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SBA adds to PPP FAQs

The Small Business Administration has updated its FAQ on Paycheck Protection Program Loans to add questions 40–42.

  • Question 40 indicates that a borrower's PPP loan forgiveness amount will not be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer. An interim final rule to that effect can be expected soon.
  • Question 41 addresses seasonal employers' ability to make all the required certifications on the Borrower Application Form if the employer elects to use the summer months of 2019 to calculate its maximum PPP loan amount.
  • Question 42 clarifies the borrower-eligibility status of nonprofit hospitals exempt from taxation under section 115 of the Internal Revenue Code.


New IRS guidance on tax impact of PPP loan forgiveness

The IRS issued guidance last week regarding the deductibility for Federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a PPP loan. IRS Notice 2020-32 clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan, and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.


Consumer credit applications decline

The CFPB has issued a report examining the effects of the COVID-19 pandemic. The report found that consumer credit applications—measured by the number of credit pulls or “hard inquiries” that lenders perform when a consumer applies for new credit—declined substantially in March.

The report found that between the first and last week of March, auto loan inquiries dropped by 52 percent, new mortgage inquiries dropped by 27 percent, and revolving credit card inquiries declined by 40 percent compared to usual patterns seen in the data in earlier years. Additionally, the drops are significantly more pronounced for consumers with higher credit scores, consistent with the possibility that higher credit score consumers have more flexibility in either their credit needs or the timing of their credit needs.

The report also found significant geographic variation in the decline in inquiries, with states in the South and Mountain regions experiencing smaller drops and the Northeast and California experiencing the largest drops. The report relates the drop in inquiries to two variables measuring the effects of the pandemic at the state level: the COVID-19 case rate and the share of workers filing for unemployment insurance benefits in the last weeks of March. The report found a strong correlation between the decline in inquiries and the COVID-19 case rate, as well as the decline in inquiries and the unemployment insurance claims share, for some categories of credit.


OCC CRA evaluations released

The OCC has released a list of Community Reinvestment Act performance evaluations that were made public in April 2020. Of the 20 evaluations made public, 16 were rated satisfactory and the following four were rated outstanding (links are to the evaluation reports):


Credit limit rule compliance date extended

The Federal Reserve Board has finalized and submitted for publication in the Federal Register a final rule to extend by 18 months the initial compliance dates for certain parts of its single-counterparty credit limit rule. The extension, which is unchanged from the proposal, applies to the combined U.S. operations of foreign banks and provides additional time for foreign jurisdictions' implementation of the standard to become effective. Under the final rule, the largest foreign banks need to comply with the single-counterparty credit limit rule by July 1, 2021, and smaller foreign banks have until January 1, 2022, to comply.

UPDATE: Published at 85 FR 31949 on 5/28/2020; effective on publication.


CFPB posts ECOA appraisal factsheets and FAQ

The CFPB has released two factsheets on the ECOA valuation rule that provide information on transaction coverage under the rule and the delivery method and timing requirements for appraisals and other written valuations. A COVID-19-related FAQ on the appraisal rule was also published.


Bureau Fair Lending Report to Congress

The Bureau has released its 2019 Fair Lending Report to Congress that highlights its continued focus of fair lending efforts on mortgage lending, student loans, small business lending and other market areas. It also encouraged consumer-friendly innovation to, among other things, expand access to unbanked and underbanked consumers and their communities.


NCUA seeks CECL exemption

The NCUA reports that NCUA Chairman Hood has written a letter urging the Financial Accounting Standards Board to exempt credit unions from complying with the current expected credit losses methodology, or CECL. Hood noted that the NCUA uses the incurred loss model when it supervises and examines the 5,236 credit unions under its purview for safety and soundness — nearly 70 percent of which are less than $100 million in assets. Hood said that attempting to recognize all expected credit losses is fraught with data collection challenges for the smallest credit unions that the agency supervises.


Fed expands access to PPP Liquidity Facility

The Federal Reserve Board has announced it has expanded access to its Paycheck Protection Program Liquidity Facility (PPPLF) to additional lenders, and expanded the collateral that can be pledged. The changes will facilitate lending to small businesses via the Small Business Administration's (SBA) Paycheck Protection Program (PPP). Now, all PPP lenders approved by the SBA, including non-depository institution lenders, are eligible to participate in the PPPLF.

SBA-qualified PPP lenders include banks, credit unions, Community Development Financial Institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms. When the PPPLF was first announced, the Federal Reserve said the facility would immediately lend to depository institutions and that non-depository institutions would be added as soon as possible. Additional information is provided in the PPPLF Term Sheet.


Fed broadens Main Street Lending Program

The Federal Reserve Board has announced it is expanding the scope and eligibility for the Main Street Lending Program. As part of its broad effort to support the economy, the Federal Reserve developed the Main Street Lending Program to help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic. The changes include:

  • Creating a third loan option, with increased risk sharing by lenders for borrowers with greater leverage;
  • Lowering the minimum loan size for certain loans from $1,000,000 to $500,000; and
  • Expanding the pool of businesses eligible to borrow. Businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible, compared to the initial program terms, which were for companies with up to 10,000 employees and $2.5 billion in revenue.

Under the new loan option, lenders would retain a 15 percent share on loans that when added to existing debt do not exceed six times a borrower's income, adjusted for interest payments, taxes, and depreciation and other appropriate adjustments. This compares to the existing loan options where lenders retain a 5 percent share on loans, but have different features. Under all of the loan options, lenders will be able to apply their industry-specific expertise and underwriting standards to best measure a borrower's income. In total, three loan options—termed new, priority, and expanded—will be available for businesses.


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