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District of Columbia amends emergency Covid-19 response legislation to add reporting obligations for mortgage deferments
On May 4, the District of Columbia amended the Covid-19 Response Supplemental Emergency Amendment Act (previously covered here) to, among other things, include mortgage lenders as covered entities and require lenders to provide the commissioner of the Department of Insurance, Securities and Banking with lists of all approved mortgage deferments in 15-day intervals.
Florida regulator reminds money transmitters of license renewal extensions
On May 4, the Florida Office of Financial Regulation reminded Money Transmitter Part II licensees that the deadline to renew licenses has been extended to June 1, 2020 (previously covered here). Licensees that fail to renew by June 1 will be considered inactive and will need to pay an additional fee to reactivate the license. Inactive licenses not renewed by July 30, 2020 will expire.
State AGs urge industry group develop better tools to fight illegal robocalls
On May 4, the National Association of Attorneys General published a letter to US Telecom, an industry group of telecommunications providers, and the Industry Traceback Group, an industry group dedicated to assist with the tracing of illegal robocalls. The letter noted that state attorneys general intend to intensify enforcement efforts against illegal robocallers, and urged US Telecom and the Industry Traceback Group to expand capabilities related to tracebacks in anticipation of growth in the need for data analysis and the number of civil investigative demands and subpoenas that will be issued directly to the Industry Traceback Group. The need for action has been tied to an increase in Covid-19 related robocalls.
Pennsylvania State Department extends appraiser testing deadlines
On May 4, the Pennsylvania Department of State announced that it extended the deadline for individuals whose applications to become certified real estate appraisers have been approved to take and pass the appraiser certification examination. Previously, approved applicants had one year to take and pass the examination. The department waived the one-year limitation for applicants whose one-year approval is in danger of expiring due to the closure of testing sites. Impacted applicants now have two years to sit for the examination.
Minnesota issues executive order regarding garnishment during Covid-19
On May 4, the Minnesota governor issued an executive order that classifies recovery rebates under the CARES Act as “government assistance based on need” under Minnesota Statutes 2019, section 550.37, subdivision 14. As a result, such recovery rebates are exempt from all claims by creditors, except claims for domestic support obligations. Additionally, for purposes other than domestic support obligations, state, local, and tribal government payments issued to relieve consumers of the adverse economic impact caused by Covid-19 are also considered government aid and, thus, exempt from claims by creditors. The order also suspends the provisions that permit: (i) service of a garnishment summons on a consumer debtor of consumer garnishee; (ii) prejudgment garnishment on a consumer debtor, and (iii) a judgment creditor to obtain information about a consumer debtor’s assets, liabilities, and personal earnings. The order will remain in effect until the peacetime emergency declared in Executive Order 20-01 is terminated or until the order is rescinded.
Maryland provides guidance on garnishment of CARES Act recovery rebates
On May 4, the Maryland governor’s Office of Legal Counsel provided interpretive guidance for financial institutions regarding a previous executive order prohibiting garnishment of CARES Act recovery rebates. The office recommended enforcement action not be taken against a financial institution in a number of situations, including if it subjected a customer’s CARES Act rebate to garnishment and sent the proceeds to a judgment creditor prior to receiving notice of the order or being reasonably able to act on it. The office also clarified that application of a CARES Act recovery rebate to the negative balance in an overdrawn account is not considered to be the exercise of a lien or right of setoff for purposes of the executive order.
FATF highlights financial crime risks related to Covid-19 pandemic
On May 4, the Financial Action Task Force (FATF) released a report identifying challenges, good practices, and policy responses to new money laundering and financing threats arising from the Covid-19 pandemic. The report notes that the global response to the Covid-19 pandemic is limiting the ability of the government and public sector to implement oversight of anti-money laundering and countering the financing of terrorism (AML/CFT) obligations. Among other things, FATF noted that Covid-19 threats and corresponding vulnerabilities could result in the following: (i) increased misuse of online financial services and virtual assets to move illicit funds; (ii) the bypassing of customer due diligence measures; and (iii) the misuse and misappropriation of domestic and international financial aid. Additionally, FATF noted that the increased use of online platforms for social interaction, consumer shopping, and banking measures may also lead to increased fraud by criminal actors, such as impersonation of officials, counterfeiting essential goods, and fundraising for fake charities. To address these concerns, FATF emphasized that domestic coordination assessing the impact of Covid-19 on AML/CFT risks, the use of a risk-based approach to customer due diligence, and strengthened communication with the private sector may help support the implementation of measures to manage the new risks and vulnerabilities.
Lawsuit claims Treasury, SBA PPP loan eligibility guidance is contrary to CARES Act
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.
SEC's temporary amendments to expedite capital raises through securities offerings
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.
Treasury, SBA report on second round of PPP loan processing
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.