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  • SEC's temporary amendments to expedite capital raises through securities offerings

    Federal Issues

    On May 4, the SEC announced it plans to make temporary amendments to Regulation Crowdfunding to enable small businesses impacted by Covid-19 to expeditiously “meet their funding needs through the offer and sale of securities.” After receiving feedback from its Small Business Capital Formation Advisory Committee, the SEC decided that small businesses may have difficulty in quickly raising urgently needed capital in short time frames due to current requirements. The temporary final rule provides relief to these small business issuers by, among other things, easing some Regulation Crowdfunding requirements—provided the issuers meet certain criteria—so that they can measure investor interest in the offering before committing the time and taking on the expense of creating “full offering materials” including financial statements. Further, in addition to other time saving measures pursuant to the temporary final rule, the offering does not need to remain open for 21 days or longer, but rather can close once sufficient binding commitments are received to meet its target, allowing the small business issuers to access the funds from the offering faster than they could under existing rules. The amendments are effective as of May 4 and terminate on March 1 for offerings made between May 4 and August 31.

    Federal Issues Agency Rule-Making & Guidance SEC Crowdfunding CARES Act Covid-19 Securities

  • Lawsuit claims Treasury, SBA PPP loan eligibility guidance is contrary to CARES Act

    Federal Issues

    On May 4, a group of businesses filed a lawsuit in the U.S. District Court for the Central District of California against the Small Business Administration (SBA) and the U.S. Department of Treasury (defendants) challenging guidance issued by the defendants in April that they claim “directly contradicts and changes the CARES Act.” The guidance, issued in the form of FAQs #31 and 37 (covered by InfoBytes here and here), addresses whether businesses owned by large companies or private companies with adequate sources of liquidity are eligible for a Paycheck Protection Program (PPP) loan. Among other things, the guidance instructs borrowers to consider other sources of liquidity other than PPP funds, and states that while lenders may rely on the borrower certification of need, a borrower must still certify in good faith that their PPP loan request is necessary.

    The plaintiffs argue that the guidance is contrary to the CARES Act because it imposes a requirement that borrowers must be unable to get credit elsewhere before they can qualify, and suggests that businesses may be ineligible for PPP loans if they qualify for “other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” The consequences of the guidance, they argue, is that they may now be required to repay PPP funds with money they either do not have or must borrow since they could have obtained “credit elsewhere,” thus damaging their financial stability. The plaintiffs seek injunctive relief enjoining the defendants from enforcing the guidance, as well as a declaration that the guidance is contrary to law and must be withdrawn.

    Federal Issues Courts Department of Treasury SBA Small Business Lending California CARES Act Covid-19

  • Treasury, SBA report on second round of PPP loan processing

    Federal Issues

    On May 3, the Department of Treasury (Treasury) and the Small Business Administration (SBA) released a joint statement detailing the performance of the second round of the Paycheck Protection Program (PPP) thus far. The statement shares that PPP loans made during the first week of round two loan processing—beginning on April 27—reached 2.2 million totaling more than $175 billion. This brings the total since the program began on April 3, to more than 3.8 million loans with a value of more than $.5 trillion. According to the second round report accompanying the joint statement, of the nearly 5,450 lenders, just over 4,450 were lenders with less than $1 billion in assets as well as non-bank lenders—which “include Community Development Financial Institutions, Certified Development Companies, Microlenders, Farm Credit lending institutions, and FinTechs.” The average loan size during the first week of round two was $79,000.

    Since the release of the joint statement, the SBA has provided updated PPP loan processing numbers on its website, which can be accessed here.

    Federal Issues Agency Rule-Making & Guidance Department of Treasury SBA Small Business Lending CARES Act Covid-19

  • OCC and Federal Reserve issue joint response to question regarding market risk capital rule

    Federal Issues

    On May 1, the OCC and the Federal Reserve Board issued a joint response to a public question about a capital implication under the market risk capital rule in light of current market conditions arising from the Covid-19 pandemic. The joint response notes that, in March and April of 2020, the agencies took supervisory action giving certain banks the option to apply the multiplication factor that applied as of December 31, 2019, rather than applying a higher multiplier based on the most recent exceptions.

    Federal Issues Covid-19 OCC Federal Reserve Bank Compliance

  • CFPB partially grants confidentiality request and modifies CID’s notification of purpose

    Federal Issues

    On April 13, the CFPB released a Supplemental Decision and Order partially granting a payment technology company’s request for confidential treatment of its petition that sought to set aside a 2019 CID seeking information related to, among other things, the company’s payment processing activities. The CFPB noted in its supplemental decision and order that while the company’s initial confidentiality arguments were rejected, it provided the company an opportunity to make an additional submission following a U.S. Supreme Court decision that clarified the standard for determining what information may be withheld under Exemption 4 of FOIA. The Bureau ultimately granted the company’s confidentiality request with respect to its payment processor information only.

    The supplemental decision and order is related to the company’s now-published original petition to set aside the CID, in which it asserted that it is not a covered person under the Consumer Financial Protection Act because even though it sells various products and services, it does not provide payment processing services. The company also argued that it is not a service provider because it does not offer or provide consumer financial products or services, nor does it provide services to a covered person. Furthermore, because it is not a financial institution, the company claimed that the CFPB has no EFTA authority over it. The original petition requested that the CID be set aside because it exceeds the Bureau’s jurisdictional authority. The Bureau responded that the company’s arguments did not warrant setting aside the CID because the investigation was “not patently outside” its authority, but it partially modified the CID’s Notification of Purpose to provide greater detail about the conduct the Bureau was investigating. The Bureau also contended that the fact that the company is not a financial institution does not affect whether the Bureau can conduct an investigation into potential violations of section 1005.10(b) of Regulation E (EFTA), which “applies to any person.”

    Federal Issues CFPB CIDs CFPA EFTA Payment Processors

  • GSEs to cover servicer advances on mortgages in forbearance

    Federal Issues

    On May 1, Fannie Mae and Freddie Mac filed their first quarter 10-Qs, which included statements clarifying that in the coming months Fannie Mae and Freddie Mac, not loan servicers, will assume responsibility for advances on loans in forbearance that meet certain criteria. Fannie Mae’s 10-Q states that effective August 2020 “after four months of missed borrower payments on a loan…we will make the missed scheduled principal and interest payments…so long as the loan remains in the MBS trust.” As previously covered by InfoBytes, FHFA announced on April 21 that servicers are only obligated to advance principal and interest payments for up to four months on single-family loans. Likewise, Freddie Mac’s 10-Q similarly stated, “we expect to advance significant amounts to cover principal and interest payments to security holders for loans in forbearance in the coming months.”

    Federal Issues Agency Rule-Making & Guidance GSE Fannie Mae Freddie Mac Mortgages Forbearance CARES Act Covid-19

  • CFPB: Substantial decline in credit applications in March

    Federal Issues

    On May 1, the CFPB released a report examining the early effects of the Covid-19 pandemic on credit applications in March, concluding there was a substantial decline compared to previous years. Specifically, the report compared “hard inquiry” volume from credit checks for auto loans, mortgages, and credit cards by lenders during the month of March with the same data from previous years. Among other things, the report notes that auto loan inquiries dropped by 52 percent, new mortgage inquiries dropped by 27 percent, and credit card inquiries declined by 40 percent, as compared to usual data patterns from previous years. The report noted variations based on credit score and geography. The drops in inquiries were more pronounced for consumers with higher credit scores, and in states in the Northeast and California. The report noted a strong correlation between states with a higher Covid-19 case rate and the significance of the drop in auto loan and new mortgage inquiries. A similar correlation was also found between states with a larger share of workers entering unemployment and a drop in the same credit inquires.

    Federal Issues CFPB Covid-19 Credit Application Consumer Finance Mortgages Auto Finance Credit Cards

  • Waters urges exclusion of predatory lenders from PPP loans

    Federal Issues

    On May 1, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), sent a letter to the Department of Treasury (Treasury) and the Small Business Administration (SBA) urging them to prohibit payday and car-title lenders from receiving Paycheck Protection Program (PPP) loans, citing harm these types of lenders have caused to consumers. The Congresswoman stressed that “there is no reason why Congress, SBA, or Treasury should bail out these predatory lenders” and encouraged them to instead focus on “providing PPP loans to the millions of responsible small businesses who are pillars in communities across the country and warrant immediate support.”

    Federal Issues Congress House Financial Services Committee Department of Treasury SBA Small Business Lending CARES Act Payday Lending Title Loans Covid-19

  • FDIC issues regulatory relief for areas in Tennessee affected by severe storms

    Federal Issues

    On April 28, the FDIC issued FIL-51-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Tennessee affected by a recent series of severe weather. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather, provided the measures are “done in a manner consistent with sound banking practices, can contribute to the health of the local community and serve the long-term interests of the lending institution.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain filing and publishing requirements.

    Find continuing InfoBytes coverage on disaster relief guidance here.

    Federal Issues FDIC Consumer Finance Disaster Relief Tennessee

  • NCUA issues additional guidance on working with borrowers impacted by Covid-19

    Federal Issues

    On April 30, the National Credit Union Administration issued guidance describing strategies for working with negatively impacted borrowers while taking measures to limit the negative financial impact of those strategies on the credit union and its ability to serve all members. The guidance describes strategies for providing new funds to borrowers, temporary loan modifications, and permanent loan modifications. It also states that credit unions should maintain policies to manage the risks of workout strategies, including clearly defined eligibility criteria, aggregate program limits, and controls to ensure workout actions are structured appropriately.

    Federal Issues Covid-19 NCUA Credit Union Bank Compliance

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