Bank Law Monitor

Bank Law Monitor

A Legal Blog for the Financial Services Industry

“First Come, First Served:” SBA Issues Critical Guidance for Payroll Protection Program Loans

Posted in Banking, COVID-19, Regulatory Developments, Trending News

The Small Business Administration (SBA) has issued an Interim Final Rule controlling how $349 billion in short-term business loans under the CARES Act will be allocated. While the SBA is seeking comments from the public, the rule is effective immediately to provide immediate relief to businesses affected by the COVID-19 emergency. Applications for lenders and borrowers are available now.

The interim rule clarifies—and in some cases contradicts—the text of the CARES Act. But one provision will interest lenders and borrowers alike: payroll protection loans will be made on a “first come, first served” basis until the program’s funds are exhausted. The rule may also allay concerns from lenders skeptical of the government’s promise to guarantee 100 percent of these loans: it says banks that participate in the program as lenders will be held harmless for misrepresentations in the borrower’s application. Other noteworthy rule provisions are summarized below. Continue Reading

CARES Act Amends Bankruptcy Code to Address COVID-19 Dislocation

Posted in COVID-19, Trending News

Section 1113 of the CARES Act amends certain provisions of the Bankruptcy Code and will apply to the year following the date on which this new law goes into effect. These changes are primarily designed to benefit small businesses and individuals who need to seek bankruptcy protection (and some who have already sought it). Creditors should be aware that the changes may make it easier for debtors to qualify for the bankruptcy cases of their choice and for Chapter 13 wage-earner debtors to confirm and modify their plans in light of federal payments that will be made to alleviate the harm of the COVID-19 pandemic and otherwise remedy the hardship it creates. Continue Reading

Federal Banking Agencies Encourage Small-Dollar Lending

Posted in Banking, COVID-19, Trending News

No, your eyes aren’t deceiving you. On Thursday, March 26, 2020, the federal banking agencies (i.e., the FDIC, CFPB, FRB, NCUA, and OCC) issued a joint statement encouraging banks and credit unions to offer responsible small-dollar loans to consumers and small businesses affected by COVID-19. Many of us might remember the days of “Operation Chokepoint” in the 2010s (where small-dollar payday lenders were allegedly targeted), but those days are long gone. At least for now, the regulators recognize the importance of “responsible” small-dollar lending (by their supervised financial institutions) in response to the COVID-19 emergency.

The banking agencies acknowledge that COVID-19 has caused significant disruptions in the lives of consumers and small businesses, including cash-flow imbalances, unexpected expenses, and income shortfalls. In their joint statement, the regulators encourage financial institutions to offer small-dollar loans to help meet the credit needs of these affected customers. The regulators note that lenders could offer these loans in many forms, including open-end lines of credit, closed-end installment loans, or single payment loans. Financial institutions are also encouraged to think about workout strategies that enable distressed borrowers to repay the principal of their loans while mitigating the need to re-borrow. Continue Reading

Congress CARES: Federal Stimulus Package to Provide Emergency Relief to Borrowers and Financial Institutions

Posted in COVID-19, Trending News

On Wednesday, March 25, 2020, the Senate unanimously passed a $2 trillion economic stimulus package. Called the Coronavirus Aid, Relief, and Economic Security (or CARES) Act, this unprecedented bill is expected to be passed by the House this Friday and quickly become law.

There is much in the Act for the financial services industry to celebrate, including hundreds of billions of dollars for new loans to pump up the economy and provide credit to businesses. Bankers will also welcome the temporary relief from regulatory requirements and accounting rules, which encourage loan modifications for distressed borrowers and delay the potential hit to bank balance sheets. There are also some new restrictions that require lenders to grant up to a year in automatic forbearance on federally insured mortgages and a short-term prohibition on foreclosures. All-in-all, there’s something in the stimulus package for lenders and borrowers alike. Continue Reading