PH FedACTion: Financial Regulatory Updates

Daily Financial Regulation Update -- Tuesday, August 25, 2020

August 25, 2020

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Major Developments

Federal Reserve Updates Main Street Lending Program FAQs

August 24, 2020

The Board of Governors of the Federal Reserve System updated the Main Street Lending Program’s frequently asked questions (FAQs) for both the for-profit facilities (i.e., the Main Street New Loan Facility, Main Street Priority Loan Facility and Main Street Expanded Loan Facility) and nonprofit facilities (i.e., the Nonprofit Organization New Loan Facility and Nonprofit Organization Expanded Loan Facility). The FAQs were amended to provide clarity on the use of cash collateral deposits, compensating balances, cash reserve accounts, cash escrow accounts, and delayed draw balances as part of Main Street loans (FAQ G.27); and updated to describe when borrower financial information should be provided by lenders to the Main Street Lender Portal (FAQ L.8 and L.9).

In addition, the FAQs for the for-profit facilities were amended to reflect a 5% “safe harbor” in relation to one aspect of the “Ineligible Business” definition (FAQ E.13).

SBA Issues New Interim Final Rule Addressing Owner Compensation and Forgiveness of Certain Nonpayroll Costs under the Paycheck Protection Program

August 24, 2020

The U.S. Small Business Administration issued an Interim Final Rule, which supplements the previously posted Interim Final Rules by providing additional guidance under the Paycheck Protection Program (PPP) on (i) the ownership percentage that triggers the applicability of the owner compensation rule for forgiveness purposes and (ii) limitations on the eligibility of certain nonpayroll costs for forgiveness.

The new Interim Final Rule clarifies that:

(a) owner-employees with less than a 5% ownership stake in a C- or S-corporation PPP borrower are not subject to the owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness;

(b) the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses; and

(c) rent payments to a related party are eligible for loan forgiveness as long as (x) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the “covered period” that is attributable to the space being rented by the business and (y) the lease and mortgage were entered into prior to February 15, 2020.


Click here to view the full text of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), 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 the full text of the Paycheck Protection Program Flexibility Act of 2020, Enacted June 5, 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.

Federal Agencies

Federal Reserve Bank of New York

Explaining the Puzzling Behavior of Short-Term Money Market Rates

August 24, 2020

The Federal Reserve Bank of New York’s Liberty Street Economics blog released a post analyzing the behavior of short-term money market rates. Short-term money market rates have been surprisingly firm in recent months, despite the large increase in reserves by the Federal Reserve as a part of its response to the COVID-19 pandemic. The authors provide evidence that both the supply of reserves and the supply of short-term U.S. Treasury securities are important factors for explaining short-term rates.

Ginnie Mae

Ginnie Mae Releases August 2020 Global Markets Analysis Report Documenting Adverse Impact of COVID-19 on the U.S. Economy, but not the Housing Market

August 24, 2020

Ginnie Mae released its Global Markets Analysis Report for August 2020. According to the report, the COVID-19 pandemic and government response to it, and the ensuing recession and mass unemployment, have all had a severe impact on large parts of the U.S. economy. U.S. gross domestic product plunged at an annualized rate of 32.9% in the second quarter of 2020, and the unemployment rate has reached historic highs. However, according to the report, COVID-19 has not adversely impacted the housing market. Demand for housing, house prices and mortgage origination volumes have all risen during the ongoing COVID-19 pandemic. Although many borrowers have fallen behind on their mortgage payments, the CARES Act forbearance of up to 12 months and foreclosure moratoriums have provided relief to impacted households and cushioned the impact of the crisis.

U.S. Department of Labor

U.S. Department Of Labor Issues Guidance to Clarify Employers’ Obligations to Track Teleworkers’ Compensable Hours

August 24, 2020

The U.S. Department of Labor’s Wage and Hour Division issued Field Assistance Bulletin 2020-5 to clarify an employer’s obligation to track the number of hours of compensable work performed by employees who are teleworking or otherwise working away from premises controlled by their employers. The guidance reaffirms that an employer is required to pay its employees for all hours worked, including work not requested but allowed and work performed at home. If the employer knows or has reason to believe that an employee is performing work, the time must be counted as hours worked.


European Commission

Coronavirus: Commission Proposes to provide €81.4 Billion in financial support for 15 Member States under SURE

August 24, 2020

The European Commission presented proposals to the European Council (Council) for decisions to grant financial support of €81.4 billion to 15 Member States under the SURE instrument. SURE is a critical element of the European Union’s (EU) comprehensive strategy to protect citizens and mitigate the negative socio-economic consequences of the COVID-19 pandemic. It is one of the three safety nets agreed to by the Council to shield workers, businesses and countries. Once the Council approves the proposals, the financial support will be provided in the form of loans granted on favorable terms from the EU to Member States. The loans will help Member States cover costs directly related to the financing of national short-time work schemes and other similar measures they have put in place in response to the COVID-19 pandemic, in particular for the self-employed.

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