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North Carolina Attorney General announces joint relief effort for North Carolinians facing Covid-19 financial hardship
On June 4, the North Carolina attorney general announced the Carolina Relief Plan, a voluntary agreement whereby participating financial institutions will offer certain financial relief to customers facing Covid-19 financial hardships. Relief includes, among other things, allowing eligible customers to request a forbearance on residential mortgage payments not otherwise covered by the CARES Act, assistance for payment extensions of auto loan accounts, and relief from monthly maintenance fees, overdraft fees, and CD early withdrawal penalties. Under the agreement, any participating financial institution also must: (1) offer to place a moratorium on residential mortgage foreclosures and consumer auto repossessions through at least June 30, 2020; (2) refrain from reporting loans subject to Covid-19 accommodations; and (3) inform customers about the assistance they are being offered and of the heightened risk of scams. One financial institution has signed onto the relief plan as of the time of the announcement.
VA clarifies property inspection requirements for CARES forbearance cases
On June 4, the Department of Veterans Affairs issued Circular 26-20-21 to clarify inspection requirements for properties purchased with loans guaranteed by the VA, where the borrower has been negatively impacted by Covid-19. 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. The circular sunsets on July 1, 2021.
Acting Comptroller Brooks warns of lockdown effects on banks
On June 1, Acting Comptroller, Brian Brooks, wrote to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors warning of the adverse impact the regional economic shutdowns due to the Covid-19 pandemic will have on the nation’s banks. In the letter addressed to the U.S. Conference of Mayors, Brooks emphasizes the risks to the banking industry associated with state and local lockdown orders, including (i) physical risks associated with commercial real estate loan collateral, should businesses be forced to remain closed indefinitely; (ii) inability for businesses to generate revenue needed to repay loans; (iii) difficulties forecasting future delinquencies and losses with shifting definitions of “essential” businesses; and (iv) increased risks in bank robberies due to potentially permanent face mask requirements. The letter states, “[n]ational banks and federal savings associations entered the Covid-19 crisis extremely well capitalized and with strong liquidity,” and many aspects of the CARES Act rely on a strong banking system. Brooks urges state and local officials to “consider the impact of their lockdown orders on the health and functioning of our shared national financial structure” as they make plans to unwind, narrow, or end lockdowns.
Boston Fed releases Main Street Lending Program forms and agreements
On May 27, the Federal Reserve Bank of Boston posted the necessary legal forms and agreements for eligible borrowers and eligible lenders to participate in the Main Street Lending Program on their website. The documents include, among other things, lender registration certifications and covenants, lender wire instructions, loan participation agreements, and servicing agreements. The Boston Fed has also updated the Main Street Lending Program’s FAQs.
Additional details about the Main Street Lending Program can be found in a previous InfoBytes post here, and a Buckley Special Alert here.
SBA extends PPP safe harbor for a second time
On May 27, the Small Business Administration (SBA) in consultation with the Treasury Department issued an update to the Paycheck Protection Program (PPP) Frequently Asked Questions to reflect the extension of the safe harbor deadline from May 14 to May 18. The SBA recently issued an interim final rule (IFR) to supplement the CARES Act and extend, for the second time, the PPP safe harbor for repayment from May 14 to May 18, to allow borrowers to avail themselves of a safe harbor with respect to the certification required by the CARES Act. The IFR also codifies the timeframe extension for submission of the initial SBA Form 1502 report for PPP loans. As previously covered by InfoBytes, the new timeframe for submission of Form 1502 is the later of (i) May 29, or (ii) 10 calendar days after disbursement or cancellation of the PPP loan.
SBA clarifies PPP eligibility for foreign affiliates
On May 21, the SBA recently published an interim final rule (IFR), which addresses the eligibility requirements related to employees of a Paycheck Protection Program (PPP) borrower’s foreign affiliates. The SBA reiterated in the IFR that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. The SBA acknowledged, however, that previous guidance (covered by InfoBytes here) may have created “reasonable borrower confusion,” so in “an exercise of enforcement discretion,” the agency reiterated that the “SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-US employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States.” The SBA further determined that these borrowers will “not be deemed to have made an inaccurate certification of eligibility solely on that basis.”
The IFR takes effect upon publication in the Federal Register and is applicable to PPP applications submitted through June 30, 2020, or when program funding is exhausted. Comments are due within 30 days.
Senators question CFPB on student loan servicer examinations
On May 20, several senators, including Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), sent a letter to CFPB Director Kathy Kraninger requesting information regarding the Bureau’s examination of companies that service student loans guaranteed by the federal government. The senators noted that they are “encouraged to learn that the CFPB recently began its first examination of a servicer of federally-held student loans since 2017,” but they stated that, given the Department’s “record [of] obstructing CFPB oversight and enforcement, [they] are skeptical of the Department’s role in this joint examination and would strongly oppose limitations, restrictions, or other interference with the CFPB’s ability to conduct complete and thorough examinations.” Among other things, the senators also expressed concerns that the Bureau and the Department have not yet finalized the Supervisory Memorandum of Understanding (MOU), which would allow the Bureau to access student borrower loan data that the senators claim is necessary for the Bureau to conduct future examinations. As previously covered by InfoBytes, the agencies signed an MOU to share student loan complaint data last February. The senators requested clarification on measures the Bureau is taking to carry out its statutory mandate to oversee the federal student loan market, including (i) how many examinations the Bureau has planned for 2020; (ii) what progress, if any, has been made on reestablishing the supervisory MOU; (iii) how the Bureau is monitoring student loan servicers’ compliance with the CARES Act, including pausing payments, interest, and collection; and (iv) whether the Bureau has identified any trends in borrower complaints since the Covid-19 pandemic began. The senators asked that the Bureau respond to the questions by June 3.
Treasury and Fed testify on CARES Act relief
On May 19, the Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin to discuss the agencies’ efforts to implement the CARES Act relief provisions to support consumers and help stabilize the infrastructure of the economic system. Topics discussed included emergency lending facilities, such as the Main Street Lending Program and the Municipal Liquidity Facility, as well as the Paycheck Protection Program (PPP) and the Payroll Support Program.
Mnuchin testified that Treasury has “worked closely with the Small Business Administration on the [PPP] to ensure the processing of more than 4.2 million loans for over $530 billion[.]” He issued praise for the nearly 400 Community Development Financial Institutions and Minority Depository Institutions, as well as the many small and non-bank lenders that are participating in the program. Mnuchin noted that, while Treasury has already committed up to $195 billion of the $500 billion provided by Congress, the agency plans to use the remainder to create or expand programs as necessary after determining how best to deploy the money to help losses associated with the Covid-19 pandemic. “The only reason I have not allocated it fully is we are just starting to get these facilities up and running,” Mnuchin emphasized during the hearing. “We want to have a better idea as to which one of the facilities needs more capital as well as the potential for adding additional facilities.” Mnuchin also stated that Treasury is “fully prepared to take losses in certain scenarios on that capital.”
Powell discussed lending programs and monetary policy efforts taken by the Fed under section 13(3) of the Federal Reserve Act since the pandemic started, including measures to help stabilize short-term funding markets. These include lengthening the term and lowering the rate on discount window loans to depository institutions, and—together with Treasury—establishing the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility. Powell also discussed the Term Asset-Backed Securities Loan Facility, which will lend against asset-backed securities “backed by newly issued auto loans, credit card loans, and other consumer and small business loans.” Powell stressed that “public input has been crucial” in the agency’s development of these facilities and that additional adjustments may occur “as we learn more” about the needs of potential borrowers.
Maryland regulator reminds student loan servicers of obligation to report suspended payments as current
On May 18, the Office of the Maryland Commissioner of Financial Regulation issued an advisory to student loan servicers and credit reporting agency registrants to remind them of their furnishing obligations under the federal CARES Act to ensure that suspended payments are not reported as delinquent. The advisory notes that it has come to the office’s attention that a student loan servicer of a significant amount of federal student loan debt was not accurately furnishing information and reminds servicers that under Maryland’s Student Loan Servicing Bill of Rights, it is a violation of Maryland law to knowing or recklessly provide inaccurate information or refuse to correct it.
6th Circuit denies stay of injunction against PPP Ineligibility Rule
On May 15, the U.S. Court of Appeals for the Sixth Circuit denied the SBA’s emergency motion for a stay of the district court’s injunction against the agency’s Paycheck Protection Program (PPP) Ineligibility Rule. As previously covered by InfoBytes, the district court granted a preliminary injunction against the SBA’s PPP Ineligibility Rule—which, in relevant part, excludes from PPP loan eligibility “sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature.” The district court concluded that the Rule was in conflict with the Congressional purpose of the CARES Act, which houses the PPP, to protect workers in need during the Covid-19 pandemic, including workers for businesses that have been historically excluded from SBA financial assistance.
The 6th Circuit agreed with the district court, denying the motion for a stay. The court noted that the CARES Act specifies that eligibility “is conferred on ‘any business concern,’” which “encompasses sexually oriented businesses.” It went on to state that “the public interest is served in guaranteeing that any business, including plaintiffs, receive loans to protect and support their employees during the pandemic.”
In dissent, one judge argued that it is “unclear whether Congress meant that any business concern was eligible for a PPP loan regardless of SBA restrictions,” and therefore, the injunction should be stayed pending a decision on the merits.