PH FedACTion: Financial Regulatory Updates
Daily Financial Regulation Update -Thursday, May 14, 2020
May 14, 2020
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Major Developments
SBA and Treasury Update Paycheck Protection Program FAQs regarding Good Faith Safe Harbor
May 13, 2020
The Small Business Administration (SBA) and Department of the Treasury (Treasury) updated their Paycheck Protection Program (PPP) FAQs to include guidance on how the SBA will review borrowers’ required good-faith certification concerning the necessity of their loan request (FAQ 46). PPP borrowers are required to certify that current economic uncertainty makes the loan request necessary to support the ongoing operations of the Applicant. The SBA and Treasury previously determined in FAQ 31 that borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. As the SBA and Treasury noted that it is unlikely that a public company with substantial market value and access to capital markets could make the required certification in good faith, they provided a May 14, 2020 safe harbor deadline to return disbursed PPP funds and be deemed to have made the initial certification in good faith. FAQ 46 notes that borrowers with loans greater than $2 million that do not satisfy the safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. As PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form, if the 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, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. Moreover, the SBA’s determination concerning the certification regarding the necessity of the loan request will not affect its loan guarantee.
SBA Issues Interim Final Rule on Paycheck Protection Program Loan Increases
May 13, 2020
The Small Business Administration (SBA) has issued an Interim Final Rule which supplements previously issued Interim Final Rules by providing guidance on the ability to increase certain Paycheck Protection Program (PPP) loans, and requests public comment. The Interim Final rule clarifies that:
(i) a PPP loan amount can be increased to include partner compensation, if a partnership received a PPP loan that did not include compensation for its partners;
(ii) a PPP loan amount can be increased based on a revised calculation using the alternative criterion, if a seasonal employer received a PPP loan before the alternative criterion for determining the maximum loan amount for seasonal employers became available; and
(iii) a lender can make an additional disbursement for increased loan proceeds if a borrower’s PPP loan has already been fully disbursed.
Congress
Click here to view the full text of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), 116 HR. 748, Enacted March 27, 2020.
Click here to view the full text of the Paycheck Protection Program Increase Act of 2020, Enacted April 24, 2020.
Click here to view a running list of proposed legislation from the Senate Committee on Banking, Housing, and Urban Affairs, Senate Committee on Small Business and Entrepreneurship, House Committee on Financial Services, and House Committee on Small Business.
U.S. Senate
Committee on Banking, Housing, and Urban Affairs
Senators Brown, Menendez, and Smith Call on Trump Administration to Ensure that Lenders are not Shorting Small Businesses on PPP Loans
May 13, 2020
Senator Sherrod Brown (D-OH), ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Banking Committee members Senator Bob Menendez (D-NJ) and Senator Tina Smith (D-MN) sent a letter to Department of the Treasury Secretary Steven T. Mnuchin and Small Business Administration Administrator Jovita Carranza, urging them to provide answers regarding Paycheck Protection Program (PPP) loan amounts. The Senators cited recent press reports where small businesses that successfully navigated the PPP process were surprised to find that they received less funding than they applied for or expected. The Senators called for Secretary Mnuchin and Administrator Carranza to investigate the claims and address their questions immediately to ensure that all small businesses have access to full funding of PPP loans.
U.S. House of Representatives
Committee on Financial Services
Representatives Waters and San Nicolas Call on Treasury and the Fed to Stop Excluding Territories from Receiving COVID-19 Relief
May 13, 2020
Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, and Congressman Michael San Nicolas (D-GU), Vice Chair of the House Financial Services Committee, sent a letter to Department of the Treasury (Treasury) Secretary Steven T. Mnuchin and Federal Reserve Chairman Jerome Powell, urging them to ensure territories are not excluded from the federal government’s COVID-19 response efforts. In the letter, the lawmakers pointed to the Congressional intent behind the CARES Act, which required the Treasury Secretary to work with the Federal Reserve to establish a facility that would support the market for borrowing by state, municipal and territorial governments. The Federal Reserve has thus far barred territories from participating.
Federal Agencies
Federal Reserve Board
Speech by Chair Jerome H. Powell on Current Economic Issues
May 13, 2020
Jerome H. Powell, Chair of the Board of Governors of the Federal Reserve System (Federal Reserve Board), gave a speech on current economic issues at the Peterson Institute for International Economics. The speech summarized the measures taken by Congress and the Federal Reserve Board to offset the economic effects of COVID-19, and the path ahead.
Securities and Exchange Commission
COVID-19 Market Monitoring Group — Update and Current Efforts
May 13, 2020
Securities and Exchange Commission (SEC) Chairman Jay Clayton and S.P. Kothari, Chief Economist and Director of the SEC’s Division of Economics and Risk Analysis, released a statement on the SEC’s COVID-19 Market Monitoring Group (Group). The Group is an internal, temporary, senior-level group formed to assist the SEC and its various divisions and offices in (i) developing SEC and staff analyses and actions related to the effects of COVID-19 on markets, issuers and investors; and (ii) responding to requests for information, analyses and assistance from fellow regulators and other public sector partners on market matters arising from the effects of COVID-19. The statement is intended to provide investors, other market participants and the public generally with further information on the Group’s ongoing efforts, in particular information regarding (a) the status of the Group’s ongoing coordination with domestic and foreign regulatory partners and public sector officials; and (b) certain specific medium- and longer-term market analysis work streams.
Consumer Financial Protection Bureau
Consumer Financial Protection Bureau Outlines Responsibilities of Financial Firms During Pandemic
May 13, 2020
The Consumer Financial Protection Bureau (CFPB) released a statement and FAQs outlining the responsibility of certain financial firms during the COVID-19 pandemic. In the statement, the CFPB outlines the billing error responsibilities of credit card issuers and other open-end non-home secured creditors during the COVID-19 pandemic. The FAQs remind providers of checking, savings or prepaid accounts that they can offer consumers immediate relief by changing account terms without advance notice where the change in terms is clearly favorable to the consumer. The FAQs also focus on existing regulatory flexibilities for open-end credit (that is not home-secured) that may be useful for assisting customers.
The Bureau’s Payments and Deposits Rules FAQs related to the COVID-19 Pandemic
The Bureau’s Open-End (not Home-Secured) Rules FAQs related to the COVID-19 Pandemic
Financial Crimes Enforcement Network
Prepared Remarks of FinCEN Director Kenneth A. Blanco, delivered at the Consensus Blockchain Conference
May 13, 2020
Financial Crimes Enforcement Network (FinCEN) Director Kenneth A. Blanco addressed the Consensus Blockchain Conference. He discussed FinCEN’s efforts to provide guidance and combat money laundering and its related crimes, and terrorism and its financing, involving virtual currency related to the COVID-19 pandemic, the Travel Rule and trends FinCEN is seeing with respect to compliance, and opportunities for collaboration in the fight against the illicit use of virtual currencies.
Federal Housing Finance Agency
FHFA Announces Payment Deferral as New Repayment Option for Homeowners in COVID-19 Forbearance Plans
May 13, 2020
The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac are making available a new payment deferral option to help homeowners who are in COVID-19 related forbearance. The payment deferral option allows borrowers, who are able to return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity. Servicers will begin offering the payment deferral repayment option on July 1, 2020.
International
UK Financial Conduct Authority
Statement on how Firms should handle Post and Paper Documents
May 13, 2020
The Financial Conduct Authority (FCA) released a statement on how firms should handle post and paper documents. Firms that cannot fully comply with the requirements for post and paper-based processes (both incoming and outgoing) should notify the FCA as soon as possible. Firms should demonstrate to the FCA any steps they have taken to mitigate the impact of non-compliance with postal and paper processes and then return to full compliance as soon as practical. They should also provide general updates to customers on how they will treat incoming and outgoing post, and cheques, through their websites and other public channels, such as social media.