SBA announces safe harbor for PPP borrowers with loans for less than $2M

Following the recent announcement that the Small Business Administration would review any Paycheck Protection Program loans made in amounts exceeding $2 million, the agency today issued guidance extending an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith,” SBA said in updates to its PPP FAQ today.
 
Borrowers that received PPP loans for amounts over $2 million will be subject to review by the SBA for compliance with program requirements, including the certification of economic need. “If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness,” SBA said.
 
The guidance comes shortly before a May 14 deadline for PPP borrowers who did have access to other sources of capital to return funds. SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee.
Fed’s Quarles: Main Street Lending Program could be operational in coming weeks   

Getting the Main Street Lending Program facilities up and running is a “top priority” for the Federal Reserve, Vice Chairman for Supervision Randal Quarles told the Senate Banking Committee yesterday. While Quarles declined to give a specific date for when the facility will be operational, he noted that “I don’t think we’re looking at months” before firms can begin to access the MSLP. Read more.
McWilliams: Banks should rely on borrower certifications when making PPP loans 

FDIC Chairman Jelena McWilliams yesterday confirmed that banks should rely on borrowers’ statements certifying that their economic need is legitimate when making PPP loans, referencing a recent interim final rule issued by the Small Business Administration.
 ‌
“Our instruction to banks has been to make sure, since these loans are not being traditionally underwritten, to take a look at the certification that the borrower is providing,” McWilliams told members of the Senate Banking Committee. “To the extent that they are community banks, they will quite often know the borrowers in their communities. We are less concerned about whether or not community banks are able to figure out whether the borrower is legitimate or not.”
 
McWilliams added that for larger institutions, “our instructions have been to rely on the certification but be cognizant of who they’re lending to. They have to cross their t’s and dot their i’s.” She also emphasized that all banks must comply with existing fair lending laws when making PPP loans. “The fair lending laws, whether or not we issue specific guidance in connection with the PPP, they stand,” she said. “Banks know they have to abide by them.”
SBA, Treasury may change forgiveness rules, 8-week period for PPP borrowers, after all

A May 8 report from the SBA Inspector General offers light that Treasury Secretary  Steven Mnuchin  could soon be forced to issue clarifying guidelines relating to forgiveness, the eight-week covered period, and loan maturity clauses to satisfy existing borrowers. Read more .

It is important to note that CBA communicated some time ago our concerns about the forgivable amount to our Colorado Members of Congress and has pressed the issue with other state bankers associations and ABA. The associations have started prioritizing this and key members of Colorado's congressional delegation have responded that they agree.
Regulators float potential legislative, regulatory changes to aid in crisis response

The heads of the financial regulatory agencies have discussed potential legislative changes that would enable them to provide additional support to banks to address the coronavirus crisis. Fed Vice Chairman Quarles urged lawmakers to expand the authority given to regulators under the Dodd-Frank Act’s Collins Amendment—which created statutory minimum capital requirements—to allow them to provide a temporary exclusion for safe assets from leverage ratio denominators.
 
He noted that the Fed has already made the change to the supplemental leverage ratio at the holding company level and signaled that the agencies could also do so at the depository institution level.
 ‌
Meanwhile, FDIC Chairman McWilliams called for changes to brokered deposit statutes that would limit growth for undercapitalized institutions rather than “placing a stigma on brokered deposits, which are not necessarily bad for banks,” as ABA has long advocated. In her written testimony, McWilliams cited innovation and the need to make banking services accessible to the unbanked population as key factors driving the FDIC’s initiative to modernize the brokered deposit regulations. Read McWilliams' statement .
House Democrats release $3T coronavirus bill  

House Democrats have introduced a $3 trillion bill aimed at supporting the fight against the coronavirus pandemic and have scheduled a vote for Friday, but the legislation is not expected to gain Senate approval. Republican senators are drafting a "major package," says Senate Majority Leader Mitch McConnell, R-Ky.

Some details of the HEROS Act:

Eligibility and Loan Amounts:
  • Provides an additional $10 billion for EIDL grants.
  • Keeps PPP loan funding level at $659 billion – does not increase funding
  • Extends PPP covered period from June 30, 2020 to Dec. 31, 2020
  • Removes criteria described in 15 U.S.C. 31(b)(2)(C) from being applied to tribal business concerns for PPP loans
  • Provides that a nonprofit organization that is a critical access hospital may be eligible even if it is a debtor in bankruptcy proceedings
  • Expands eligibility to any 501(c) (not just 501(c)(3)) nonprofit organization
  • Expands eligibility to local news media outlets with NAICS code 511110, 515112, or 515120 and edits the “more than one physical location rule” that previously only applied to NAICS code 72 businesses
  • Amends the maximum maturity of the loan to 5 years (from 10 originally)
  • Sets aside 25 percent of funds for businesses with 10 or fewer employees
  • Sets aside 25 percent of funds for nonprofits (and 12.5% must go to nonprofits with 500 employees or less)
  • Sets aside 25 percent or $10 billion of remaining PPP funds for loans to be issued community financial institutions
  • Returned loan amounts must go to businesses with 10 employees or less
 
Regarding Loan Forgiveness:
  • Extends loan forgiveness period to 24 weeks after such date of origination or December 31, 2020.
  • Expands expenditures eligible for forgiveness to interest on any other debt obligations that were incurred before Feb. 15, 2020 and the amounts of EIDL loans that were refinanced.
  • Extends the period to rehire employees to December 31, 2020.
  • Holds employers harmless from a forgiveness reduction if they are unable to rehire employees (addressing the enhanced UI problem)
  • Restricts the Administrator from limiting forgiveness amounts (addressing the 75% rule that the IG found exceeded SBA’s authority)

The Consumer Financial Protection Bureau, the Federal Housing Finance Agency and the Department of Housing and Urban Development are partnering in a website that helps consumers who are struggling to pay their rent or mortgage. The site provides information on the federal CARES Act and how to work with lenders on mortgage forbearance.
CFPB highlights flexibility during COVID-19 pandemic – payments and deposits and credit cards

The Bureau has issued a statement and released two FAQ documents to highlight existing regulatory flexibilities for financial firms to quickly assist consumers affected by the pandemic.
First, the Bureau issued FAQs focusing on existing regulatory flexibilities in Regulations E and DD, which may be useful for providers of checking, savings, or prepaid accounts who wish to quickly help their customers.
Second, the Bureau issued FAQs focusing on existing regulatory flexibilities for open-end credit (that is not home-secured) in Regulation Z that may be useful for quickly assisting customers.
The Bureau has also issued a statement outlining the billing error responsibilities of credit card issuers and other open-end non-home secured creditors, and the Bureau’s flexible supervisory and enforcement approach during the COVID-19 pandemic regarding the timeframe within which creditors complete their investigations of consumers’ billing error notices.
FDIC proposes rule to facilitate bank participation in PPP, money market facilities

To help provide certainty to banks participating in the Paycheck Protection Program and its associated lending facility, as well as the Money Market Mutual Fund Liquidity Facility, the FDIC proposed a rule yesterday to ensure that institutions would not be subject to increased deposit insurance assessments as a result of their participation.‌
Specifically, the proposal would remove the effect of participation in the PPP and PPPLF on various risk measures used to calculate a bank’s assessment rate and remove the effect of participation in the PPPLF and MMLF programs on certain adjustments to a bank's assessment rate. It would also provide an offset to a bank's assessment for the increase to its assessment base attributable to participation in the MMLF and PPPLF and remove the effect of participation in the PPPLF and MMLF programs when classifying insured depostitory institutions as small, large or highly complex for assessment purposes.‌

If finalized, the rule would take effect June 30, but have an application date of April 1, ensuring that the changes will be applied to assessments beginning in the second quarter of 2020. Comments on the proposed rule are due seven days after publication in the Federal Register.  Read the proposed rule. 
Colorado Bankers Association
303-825-1575 | 303-825-1585