THE BIG PICTURE
For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series: https://www.paulhastings.com/coronavirus
The spread of the novel coronavirus continues to reshape the fabric of American life. Over 300,000 cases have been confirmed in the United States with 9,000 fatalities, while cases surpassed 1million worldwide. The President acknowledged in a briefing that the next several weeks will be very painful, as current models project that between 100K-240K Americans may die from complications of the virus. Nearly every state in the nation is under a stay-at-home order, after several governors who were initially reluctant to make the call fell in line with federal guidance. The CDC issued a recommendation that Americans should wear face coverings when they leave their homes, as part of an effort to slow the spread of the virus. The President expanded use of the Defense Production Act to direct the manufacture of additional ventilators and protective equipment for healthcare workers.
The administration worked to put in place the infrastructure necessary to implement various provisions of the CARES Act, including getting the Paycheck Protection Program for small businesses operational. The rollout of applications proved to be bumpy and was marked by confusion as companies scrambled to understand the parameters and requirements after the guidelines were released on Thursday. The interest rate on loans was raised to 1%, after pushback from financial institutions. The Small Business Administration struggled to keep up with the volume of demand on Friday as the administration worked to allocate additional resources. Treasury Secretary Mnuchin advised that the first direct payments of up to US$1,200 are expected to be sent out the week of April 13th, though could take months to reach those who require a paper check.
Congressional leadership is already eyeing a Phase 4 package, as it becomes increasingly apparent that additional relief and stimulus will be necessary to help the nation weather the fallout from the coronavirus pandemic. Possible provisions floated include national vote by mail, free COVID-19 treatment, additional direct cash payments and support for small businesses, hazard pay for front-line workers as well as a focus on infrastructure investment.
The severe economic impact of the virus was reflected in employment data, which showed that over 10 million workers applied for unemployment benefits over the last two weeks, an unprecedented increase. The March jobs report revealed that the economy had lost over 700,000 jobs, with the unemployment rate rising to 4.4%, a figure that is sure to sharply rise in the April report.
Other highlights of last week include:
- Queen Elizabeth II appeared in a rare televised address on Sunday evening, seeking to reassure the UK and urging self-discipline and quiet resolve in the face of the coronavirus pandemic. That same day British Prime Minister Boris Johnson was hospitalized as a precautionary measure due to his persistent symptoms of COVID-19.
- On Friday, House Speaker Nancy Pelosi announced she was forming a special bipartisan oversight panel: the House Select Committee on the Coronavirus Crisis, which would be chaired by Rep. Jim Clyburn
(D-SC), with the purpose of ensuring funds appropriated were used wisely and effectively.
- The fate of the Democratic National Convention remains in question. The convention which was to take place in Milwaukee in July has been postponed to August, although the Biden campaign acknowledged that it may need to take place in virtual form.
- U.S. Navy Captain Brett Crozier was fired after his letter raising the alarm about the spread of coronavirus aboard the USS Theodore Roosevelt was leaked to the media.
- The election set to take place in Wisconsin on Tuesday became a flashpoint, as Democratic Governor Tony Evers urged it be delayed, while the Republican-led state legislature favored moving forward as scheduled.
LAST WEEK ON THE HILL
Congress remains in recess until April 20th.
HOUSE FINANCIAL SERVICES COMMITTEE
Waters Calls on SEC and Treasury to Resist Efforts to Roll Back Protections for Non Traditional Workers During COVID-19 Crisis: On Thursday, Rep. Maxine Waters (D CA), Chair of the House Financial Services Committee, wrote to Securities and Exchange Commission Chairman Jay Clayton and Treasury Secretary Steven Mnuchin, urging them to uphold safeguards put in place to protect non-traditional workers—such as contractors, freelancers, and those in the gig economy—during the coronavirus pandemic. Waters argued that “Non-traditional employees, including contractors and freelancers, represent some of our nation’s most vulnerable workers and by extending the provisions of Rule 701 to include non traditional employees, we would be depriving these workers of cash at a time they need it most.”
Waters Says Paycheck Protection Program Funds Must Not Be Used to Pay Private Equity or Other Funds: On Thursday, Rep. Maxine Waters (D-CA), Chair of the House Financial Services Committee, sent a letter to Treasury Secretary Steven Mnuchin and Small Business Administration Administrator Jovita Carranza urging that any funds granted through the Paycheck Protection Program not be used to pay any debts or obligations to private funds, including management or consulting fees. She argued, “Any company seeking a loan from this program should use taxpayer-funded aid to: fully maintain its workforce levels; maintain workforce pay and benefits at or above pre-crisis levels and work towards implementing a $15 minimum wage; provide its workforce with a minimum of two weeks of paid leave; and implement a corporate governance structure that includes worker representation on their corporate boards.”
LEGISLATION INTRODUCED AND PROPOSED
H.R. 6011: Rep. Adam Schiff (D-CA) introduced H.R. 6011, which would allow nonrecognition of gain, for income tax purposes, from the sale of real property to a qualified housing operator for use or development by such operator as affordable housing. The bill defines qualified housing operator to include a state or local government, a tribally designated housing entity, a community housing development organization, or a tax-exempt entity organized to provide affordable housing and which receives federal, state, or local grants to develop or operate such housing. To be eligible for nonrecognition of gain, the seller must make the property either (1) residential rental property, not less than 75% of the units of which are affordable to low-income families; or (2) a homeless shelter.
THIS WEEK ON THE HILL
Congress remains in recess until April 20th.
Agencies Will Consider Comments on Volcker Rule Modifications Following Expiration of Comment Period: On Thursday, the Federal Reserve, CFTC, FDIC, OCC, and SEC announced that they will consider comments submitted before May 1, 2020, on their proposal to modify the Volcker rule’s general prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as “covered funds.”
Federal Agencies Encourage Mortgage Servicers to Work with Struggling Homeowners Affected by COVID-19: On Friday, the Federal Reserve, CSBS, CFPB, FDIC, NCUA, and OCC issued a joint policy statement providing needed regulatory flexibility to enable mortgage servicers to work with struggling consumers affected by the coronavirus disease emergency. The actions announced by the agencies inform servicers of the agencies' flexible supervisory and enforcement approach during the COVID-19 pandemic regarding certain communications to consumers required by the mortgage servicing rules. The policy statement and guidance issued will facilitate mortgage servicers' ability to place consumers in short-term payment forbearance programs such as the one established by the CARES Act.
Federal Reserve Announces Establishment of a Temporary FIMA Repo Facility to Help Support the Smooth Functioning of Financial Markets: On Tuesday, the Federal Reserve announced the establishment of a temporary repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) to help support the smooth functioning of financial markets, including the U.S. Treasury market, and thus maintain the supply of credit to U.S. households and businesses. The FIMA Repo Facility will allow FIMA account holders, which consist of central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York, to enter into repurchase agreements with the Federal Reserve.
Federal Reserve Board Announces It Will Delay by Six Months the Effective Date for Its Revised Control Framework: On Tuesday, the Federal Reserve announced that it will delay by six months the effective date for its revised control framework. The delay will reduce operational burden and allow institutions to focus on current economic conditions.
Federal Reserve Board Announces Temporary Change to its Supplementary Leverage Ratio Rule: On Wednesday, the Federal Reserve Board announced that, in order to ease strains in the Treasury market resulting from the coronavirus and increase banking organizations' ability to provide credit to households and businesses, it would temporarily change its supplementary leverage ratio rule. The change would exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the rule for holding companies and will be in effect until March 31, 2021. Senate Banking Committee Ranking Member Sen. Sherrod Brown (D-OH) criticized the move, saying “as we deal with the economic fallout of coronavirus it is vital that financial watchdogs prioritize our economy’s recovery instead of weakening important economic protections.”
Treasury Encourages Businesses Impacted by COVID-19 to Use Employee Retention Credit: On Tuesday, the Treasury Department and IRS launched the Employee Retention Credit, designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. “We encourage businesses to take full advantage of the Employee Retention Credit to keep employees on their payroll during these challenging times,” said Secretary Steven Mnuchin.
SEC Announces Ad Hoc Meeting of Small Business Capital Formation Advisory Committee in Response to COVID-19 Challenges Faced by Small Businesses: On Tuesday, the SEC announced that its Small Business Capital Formation Advisory Committee will host a meeting via video conference on April 2, 2020, in response to the challenges small businesses are facing in coping with COVID-19. Committee Chair Carla Garrett and Vice Chair Jeff Solomon called for an ad hoc Committee meeting, recognizing the extreme situation facing small businesses nationwide. During the meeting, members will share observations from their areas of the marketplace and discuss how the Committee and the Commission can help small businesses address their short-term capital needs.
SEC Small Business Advocate to Host Virtual Coffee Breaks Discussing Small Business Capital Raising: On Tuesday, the SEC’s Office of the Advocate for Small Business Capital Formation, announced it would be hosting a series of virtual coffee breaks to engage with the public to discuss updates, trends, and perspectives on how COVID-19 is impacting raising capital. “Recognizing the increased focus on digital engagement as we take COVID-19 precautions, our office looks forward to using technology tools to reach thought leaders across the country to continue our mission of amplifying the voices of small businesses and their investors, from start-up to small cap and from coast-to-coast,” said Director Martha Miller.
CFTC Provides Further Relief to Market Participants in Response to COVID-19: On Tuesday, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) announced that it has issued additional targeted, temporary no-action relief to foreign affiliates of certain futures commission merchants (FCMs) in response to the COVID-19 pandemic. The relief expires on September 30, 2020. The relief provided is as follows: DSIO has granted temporary, targeted no-action relief to permit certain foreign affiliates of FCMs that are exempt from registration with the Commission by CFTC Regulation 30.5 to accept orders from U.S. persons for execution on U.S. contract markets in the event an affiliated FCM’s U.S. personnel are unable to handle the order flow of U.S. customers due to their absence from normal business sites.
FDIC Extends Comment Period on Modernizing Brokered Deposit Restrictions: On Friday, the FDIC announced that it will extend the public comment period for its proposed rule to modernize its brokered deposit regulations by 60 days. Interested parties responding to FDIC's Notice of Proposed Rulemaking on Brokered Deposit Restrictions Applicable to Less Than Well Capitalized Banks may now submit comments through June 9, 2020.
Export-Import Bank Chairman Hosts Small Business Stakeholder Teleconference to Outline COVID-19 Relief Measures: On Tuesday, Export-Import Bank of the United States President and Chairman Kimberly Reed hosted a teleconference to emphasize EXIM’s commitment to support small businesses and explain EXIM’s temporary relief measures for American companies and workers impacted by the COVID-19 crisis. Chairman Reed and senior EXIM staff addressed more than 400 registrants representing a wide cross-section of the small business community, including small business exporters, financial institutions, insurance brokers, trade associations, government officials, and other external stakeholders as well as members of EXIM’s Advisory Committee and Sub-Saharan Africa Advisory Committee.
Export-Import Bank Chairman Hosts Teleconference with Insurance Brokers to Outline COVID-19 Relief Measures Related to Export Credit Insurance: On Thursday, Export Import Bank of the United States President and Chairman Kimberly Reed hosted a teleconference with insurance brokers to update them on EXIM’s temporary relief measures related to EXIM’s export credit insurance products for American companies and workers impacted by the COVID 19 crisis. “Export credit insurance is an important tool for our U.S. businesses, especially small businesses, to succeed in the global marketplace. Without the expertise of our valued insurance broker community, EXIM could not meet our mission of supporting U.S. jobs through exports, and we thank you for your commitment to EXIM during this challenging time,” Chairman Reed told the group.
HUD Issues New CARES Act Mortgage Payment Relief for FHA Single Family Homeowners: On Wednesday, HUD announced a tailored set of mortgage payment relief options for single family homeowners with FHA-insured mortgages who are experiencing financial hardship as a result of the COVID-19 National Emergency. Also included is an extension period for seniors with Home Equity Conversion Mortgages. Effective immediately for borrowers with a financial hardship that makes them unable to pay their mortgage due to the COVID-19 National Emergency, mortgage servicers must extend deferred or reduced mortgage payment options—called forbearance—for up to six months and must provide an additional six months of forbearance if requested by the borrower.
CFPB Issues Credit Reporting Guidance during COVID-19 Pandemic: On Wednesday, the CFPB released a policy statement outlining the responsibility of credit reporting companies and furnishers during the COVID-19 pandemic. In response to the pandemic, many lenders are being flexible when it comes to consumers’ making payments. The Bureau’s statement underscores that consumers benefit if lenders report accurate information about these arrangements to credit bureaus so that the credit reports of consumers are accurate.
CFPB Releases Video on How Mortgage Forbearance Works under CARES Act: On Friday, the CFPB released a video on how struggling homeowners can obtain mortgage forbearance if their finances are impacted due to the COVID-19 pandemic.
Department of Transportation Issues Enforcement Notice Clarifying Air Carrier Refund Requirements: On Friday, the DOT issued an Enforcement Notice clarifying, in the context of the COVID-19 public health emergency, that U.S. and foreign airlines remain obligated to provide a prompt refund to passengers for flights to, within, or from the United States when the carrier cancels the passenger’s scheduled flight or makes a significant schedule change and the passenger chooses not to accept the alternative offered by the carrier. The obligation of airlines to provide refunds, including the ticket price and any optional fee charged for services a passenger is unable to use, does not cease when the flight disruptions are outside of the carrier’s control (e.g., a result of government restrictions).
IRS Issues Warning About Coronavirus-Related Scams: On Thursday, the IRS urged taxpayers to be on the lookout for a surge of calls and email phishing attempts about the coronavirus. “We urge people to take extra care during this period. The IRS isn't going to call you asking to verify or provide your financial information, so you can get an economic impact payment or your refund faster,” said IRS Commissioner Chuck Rettig. "That also applies to surprise emails that appear to be coming from the IRS. Remember, don't open them or click on attachments or links. Go to IRS.gov for the most up-to-date information.” Taxpayers were warned to watch out not only for emails but text messages, websites, and social media attempts that request money or personal information.
Department of Energy to Make Strategic Petroleum Reserve Storage Capacity Available to Struggling U.S. Oil Producers: On Thursday, the Department of Energy announced a solicitation to immediately make 30 million barrels of the Strategic Petroleum Reserve’s (SPR’s) oil storage capacity available to U.S. oil producers that are struggling with catastrophic financial losses due to the combined impacts of COVID-19 and the intentional disruption of world oil markets by foreign actors. The Department currently intends to make an additional 47 million barrels of storage capacity available thereafter.
Supreme Court Postpones Oral Arguments Scheduled for April: On Friday, the Supreme Court announced that, due to public health guidance in response to COVID-19, the Court would postpone the oral arguments currently scheduled for the April session (April 20 22 and April 27 29). The Court will consider rescheduling some cases from the March and April sessions before the end of the Term, if circumstances permit in light of public health and safety guidance at that time. The Court will consider a range of scheduling options and other alternatives if arguments cannot be held in the Courtroom before the end of the Term.
COMINGS AND GOINGS AT THE AGENCIES
Glenn Fine Appointed Chair of CIGIE’s Pandemic Response Accountability Committee: On Monday, Michael Horowitz, Chair of the Council of the Inspectors General on Integrity and Efficiency (CIGIE), announced the appointment of Glenn Fine, Principal Deputy Inspector General Performing the Duties of the Inspector General for the Department of Defense, to serve as the Chair of CIGIE’s Pandemic Response Accountability Committee (PRAC). As Chair of the PRAC, Mr. Fine will lead the efforts of CIGIE and its Inspectors General to promote transparency and conduct and support oversight of the funds provided to address the pandemic response by the CARES Act and two prior emergency spending bills, the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Families First Coronavirus Response Act.
OTHER NOTEWORTHY ITEMS
Senate Democrats Urge Treasury Secretary to Protect SIGPR: On Tuesday, Senators Sherrod Brown (D-OH), Ranking Member of the Banking Committee, Ron Wyden (D-OR), Ranking Member of the U.S. Senate Finance Committee, and Minority Leader Charles Schumer (D-NY) sent a letter to Secretary Mnuchin raising the alarm regarding President Trump’s signing statement for the CARES Act. The President’s signing statement indicated that the administration has the right to interfere with the Special Inspector General for Pandemic Recovery (SIGPR) designated under the Act. The Senators called any attempt by the administration to bypass providing Congress with “statutorily-required” information under the CARES Act “troubling and unacceptable” and vowed to hold Mnuchin to his obligations, calling on the Treasury Secretary to provide congress with a plan and a timeline for the SIGPR’s creation and implementation.
Senate Democrats Call on Mnuchin to Ensure that Direct Payments Go to Hardworking Americans Not to Predatory Debt Collectors: On Friday, Senators Sherrod Brown (D-OH), Ranking Member of the Banking Committee, Ron Wyden (D-OR), Ranking Member of the U.S. Senate Finance Committee, and Elizabeth Warren (D-MA) called for Secretary Mnuchin to act immediately to ensure that Americans receive the full amount of their direct payments, provided for by Congress in the CARES Act. The Senators said Treasury must use every available tool to ensure that payments go to American families struggling to pay for food, medicine, and other basic necessities and not to debt collectors seeking to settle past debts.
Bond Dealers Seek Additional Municipal Support: In a letter to the Treasury Department and Federal Reserve, a bond industry group urged they “concentrate the majority of your municipal market resources on ‘purchasing obligations or other interests directly from issuers as permitted by the [CARES] Act,’” in an effort to ease stress on the municipal bond market.