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#2233999 - 03/31/20 06:44 PM Paycheck Protection Program and CRA
tedster Offline
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tedster
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Philadelphia
My bank will begin to fund loans under the new Paycheck Protection Program, administered under the SBA. My initial thought is that these loans would be considered temporary financing, since they can be forgiven after 8 weeks, and not reportable for CRA. However, would they qualify as community development loans (Activities that promote economic development by financing businesses or farms that have gross annual revenues of $1 million or less or that meet the size eligibility requirements of the Small Business Administration’s (SBA) Small Business Development Company or Small Business Investment Company (SBIC) programs)?
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#2234018 - 03/31/20 09:46 PM Re: Paycheck Protection Program and CRA tedster
CRA Fan Offline
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It sounds like they CAN be forgiven after eight weeks but that they could be on our books up to two years if the balance isn't forgiven. In that case, I would think they should be CRA reported.

If reported, do we have to mark all as having a Gross Revenue Code of 3 because the application does not require verification of income? If they are existing customers, should we report the revenue available on a recent tax return? Am curious to know what other banks are doing here... Thanks!

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#2234190 - 04/03/20 03:11 PM Re: Paycheck Protection Program and CRA CRA Fan
Beth175 Offline
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Wisconsin
I am thinking we would use code 3 for revenues as they aren’t collected under the SBA PPP program. Am I correct?

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#2234262 - 04/05/20 01:41 PM Re: Paycheck Protection Program and CRA tedster
Learned Hand Offline
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Regarding whether or not SBA PPP loans might be reportable as Community Development loans, I'd take a look at the Joint Statement on CRA Consideration for Activities in Response to COVID-19. That was issued back on March 19 (which feels like at least a couple of lifetimes ago now), well before the CARES Act was finalized. Even so, the Community Development Activities section states that FIs will receive CRA consideration for qualifying activities, which include:

- Loans, investments or services that support access to health care, particularly for low- and moderate-income individuals or communities;

- Economic development activities that sustain small business operations, particularly in low- and moderate-income communities;

Based on those examples, I'd say that a good number of SBA PPP loans might qualify as Community Development loans, if they aren't considered standard small loans to businesses.

(If the loan is to a larger business, we'd have to know whether or not that business provides health insurance coverage for its workers, but I presume most larger businesses probably do. I think lending to such a business in a way that requires retention of employees would be considered supporting access to health care.)

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#2234263 - 04/05/20 02:04 PM Re: Paycheck Protection Program and CRA Beth175
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As I read A CRA Guide to Data Collection and Reporting and the Interagency Q&A, we're supposed to report the revenue amount used in making the credit decision. My understanding is that SBA PPP loans are based solely on payroll information. Per the Interagency Q&A 42(a)(4)--2, if we don't consider revenue, we should report the code indicating "revenues not known." So, I believe that you are right, and we should use rev code 3 for all SBA PPP loans.

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#2234409 - 04/08/20 01:56 PM Re: Paycheck Protection Program and CRA Learned Hand
Beth175 Offline
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Wisconsin
We are thinking these loans could be Community Development - Job Retention as the loans are to allow the businesses to continue to provide paychecks to their employees even while the business may not be operating fully due to the “safer at home” orders.

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#2234428 - 04/08/20 04:58 PM Re: Paycheck Protection Program and CRA tedster
Mel in WA Offline
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We are a large bank and most of these loans will be under $1 million. So, should they be reported in the small business data or can they be counted as community development loans? Technically, community development loans need to be over $1 million.

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#2234456 - 04/08/20 09:03 PM Re: Paycheck Protection Program and CRA tedster
MarieR Offline
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We are a large bank too and I understand it to be if the loans are less than $1 million they will be part of the small business data. If over $1 million then they could be community development. I'm thinking economic development since it is to keep folks employed. Thoughts?
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#2234551 - 04/09/20 08:33 PM Re: Paycheck Protection Program and CRA tedster
Mel in WA Offline
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I was hoping all SBA - PPP loans could be considered community development loans (economic development), but I suppose the dollar amount is the issue for large banks.

IMO - Regardless of the amount, the primary purpose of these loans is community development during a time of crisis and should be counted as such, rather than included in the data. The significant increase in small business/small farm loans is going to inflate our numbers, which may be a little misleading.

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#2234571 - 04/10/20 12:24 PM Re: Paycheck Protection Program and CRA Mel in WA
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#2234972 - 04/16/20 04:28 PM Re: Paycheck Protection Program and CRA tedster
bOaty Offline
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Chillin an grillin
If you are large bank and the PPP loan meets the small business reporting requirements you have to put it on your LR. If it's over 1MM we are counting them for CD.

I think having a separate list of the PPP loans or another way of identifying them would be a good idea. We will definitely want to share the number and dollar amount of loans that we did come exam time.
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#2235311 - 04/21/20 03:05 PM Re: Paycheck Protection Program and CRA tedster
Pale Rider Offline
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under the Lone Star
Ain't it weird that the whole dang country is under a disaster declaration....
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#2235324 - 04/21/20 04:46 PM Re: Paycheck Protection Program and CRA tedster
Lori01 Offline
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ABA is working on a list of these types of questions to ask. It will be great to get input from regulators at a higher level than our local folks.
So many questions....so few answers.

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#2235951 - 04/29/20 08:29 PM Re: Paycheck Protection Program and CRA Lori01
Compliance1 Offline
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Has anyone come across the type of information we should be gathering for CRA purposes for all these PPP loans to provide to examiners?

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#2235952 - 04/29/20 08:35 PM Re: Paycheck Protection Program and CRA tedster
John Burnett Offline
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Cape Cod
Take a look at OCC Bulletin 2020-45
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#2235986 - 04/30/20 03:32 PM Re: Paycheck Protection Program and CRA tedster
Lori01 Offline
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so helpful that the OCC decided NOW is the time to tell us to collect revenue information...and the FDIC hasn't said a word yet.

GRRRRRRRR!

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#2236142 - 05/04/20 11:41 PM Re: Paycheck Protection Program and CRA tedster
bOaty Offline
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Chillin an grillin
I'm curious why some of you say that the loan has to be over 1MM in order to be CD. Why is that the case?

If you have an unsecured loan to a non-profit (which the PPP loans are unsecured), they are not reportable as a SB loan. So, if they meet the definition of CD, why not report them?
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#2236253 - 05/06/20 05:54 PM Re: Paycheck Protection Program and CRA tedster
Mel in WA Offline
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Does the non-profit need to serve LMI in order for an unsecured loan under $1 million to qualify as community development?

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#2236282 - 05/06/20 09:57 PM Re: Paycheck Protection Program and CRA tedster
Len S Online
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Connecticut
There are a number of considerations here:

First, loans of $1 million or less for a business purpose are reported as small business loans (assuming they don't have any disqualifying factors such as being directly secured by residential real estate not taken as an abundance of caution). Typically, loans that are reported as small business loans are evaluated as small business loans, but if they are also qualified as "community development" under one of the four CRA definitions of community development" they may be considered as community development loans for examination purposes (even though they may be reported as small business loans) for banks being evaluated under the Intermediate-Small Bank CRA examination standards. In this situation, the qualification likely would fall under the "revitalization/stabilization" definition because (as someone above remarked) the entire country is not considered to be a qualified disaster area. Loans under the PPP program may possibly qualify under the "economic development" definition because the loans would be preserving jobs, in many cases for LMI employees.

Another consideration is the use of flexible and innovative loan programs or flexible and complex community development loans that are responsive to community needs. All loans (whether qualified as small business or CD loans) extended under the PPP program are likely to be recognized to fall under these considerations which are supposed to enhance the value of the lending or community development activity. So if you extend a loan under the program whether it is qualified and reported as a CD loan (because it exceeds $1 million) or as a small business loan (because it is for $1 million or less) it can receive enhanced consideration during a CRA exam.

And again, banks undergoing a CRA exam using the ISB standards would have the elective (loan by loan) to have any such loans considered under either the lending test or the community development test. This means if you report the loans as small business loans you should maintain a separate file on such loans so you can identify them and determine how you want them to be used for examination purposes.
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#2236415 - 05/08/20 07:13 PM Re: Paycheck Protection Program and CRA tedster
M&M Offline
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Midwest
We're an ISB, and we do not report small business data annually yet. We have our list of PPP loans and are identifying those that are in a LMIT. Aside from that, what else should I do on these loans to prepare for our CRA exam early next year? I don't have gross annual revenues- does this present a problem or a disadvantage for us?

Thanks.

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#2236424 - 05/08/20 08:02 PM Re: Paycheck Protection Program and CRA tedster
Len S Online
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Posts: 1,848
Connecticut
First, I suggest you and any other ISB-size bank should voluntarily report your CRA activity annually. Why? There are several reasons:

(1) you preserve your elective to be examined for CRA purposes under the large bank exam standards rather than the more difficult ISB standards,

(2) if you are being a responsible banker you should be collecting and monitoring your lending activity for CRA purposes (only a masochist would go into a CRA exam blind, not knowing how your bank will look in a CRA exam and not being prepared to anticipate and answer examiner questions,

(3) you will know exactly the data the examiners will use to evaluate your performance (if you don't report the examiners will use random sampling to develop a basis for evaluating your performance which means you will have no idea what they come up with - isn't that crazy?!) and

(4) you may be pleasantly surprised at the results (recently we saw a bank get a NTI CRA performance rating. They hadn't reported their lending activity, but when we looked at their lending we advised them they would have been ranked #3 within their AA for lending to very small businesses - and it was their lending to those businesses that was heavily criticized by examiners - if they were prepared and had known about how important they were as a lender to very small businesses they could have mitigated examiner criticism).

I've explained in previous threads that the ISB exam standards are much more difficult than the Large Bank standards (yes it's counterintuitive) because community development is much more heavily emphasized in an ISB exam compared to a Large Bank exam. Community Development is much more vaguely defined and measured in CRA and there is an appalling lack of performance context data (CD loans are reported but not geocoded so no one knows where they are) and CD investments are not reported at all. At least with small business and small farm lending there is a good amount of data reported and published which helps develop performance context.

Any time you extend a small business loan you should attempt to collect the GAR data. It's mandatory if you relied upon it in the credit decision. The latest I've seen from the Agencies is they recommend (but do not require) collecting the GAR even when extending loans in response to Covid-19. BTW, you should geocode every small business loans whether they are in LMI tracts or not.
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#2237158 - 05/22/20 04:14 PM Re: Paycheck Protection Program and CRA tedster
Flyboat Offline
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I have two questions concerning the PPP loans. First, would LAR reporters be required to ensure (or be penalized for not reporting) revenues $1MM or less to meet reporting requirement? Second, prior posters noted that the revenue code should be a 3 (unknown). Would it not be considered a 4 (Not Applicable) since it was not was required as per the PPP guidelines? My feeling is that a 4, address my first concern better than as a 3.

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#2237194 - 05/23/20 03:30 PM Re: Paycheck Protection Program and CRA tedster
Len S Online
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Connecticut
1- when you originate a small business loan you are required to enter the GAR code based on the information you used for the credit decision. If you didn't rely on GAR then code 3 would be appropriate
2- when entering the code for the GAR for a business loan the answer is never "4" because 4 is intended to be used to indicate the loan is not a small business (or small farm) loan. You use code "4" if you are capturing the non-mandatory consumer loans. When you extend a auto loan the GAR field would be coded "4" for example. So code "4" indicates the GAR is not applicable because the loan is a consumer loan.
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#2237203 - 05/26/20 03:20 PM Re: Paycheck Protection Program and CRA tedster
Flyboat Offline
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Len, I appreciate the clarification.

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#2237291 - 05/27/20 11:13 PM Re: Paycheck Protection Program and CRA tedster
Reads Regs Offline
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The OCC came out with these FAQs regarding CRA and COVID-19. They mention PPP loans. https://www.occ.gov/topics/supervis...vid-19-information/covid-19-cra-faqs.pdf
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