BPInsights: April 20, 2020

BPInsights: April 20, 2020

Top of the Agenda

Congress Continues Debate Over Additional Paycheck Protection Program Funding

House and Senate leadership were unable to reach an agreement on a path forward for additional funding for the Paycheck Protection Program (PPP). Republicans have pushed for a straight funding increase of $250 billion for the program, while Democrats would like to also provide additional support to hospitals and municipalities. Both the House and Senate are in recess until the first week of May, at the earliest. As a result, any bill needs to be approved by unanimous consent, meaning agreement must be reached by all sides before additional PPP funds can be approved. While recessed, the Senate will meet in pro forma session on Monday and Thursday of each week, at which time a bill can be moved by unanimous consent.

5 Stories Driving the Week

1. Congress Should Exempt Stimulus Payments from Court-Ordered Garnishments

The American Bankers Association, BPI, Consumer Bankers Association, Financial Services Forum and The Clearing House wrote a joint letter to congressional Leadership on April 15, requesting that Congress clarify that the CARES Act economic impact payments (also known as stimulus payments) are treated as benefits subject to the federal exemption from garnishment.

“America’s banks stand ready to provide full access to funds appropriated for the explicit purpose of helping families make ends meet. Under the CARES Act, Congress exempted these payments from offset for debts owed to federal and state agencies, except in the case of child support, but did not exempt them from court-ordered garnishment to pay creditors. As a result, banks are obligated to treat them accordingly, which will impose a significant burden for some families facing unprecedented circumstances. We believe it is imperative that Congress make it clear that these payments are treated as benefits subject to the federal exemption from garnishment,” the associations wrote in the letter.

Additionally, the American Bankers Association, BPI, the Consumer Bankers Association and the Credit Union National Association responded to an inquiry from members of the Senate on April 17, reiterating the importance of Congressional clarity regarding court-ordered garnishments and outlining the extraordinary measures BPI members are taking to provide quick relief to customers, including waiving long-standing policies, implementing measures to serve the unbanked and overlooking negative account balances so that customers receive the full $1,200 stimulus payment. Learn More >>

2. Leading Financial Services Trades Call for Additional PPP Funds for Small Businesses

Leading financial services trade associations wrote Congressional leadership on April 14, calling for Congress to quickly authorize additional funds for the Paycheck Protection Program. Funds from the original $349 billion authorization were fully obligated this week, leaving out countless small business owners and their employees still awaiting access to the program.

“The Small Business Administration’s Paycheck Protection Program has already provided a critical economic lifeline to small businesses across the country. Unfortunately, millions of other small businesses still need assistance which is why federal funding for PPP needs to be increased. Those businesses and their employees now face immediate economic threats related to the COVID-19 pandemic unless Congress acts. Banks of all sizes are eager to provide much-needed funding to our nation’s small businesses. While the Paycheck Protection Program has encountered challenges from the beginning, more than 4,600 lenders are participating. We call on Congress to expeditiously increase PPP funding to support lenders’ efforts, ensuring small businesses throughout our country have the opportunity to apply for and receive PPP loans,” the association heads wrote.

A copy of the letter, signed by the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and the Financial Services Forum, is available hereLearn More >>


3. BPI Recognizes Enormous Potential of Main Street Lending Facility, Requests Clarification of Components in Comment Letter

This week, BPI filed two comment letters (see here and here) with the Federal Reserve in response to the agency’s request for comment on the upcoming release of the final term sheets for the Main Street Lending Facilities (Main Street New Loan Facility (MSNLF) and Main Street Expanded Loan Facility(MSELF)). BPI recognizes and supports the enormous potential of these facilities to provide significant and rapid relief to many small and medium-sized enterprises and their employees. In an effort to ensure the facilities are as efficient and successful as possible, BPI stressed the need for the facility to allow participation by borrowers that use a wide range of debt structures as opposed to those who just use term funding, and that the terms of the facilities try to work within existing market conventions to the largest extent possible. BPI also stressed the importance of making borrowers aware that the MSNLF and the MSELF are both loan facilities that require underwriting by the banks in order to best manage risk and protect the taxpayer. That means banks will need to be able to use their existing credit processes to process borrower applications most efficiently.

BPI further offered suggestions to the Fed with regard to the need for flexibility around some of the loan features such as EBITDA calculations, maturity and lending into syndicated facilities. It also stressed the need for lenders to retain their respective regulatory capital categories in order to maximize lending ability, allowing for participation in the program U.S. branches of foreign banking institutions and agency guidance clarifying the proper incorporation of these loans into risk-based capital and leverage ratio calculations. BPI’s members stand ready to support the U.S. economy in the implementation of these facilities and offered the comments in an effort to fully optimize their implementation.

4. SBA Issues Interim Final Rule for Independent Contractors Seeking to Access Paycheck Protection Program

On April 14, the Small Business Administration (SBA) issued an interim final rule (IFR) in relation to the CARES Act Paycheck Protection Program (PPP), which provides additional eligibility criteria and requirements for certain pledges of loans. Specifically, the IFR addresses individuals with self-employment income, such as an independent contractor or a sole proprietor, businesses owned by directors or shareholders of a lender participating in the PPP program and businesses that receive revenue from legal gaming. The IFR further provides information on the calculation of eligible borrowing amounts under the PPP program and clarification for PPP loans pledged for borrowings from a Federal Reserve Bank or advances by a Federal Home Loan Bank. Learn More >>

5. Coronavirus Pandemic Complicates Swift Libor Transition

Market participants planning for a 2021 transition from the London Interbank Offered Rate (Libor) to the Secured Overnight Financing Rate (SOFR) are increasingly concerned about market volatility and operational challenges due to the unprecedented health pandemic, reported Reuters on April 13. Pre-pandemic concerns relating to the difference in spreads between the two rates were exacerbated by severe market turbulence. While the Alternative Reference Rate Committee (ARRC) — a group made up of private-sector participants convened by the Federal Reserve and leading the SOFR transition efforts in the U.S. — recently introduced a spread adjustment methodology for cash products, “spikes in SOFR have caused alarm amongst investors already wary about the change. In September, SOFR rose to 525bp, significantly higher than three-month Libor, which sat at 216bp,” the article stated. “[A]dding to these challenges is the operational transition, so [sic] many institutions will need to address before 2021, which may make it more challenging to meet the Libor transition deadline in about 20 months.” Learn More >>


In Case You Missed It

GAO Determines 2015 Fed Capital Planning Guidance for Large Banking Institutions is a “Rule,” Must Meet CRA Requirements

The Government Accountability Office (GAO) determined that Federal Reserve guidance (Supervision and Regulation Letter 15-18 [December 2015]) outlining certain capital planning expectations for the largest bank holding companies is a “rule” under the definition established by the Administrative Procedure Act and is, therefore, subject to the Congressional Review Act (CRA).

According to the GAO, the Fed did not submit the guidance to Congress or the Comptroller General as it should have done in accordance with requirements under CRA that apply to agency rules, nullifying SR 15-18 until these legal requirements are met. The CRA requires agencies to submit a rule, a concise summary of the rule, the effective date and a cost-benefit analysis to Congress and the Comptroller General for review before the rule can take effect.

CFPB Exempts Stimulus Payments from Compulsory Use Prohibition to Allow Quicker Payments

On April 13, the CFPB issued an interim rule to allow for government payments, such as stimulus payments, to be exempted based on certain criteria from the compulsory use prohibition under Regulation E, which prohibits requiring consumers to establish an account to receive government benefits. The agency stated that given the current pandemic, it may be faster, more secure, more convenient and less expensive for government agencies and consumers to have funds dispersed through alternative means, such as to a pre-paid account, which this rule will allow.

In order for a payment to be considered as exempted under the rule, it must meet four conditions: provide assistance to consumers in response to the COVID-19 pandemic or its economic impacts; outside of an already-established government benefit program; on a one-time or otherwise limited basis; and without a general requirement that consumers apply to the agency to receive funds.

FFIEC Releases Updates to Bank Secrecy Act/Anti-Money Laundering Exam Manual

On Wednesday, the Federal Financial Institutions Examination Council (FFIEC) released updates to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Exam Manual. As stated in the accompanying interagency statement on the release, “the manual update, which supports tailored examination work, has been in process for an extended period and should not be interpreted as new instructions or as a new or increased focus.” Many of the changes are designed to emphasize a risk-based approach to BSA/AML supervision, such as instructions to examiners for tailoring BSA/AML examination to a bank’s risk profile for illicit financial activities. The revised Manual also provides examiner instruction on assessing the adequacy of a bank’s BSA/AML compliance program and risk assessment processes and emphasizes banks’ flexibility in the design of their BSA/AML programs. The agencies will continue to review and revise the existing Manual, and updates to remaining sections will be released in phases.

Regulators Temporarily Defer Real Estate Appraisals for 120-Days to Speed up Access to Credit

The federal banking agencies issued an IFR on April 14 allowing banks to temporarily defer, for up to 120 days, residential and commercial real estate appraisals under the agencies’ interagency appraisal regulations. The rule is intended to provide faster access to credit for households and businesses responding to the COVID-19 pandemic. Institutions are still urged to use best efforts and available information to develop a well-informed estimate of the collateral value of the property. The interim final rule went into effect on April 17, and the temporary provisions will expire on December 31, 2020, unless extended by the agencies.In addition, the federal banking agencies, National Credit Union Administrative and CFPB, in consultation with the Conference of State Bank Supervisors, issued a joint statement addressing challenges relating to appraisals and evaluations for real estate-related financial transactions affected by COVID-19. The statement highlights existing flexibilities in industry appraisal standards and the appraisal regulations, as well as temporary changes to the Fannie Mae and Freddie Mac appraisal standards.


Financial Stability Institute Publishes Evaluation of Operational Challenges in a Pandemic

The Financial Stability Institute at the Bank of International Settlements released a paper on April 16 titled COVID-19 and operational resilience: addressing financial institutions’ operational challenges in a pandemic. The paper reviews some of the supervisory guidance issued by national regulators in response to COVID-19 and notably recommends that pandemic scenarios be incorporated in testing operational resilience.

In particular, the paper states that guidance issued by authorities should take into account: identification of critical/essential employees and ensuring such employees can safely resume their duties; ensuring IT infrastructure can support an extended sharp increase in usage while safeguarding information security; ensuring third-party service providers and critical suppliers are prepared for high reliance on their services; and the need to remain vigilant to identify and protect systems and detect, respond to and recover from cyber-attacks.

CFPB and FHFA Announce Borrower Protection Program Data Sharing Initiative

The CFPB and the Federal Housing Finance Agency (FHFA) announced a data-sharing initiative called the Borrower Protection Program on April 15, which would give the FHFA access to the CFPB’s consumer complaint database in exchange for Fannie Mae and Freddie Mac’s forbearances, loan modifications and other loss mitigation initiatives. “Through the partnership being announced today, the Bureau will share our insights with FHFA and ensure we get their data on how mortgage servicers are working with their customers during this critical time and going forward,” stated FHFA Director Mark Calabria in a release announcing the program. “This partnership with CFPB ensures FHFA can address misconceptions stemming from consumer complaints by working with Fannie and Freddie servicers.”


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