFTA related to stop-payment waivers at financial institutions, which, among other things, failed to honor stop-payment requests received at least three business days before the scheduled date of the transfer. Examiners also observed instances where service providers improperly required consumers to contact the merchant before processing a stop-payment request or failed to process stop-payment requests due to system limitations even if a consumer had contacted the merchant. The report cited additional findings where financial institutions failed to properly conduct error investigations.
- Remittance Transfers. Bureau examiners identified violations of Regulation E related to the Remittance Rule, in which providers “received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability” and then failed to “investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the institutions were required to refund to the sender, and subsequently did not refund that fee to the sender.”
The report also highlights recent supervisory program developments and enforcement actions.