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Fed to issue monthly reports on CARES Act loan programs
On April 23, the Federal Reserve Board (Fed) announced that in an effort to maintain transparency, it will disclose information to the public regarding recent actions it has taken to “foster economic recovery.” Among the information it will make public, the Fed plans to issue a monthly report on CARES Act liquidity and lending facilities which will contain the: (i) “[n]ames and details of participants in each facility”; (ii) “[a]mounts borrowed and interest rate charged”; and (iii) “[o]verall costs, revenues, and fees for each facility.” The Fed will provide this information on four CARES Act programs including the Main Street Lending Program (see Buckley Special Alert here).
Fed announces temporary increase of intraday credit by Federal Reserve Banks
On April 23, the Federal Reserve (Fed) announced that it temporarily increased the availability of intraday credit that can be provided by the Federal Reserve Banks. In its policy statement, the Fed stated that it will automatically suspend net debit caps and waive overdraft fees to assist primary credit institutions, which are “eligible to borrow under the Federal Reserve’s primary credit program for the discount window.” In addition, the Fed announced that its max cap procedure will be streamlined to enable secondary credit institutions—which are “eligible only for the Reserve Banks’ secondary credit discount window program”—to utilize the max cap program to “request collateralized capacity from their Reserve Banks,” and will waive the requirement to obtain a self-assessed net debit cap and board resolution before requesting a max cap. The Fed’s actions are effective as of April 24 and will terminate on September 30.
Class actions accuse banks of prioritizing existing customers and high-dollar loans
On April 23, a small business filed a class action lawsuit in the U.S. District Court for the Central District of California against a large bank for allegedly ignoring the CARES Act’s Paycheck Protection Program (PPP) “regulations for administering, processing, and handling” loan applications. The complaint claims that the bank disregarded a requirement to process loans in the order that they were submitted, and also contends that the bank made false and misleading statements to conceal the fact that high dollar loans were moved to the front of the processing queue in order for the bank to obtain higher fees. The class action seeks certification of the class, injunctive relief, disgorgement, and punitive and statutory damages, among other things.
On April 22 in a separate class action based on similar facts and allegations, a small business owner filed a motion for a temporary restraining order and preliminary injunction against a different large bank. The business owner filed the motion in the U.S. District Court for the Southern District of Texas, Houston Division to prevent the bank from applying “illegal eligibility requirement[s]” to the Small Business Administration-guaranteed PPP loans. The motion claims that the bank was only processing loan applications from the bank’s existing business customers in disregard for the CARES Act and Interim Final Rule instruction to administer the PPP loans to all customers, existing and new. In addition to the temporary restraining order and a preliminary injunction, the motion requests that the bank issue a public statement that their existing business customer eligibility requirement is no longer in effect. In an order issued on April 29, the court denied the business owner’s motion for a temporary restraining order and deferred ruling on the preliminary injunction until after a hearing.
Treasury, SBA weigh in on PPP loan certification and secondary market sales
On April 23, the Department of Treasury, and the Small Business Administration (SBA) updated their frequently asked questions (FAQs) list for the Paycheck Protection Program (PPP) to address whether a business owned by a large company is eligible for a PPP loan. A small business borrower must certify, in good faith, that at the time an application was submitted for a PPP loan, the borrower believed that the economic situation created by the Covid-19 pandemic made it necessary to apply for the loan in order “to support the ongoing operations” of the company. The FAQ instructs the borrower to consider other sources of liquidity other than PPP funds that could support the borrower’s current business activity. Though lenders may rely on the borrower certification of need, the guidance points out that a borrower must have a good faith basis necessitating the loan. Moreover, the guidance suggests that a public company with “substantial market value and access to capital markets” would likely not be able to make this good faith certification. For small businesses that applied for a PPP loan before the issuance of this FAQ, the SBA will find that the borrower certification was made in good faith if the borrower’s PPP loan is repaid by May 7, 2020.
Earlier on April 17, the SBA added FAQ number 30 to its FAQ list, which asked whether a PPP loan may be sold into the secondary market. The guidance provided by the SBA and the Department of Treasury reiterated information from the interim final rule issued on April 2, which implemented sections 1102 and 1106 of the CARES Act regarding sales into the secondary market:
- “A PPP loan may be sold into the secondary market at any time after the loan is fully disbursed.”
- “A secondary market sale of a PPP loan does not require SBA approval.”
- “A PPP loan sold into the secondary market is 100% SBA guaranteed.” and
- “A PPP loan may be sold on the secondary market at a premium or a discount to par value.”
States offer relief to student loan borrowers not covered by CARES Act
On April 23 and 21, nine states announced a multi-state initiative to provide student loan relief options for borrowers with privately held student loans not covered by the CARES Act. California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, and Washington outlined within their announcements specific measures for borrowers with commercially-owned Federal Family Education Loan Program loans and borrowers with private student loans who are struggling to make payments due to the Covid-19 pandemic. The announcements also noted that Virginia is participating in the initiative as well. These relief options, offered in conjunction with the listed private student loan servicers, include (i) a minimum 90-days of forbearance relief; (ii) a waiver of late fees; (iii) no negative credit reporting; (iv) a 90-day moratorium on collection lawsuits; and (v) enrollment in applicable borrower assistance programs, such as income-based repayment. The states cautioned that enrollment in these relief options is not automatic, and recommended borrowers contact their student loan servicer to see what options best suit their needs.
In addition, California, Colorado, Connecticut, New Jersey, Vermont, and Washington recommended that regulated student loan servicers with limited ability to take these actions due to investor restrictions or contractual obligations “should instead proactively work with loan holders whenever possible to relax those restrictions or obligations.”
Minnesota Commerce Department issues guidance to state banks and state credit unions regarding fraud with paper stimulus checks
On April 22, the Minnesota Commerce Department issued letters to officers of state banks and state credit unions alerting them of potential fraud that may arise in connection with the receipt of paper stimulus checks ordered under the CARES Act. The letters link to the Treasury and Secret Service guidance that highlights Treasury check security features and includes a link to a check verification application.
Virginia legislature approves foreclosure relief for residential homeowners and renters
On April 22, the Virginia state legislature reenrolled HB 340, which provides foreclosure relief to residents affected by the Covid-19 crisis. The reenrolled bill expands protections previously extended to federal workers furloughed by a government shutdown to all residents during the pandemic, including a 30-day stay on foreclosure proceedings for owners of residential housing and a 60-day stay on detainers for nonpayment of rent.
Iowa Division of Banking issues statement to bank presidents and CEOs
On April 22, the Iowa Division of Banking issued a statement to bank presidents and CEOs. The statement encourages banks to consider the Paycheck Protection Program Lending Facility created by the Federal Reserve as a liquidity option for Paycheck Protection Program loan activity. The announcement also addresses off-site examinations of financial institutions; the interagency statement on appraisals and evaluations for real estate affected by Covid-19; tracking payment extensions, deferrals, and modifications when working with customers; and loan loss reserve analysis, among other topics.
SEC announces EDGAR filing window extension for registered investment companies and business development companies
On April 22, the SEC Division of Investment Management announced that it is extending the EDGAR filing window on April 29, 2020, from 5:30 p.m. to 10:00 p.m. EDT for registered investment company and business development company filings. Ordinarily, a filing submitted after 5:30 p.m. EDT would be considered to be filed the next business day but the division is providing a one-day extension only. Any registered investment company or business development company requiring a subsequent filing window extension should submit a request.
Texas regulator relaxes certain appraisal requirements for credit unions
On April 22, the Texas Credit Union Department announced the temporary waiver of certain appraisal requirements. The waivers allow credit unions to defer certain appraisals and evaluations for up to 120 days after closing and raise the threshold level when an appraisal is not required for residential real-estate transactions from $250,000 to $400,000.