March 26, 2020
ABA-Advocated Provisions Included in New Coronavirus Relief Bill
In a unanimous vote late last night, the Senate passed
a sweeping $2 trillion stimulus package to provide relief to American consumers and businesses struggling as a result of the coronavirus pandemic. Once approved by the House and signed into law by President Trump, the Coronavirus Aid, Relief and Economic Security Act — known as the CARES Act
— will help ensure banks have additional tools to help their customers and communities, and the nation’s economy, through the crisis.
Among other things, the law will provide significant enhancements to the Small Business Administration’s lending programs, including increasing to 100% the government guarantee of loans made for the 7(a) loan program’s new Paycheck Protection Program, and waiving certain requirements for SBA Economic Injury Disaster Loans made in response to the COVID-19 emergency.
In line with the bill being an economic growth measure, the American Bankers Association actively advocated in conversations with policymakers over the past several days for measures that would allow banks to better serve their customers’ lending needs, including the following.
- TDR Relief — providing temporary relief from troubled debt restructurings beginning March 1, 2020, and extending for 60 days after the end of the COVID-19 national emergency, allowing banks to suspend the requirements under GAAP principles for loan modifications related to COVID-19 that would otherwise be categorized as TDRs
- CECL Delay — giving institutions the option to delay the implementation of the current expected credit loss standard until the conclusion of the national emergency or Dec. 31, 2020, whichever comes first
- Lower Leverage Ratio — reducing the community bank leverage ratio from 9% to 8% until the end of the national emergency or Dec. 31, 2020, whichever comes first
- Lending Limit Waiver — temporarily waiving national bank lending limits until the end of the national emergency or Dec. 31, 2020, whichever comes first
- Debt Guarantee — modifying the Dodd-Frank Act to give the FDIC authority to establish a temporary program to guarantee bank debt
- Economic Stabilization Funding — providing $500 billion to the Treasury Department to provide sufficiently collateralized loans, loan guarantees and other investments to eligible entities.
ABA President and CEO Rob Nichols applauded this unanimous action in response to the unprecedented health and economic crisis facing the nation. “America’s banks are already taking steps to assist customers and businesses affected by COVID-19, and this legislation will allow banks to provide even more critical assistance to borrowers in their communities,” Nichols said. “Banks of all sizes stand ready to do their part to support the economy and put the nation on a quick path to recovery.”
Much Needed COVID-19 Small Business Relief Heading For Missouri
Key wins in historic bill position banks to better serve their communities
Much has been written about the $367 billion in assistance to small business the bill provides. It’s important for Missouri banks to understand that the SBA loans contemplated in the bill can flow through all lenders, not just existing SBA-certified or premier lenders.
The number one question being asked by your small business customers is, “When can I get the federal funds?” It is critical that Missouri banks continue to meet the credit needs of its small business customers, so providing information about program accessibility to community banks is a top priority now that the bill is heading toward final passage.
Small business relief is a small piece of the $2 trillion legislation, and there are some very significant banking industry victories. These bill provisions include the following.
- Sec. 1102: PAYCHECK PROTECTION PROGRAM
Although a great deal of focus is rightfully on traditional SBA programs, this provision provides an avenue, through the U.S. Department of Treasury, for additional lenders to be approved to help keep workers paid and employed. Additional lenders approved by Treasury are only permitted to make Paycheck Protection Program loans, not regular SBA 7(a) loans. This creates another important option for community banks. The Treasury was given similar authority in 2010 with the successful Small Business Lending Fund program, so we have a high level of confidence in the department’s ability to facilitate this effort.
- Sec. 4008: TRANSACTION ACCOUNT GUARANTEE AUTHORITY
This is a reinstatement and expansion of a Dodd-Frank provision giving discretionary authority to the Federal Deposit Insurance Corporation to insure any bank deposit in unlimited amounts. It is extraordinary in its scope.
- SEC. 4012: TEMPORARY RELIEF FOR COMMUNITY BANKS
This mandates the 2018 legislation intended to create a simplified Community Bank Leverage Ratio be reduced from 9% to 8% for one year.
- SEC. 4013: TEMPORARY RELIEF FROM TROUBLED DEBT
This mandates that loan agreement modifications, e.g., deferring loan payments for a specified minimum period or interim shifting to interest-only payments, do not necessarily trigger adverse regulatory treatment as a Troubled Debt Restructuring.
- SEC. 4014: OPTIONAL TEMPORARY RELIEF FROM CURRENT EXPECTED CREDIT LOSSES
This delays the effective date of the recently issued FASB Accounting Standard Update on Current Expected Credit Loss for one year.
What Banks Need To Know About New SBA Loan Program
One of the key aspects of the CARES Act passed by the Senate is a new Small Business Administration loan program that allows businesses and nonprofits with under 500 employees to borrow up to 2.5 months’ worth of average monthly payroll expense (up to $10 million) to help businesses affected by the COVID-19 virus maintain their payroll for the next several weeks. To the extent that businesses use these loans to keep people employed and paid, those loans will be forgiven. Other qualified expenses will include rent, utilities and interest on existing mortgage loans. Banks will begin making these loans as soon as the rules and guidance are published by the SBA.
This program will be a tremendous help to businesses and nonprofit organizations and our local economy. SBA is working hard to establish and implement the details of the new program so that banks can proceed to make these loans to their small business and nonprofit customers as quickly as possible.
Businesses interested in participating in the program may find it helpful to begin to compile payroll information for the past year. For businesses not in operation for the past year, they may find it helpful to begin to compile payroll information for January and February 2020. Your bank may want to notify your customers about these options so they are aware of what is needed for these SBA loans.
ABA Urges SBA To Provide Guidance To Banks On Coronavirus Relief
With the Senate passage of the CARES Act, the American Bankers Association joined a coalition of financial services trades in a letter
to U.S. Small Business Administrator Jovita Carranza seeking “clear and consistent guidance” on how SBA intends to enact changes to its 7(a) loan program. The groups urged SBA to provide “bright-line rules, free from ambiguity.” The new law authorized $350 billion in funds for a temporary expansion of the program to ensure that small businesses facing extreme financial hardship during the coronavirus pandemic can meet critical costs including payroll, rent and utilities. It also allows virtually any lender to apply to become a 7(a) lender and increases the funding level for existing 7(a) loans.
Coronavirus Compliance FAQs, Additional Resources
The MBA Compliance Services team has received numerous compliance questions related to the coronavirus pandemic. To assist member banks, we have created Bank Compliance COVID-19 FAQs. This document
— which requires a password to MBA’s website
— includes updated information on the question released last week regarding skip-a-payment/deferrals, with additional information about compounding interest.
MBA Compliance Services also has developed a Demographic Information Telephone Script that may be helpful to banks that are now taking applications over the phone. This script also requires a password to MBA’s website
. The MBA Compliance Services team will continue to update this Q&A document with additional questions. If you have a question, please contact Gina Jolly
Agencies Encourage Banks to Engage in Responsible Small-Dollar Lending
The federal financial regulators today issued
a joint statement
urging financial institutions to offer “responsible small-dollar loans to both consumers and small businesses.” Such offerings should be made in accordance with safe and sound banking practices and should ensure fair treatment of consumers and comply with applicable statutes and regulations, including consumer protection laws, the agencies said.
“The current regulatory framework allows financial institutions to make responsible small-dollar loans. Such loans can be offered through a variety of loan structures that may include, for example, open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans,” the agencies said. “For borrowers who experience unexpected circumstances and cannot repay a loan as structured, financial institutions are encouraged to consider workout strategies designed to help enable the borrower to repay the principal of the loan while mitigating the need to re-borrow.”
The agencies also signaled that they plan to issue additional guidance on small-dollar loans to help banks continue to meet the needs of customers who may be facing extreme financial hardships.
ABA Offers Tips For Consumers To Avoid Coronavirus Fraud Scams
As the coronavirus pandemic continues, scammers are exploiting consumers’ fears and uncertainties about the virus to perpetrate a range of fraud scams. The American Bankers Association has published a list of common scams
associated with the coronavirus, as well as 10 tips for consumers to follow to protect themselves and their finances. Bankers are welcome to use these tips freely to educate their customers.
GSEs Announce Payment Deferral Option for Borrowers Exiting Forbearance
In communications to lenders, Fannie Mae and Freddie Mac announced a new home retention workout option that would allow eligible borrowers who have resolved a temporary hardship and resumed their monthly mortgage payments to make payment deferrals if they cannot afford a full reinstatement or repayment plan to bring the loan current.
The updates outlines several criteria for borrowers seeking payment deferrals, including that the mortgage loan:
- must be a conventional first lien mortgage loan
- must be 30 to 60 days delinquent for at least three consecutive months
- have been originated at least 12 months prior to the evaluation date for a payment deferral
- have not received a prior payment deferral
They also address how to determine payment deferral terms, the processing of payment deferral for various loan types, fees and more. Servicers may begin evaluating borrowers for payment deferrals on or after July 1, 2020.
Labor Department Publishes FFCRA Guidance
The U.S. Department of Labor’s Wage and Hour Division published
its first round of implementation guidance pursuant to the Families First Coronavirus Response Act. The guidance addresses critical questions such as the following.
- How does an employer count its number of employees to determine coverage?
- How can small businesses obtain an exemption?
- How does an employer count hours for part-time employees?
- How does an employer calculate wages employees are entitled to under the FFCRA?
The initial WHD guidance is available in three-parts.
Polsinelli To Host Webinar On Stimulus Programs
COVID-19 has created unprecedented challenges for all businesses. MBA associate member Polsinelli is hosting a webinar at noon Friday, March 27, to provide businesses with practical information on the latest state and federal stimulus programs, as well as other approaches businesses can take to shore up their operations during these challenging times. Registration is required for this free webinar. The agenda follows.
- key provisions under the recent federal stimulus packages and how businesses can tap into them
- small business loan programs at the federal and state level and practical tips for applying
- stimulus initiatives that are targeted at health care providers
- tax credits that employers can use to address employee leave
- support and assistance available through FEMA
- key considerations for businesses with bond financing
- dealing with financial pressure on your business
- working with your bank for short-term lending