On April 30, the Federal Reserve revised the term sheet to its PPPLF to provide access to additional lenders and to expand the collateral that can be pledged under the facility. As a result of the changes, all PPP lenders approved by the SBA, including non-depository institution lenders, are now 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. Additionally, entities eligible to participate in the PPPLF will be able to pledge whole PPP loans that they have purchased in the secondary market as collateral to the PPPLF. An institution that pledges a purchased PPP loan will need to provide the applicable Reserve Bank with documentation from the SBA demonstrating that the pledging institution is the beneficiary of the SBA guarantee for the loan. Updated FAQs regarding the PPPLF can be found here.
On April 30, the Federal Reserve announced changes to the Main Street Lending Program (MSLP) while also providing guidance through an FAQ. While certain changes broadened the scope and eligibility of MSLP, there were certain changes that further restrict its use. Download Goodwin’s chart that includes the highlights to learn more about the Federal Reserve’s changes and guidance on the MSLP and how they may affect borrowers.
SBA Releases More New Guidance on Paycheck Protection Program
Even as the re-launch of the PPP entered its second week, the SBA continued to release guidance regarding the program. Multiple new developments affecting the re-launched PPP were reported in last week’s Roundup. Since then, the SBA has announced additional new guidance regarding the program. The SBA published a new interim final rule providing that (1) businesses that are part of a single corporate group shall in no event receive more than $20,000,000 of PPP loans in the aggregate and (2) clarifying the eligibility of certain non-bank lenders to be approved lenders under the PPP. The SBA also released updated FAQs that:
- Clarify that, if a borrower makes an offer to rehire an employee who was laid off and the employee declines, the employee’s decision to decline his or her offer of employment will not impact the borrower’s forgiveness amount, provided that the borrower has documented (1) that it made a good faith, written offer of rehire to the employee for the same wages and number of hours and (2) the employee’s rejection of the offer;
- Provide additional guidance for seasonal employers making borrower certifications to obtain PPP funding;
- Clarify when nonprofit hospitals may qualify for PPP funding; and
- Extend the repayment date for the repayment safe harbor to May 14, 2020 to be implemented through a revision to the SBA’s interim final rule providing the safe harbor. The SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
Despite the new guidance, borrowers and lenders continue to eagerly await now overdue guidance on loan forgiveness criteria.
For additional information about the PPP and the recent guidance, including the upcoming May 14 amnesty deadline, please listen to Goodwin’s recent webinar in which a panel of Goodwin partners offered observations on the SBA’s guidance and the various risks presented by potential criminal and civil investigations, as well as related litigation, and how to minimize these risks.
On May 5, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency announced an interim final rule that modifies the agencies' Liquidity Coverage Ratio (LCR) rule to support banking organizations' participation in the Money Market Mutual Fund Liquidity Facility (MMLF) and the PPPLF. In particular, the interim final rule facilitates participation in these facilities by neutralizing the LCR impact associated with the non-recourse funding provided by these facilities. The rule does not otherwise alter the LCR or its calibration. Specifically, the LCR rule requires covered companies to calculate and maintain an amount of high-quality liquid assets sufficient to cover their total net cash outflows over a 30-day stress period. Absent the interim final rule, under the LCR rule, covered companies would be required to recognize outflows for MMLF and PPPLF loans with a remaining maturity of 30 days or less and inflows for certain assets securing the MMLF and PPPLF loans. As a result, a covered company’s participation in the MMLF or PPPLF could affect its total net cash outflows, which could potentially result in an inconsistent, unpredictable, and more volatile calculation of LCR requirements across covered companies. The interim final rule requires MMLF and PPPLF funding and the assets securing such funding to be excluded from the calculation of a covered company’s total net cash outflow amount as calculated under the LCR rule, notwithstanding any other section of the LCR rule. The interim final rule is effective immediately and comments will be accepted for 30 days after publication in the Federal Register.
On April 29, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule and FAQ document to make it easier for consumers with urgent financial needs to obtain access to mortgage credit more quickly during the COVID-19 pandemic.
The CFPB’s interpretive rule concludes that a consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and Regulation Z Rescission Rules, if the consumer determines that his or her need to obtain funds due to the COVID-19 pandemic (1) requires consummating the credit transaction before the end of the TRID Rule waiting periods or (2) must be met before the end of the Regulation Z Rescission Rules waiting period. The CFPB also affirmed that the COVID-19 pandemic is a “changed circumstance” for purposes of certain TRID Rule provisions, allowing creditors to use revised estimates reflecting changes in settlement charges for purposes of determining good faith.
The CFPB’s FAQ document clarifies that an applicant may waive the timing requirement for when creditors must provide appraisals or other written valuations to mortgage applicants through an affirmative oral or written statement. An applicant may agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law.
Last week’s Roundup reported that Massachusetts Governor Baker had signed into law Chapter 65 of the Acts of 2020 (Chapter 65), the new law that provides a temporary moratorium on foreclosures and evictions and mandates up to 180 days of forbearance for Massachusetts mortgage borrowers. On May 1, the Massachusetts Division of Banks released an updated FAQ regarding Chapter 65, adding seven new questions and answers that, among other things:
- clarify that banks may require borrowers to provide written affirmation that they have experienced a financial impact due to the pandemic as a condition of forbearance;
- clarify that Chapter 65 does not apply to investment properties or residential properties taken as collateral for a commercial loan; and
- encourage lenders and borrowers to consult with legal counsel regarding the specifics of the forbearance.
The revised FAQs also state that “Chapter 65, like the federal CARES Act, is intended to provide relief to those borrowers who are financially impacted by COVID-19. If you have not been adversely impacted by COVID-19, you are expected to continue to meet your mortgage obligation.”
On May 4, the Nasdaq Stock Market LLC (Nasdaq) adopted a rule, effective immediately, providing listed companies with a temporary exception from certain shareholder approval requirements through June 30, 2020 in an effort to streamline listed companies’ access to capital during the COVID-19 pandemic. Specifically, Nasdaq has adopted Listing Rule 5636T to provide a limited temporary exception to the shareholder approval requirements in Listing Rule 5635(d) (Transactions other than Public Offerings), including the requirement for shareholder approval for the issuance of 20% or more of a class of securities at a price less than market prices and, in certain narrow circumstances, a limited attendant exception to Listing Rule 5635(c)(Equity Compensation). The exception is limited to circumstances where the delay in securing shareholder approval would:
- have a material adverse impact on the company’s ability to maintain operations under its pre-COVID-19 business plan;
- result in workforce reductions;
- adversely impact the company’s ability to undertake new initiatives in response to COVID-19; or
- seriously jeopardize the financial viability of the enterprise.
In addition to demonstrating that the transaction meets one of the foregoing requirements, in order to rely on the exception, the company would also have to demonstrate to Nasdaq that the need for the transaction is due to circumstances related to COVID-19 and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. Further, in order to reply on the exception, the company’s audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors must expressly approve reliance on this exception and determine that the transaction is in the best interest of shareholders. Reliance on the rule requires Nasdaq approval under certain circumstances and requires companies to provide shareholders with advance notice of the transaction through the filing a Form 8-K or issuing a press release disclosing, among other things, the material terms of the transaction.
To provide additional context to the compliance aspects of the previous COVID-19 Order, discussed in an earlier Goodwin client alert, the staff of the SEC’s Division of Corporation Finance has published interpretive responses to four questions (FAQs).
- compliance with the COVID-19 order;
- Form S-3 – takedowns on effective Form S-3 registration statement;
- Form S-3 – Form S-3 eligibility; and
- Form S-3 – filing of new Form S-3 registration statements and acceleration of effectiveness.
On May 1, the Federal Reserve approved a final rule to extend the initial compliance dates for its single-counterparty credit limit rule by an additional 18-months. The final single-counterparty credit rule was adopted by the Federal Reserve as a way to enhance financial stability by limiting the exposure that a large domestic or foreign bank can have to another counterparty. Certain foreign jurisdictions remain in the process of finalizing the applicable rules and standards. As such, the new extension will allow foreign banks additional time for compliance. Under the final rule, the largest foreign banks need to comply with the single-counterparty credit limit rule by July 1, 2021, whereas smaller foreign banks need to comply by January 1, 2022.
On April 30, the Federal Financial Institutions Examination Council (FFIEC) issued a joint statement on behalf of its members regarding risk management for financial organizations using cloud computing services. The statement cautions that the failure to understand the division of responsibilities for assessing and implementing appropriate controls over cloud computing services may result in increased risk of operational failures or security breaches. The statement addresses some controls unique to cloud computing services. An organization’s management must implement processes, consistent with those described in the statement, to identify, measure, monitor and control the risks associated with cloud computing. The failure of an organization’s management to implement an effective and appropriate risk management framework may be an unsafe or unsound practice and may result in potential consumer harm by placing customer-sensitive information at risk. According to the FFIEC, the statement does not contain new regulatory expectations.
On April 20, the UK government (Government) announced the Future Fund, discussed in a previous client alert, providing financing to UK companies (including start-ups and scale-ups in the technology and life sciences sectors) in the form of a convertible loan which is invested directly by the Government alongside private investors. Since assembling and leading the legal task force for this scheme, Goodwin wanted to share the most frequently asked questions and our thoughts, based on the currently available terms. Read the FAQs and our analysis in the client alert and access the term sheet for the proposed detail terms of the Future Fund.
Consumers and regulators everywhere have seen a drastic increase in price gouging since the start of the COVID-19 pandemic. U.S. law enforcement agencies are focusing more on identifying and challenging instances of price gouging, having filed last week the first criminal complaint for alleged price gouging in violation of the Defense Production Act that President Trump invoked in March. This heightened scrutiny can make compliance for any business selling essential goods tricky, which is why it’s important that companies keep in mind what products and services may be covered, and what pricing policies are prohibited. In this client alert, Goodwin’s Antitrust + Competition team lays out the regulatory landscape, outlines what types of pricing conduct are prohibited and provides compliance recommendations.
Enforcement & Litigation
As a result of COVID-19, section 4021 of the CARES Act amended the Fair Credit Reporting Act in a variety of ways that impact credit reporting entities. Besides the main amendment, which states that furnishers of credit information cannot report a consumer’s account as delinquent so long as the account was current before COVID-19 impacted the consumer, additional accommodations have been made for consumers under the CARES Act. Read the LenderLaw Watch blog to learn about the new reporting requirements and additional policy changes.
On April 29, the Department of Justice announced that it settled allegations that an Illinois-based mortgage lender violated the False Claims Act, the Financial Institutions Reform, Recovery and Enforcement Act and Program Fraud Civil Remedies Act by falsely certifying that it complied with Federal Housing Administration mortgage insurance requirements for certain loans originated as far back as 2008 for $15.06 million. Read the Consumer Finance Enforcement Watch blog to read about the whistleblower lawsuit and joint investigation that led to the settlement.
On April 22, the California Department of Business Oversight announced a settlement with a point-of-sale lender that offered consumers a “buy now, pay later” option for payment, which was alleged to be akin to lending but illegal because the lender did not have the required state law license. Read more about the case and settlement in the Consumer Finance Enforcement Watch blog.
On April 29, the Minnesota Attorney General’s Office announced that it had settled its claims against a California-based student loan debt settlement company for alleged violations of Minnesota’s Debt Services Settlement Act, Prevention of Consumer Fraud Act and Uniform Deceptive Trade Practices Act. Access the Consumer Finance Enforcement Watch blog to learn more about the case and settlement.
The COVID-19 pandemic’s harsh financial impact has prompted a drastic and rapid regulatory response, consisting of numerous new orders, rules and guidance that evolve by the day to protect consumers who are struggling to make loan payments and access cash (Emergency Regulations). These changing demands have created an immense burden on banks and Fintech companies as they try to keep up. In Goodwin’s latest Fintech Flash, we break down the Emergency Regulations and provide insight into how banks and Fintech companies can plan a response that best serves their customers while avoiding the potential litigation and regulatory risks.
The digital currency and blockchain space witnessed significant regulatory and legal developments in the first quarter of 2020, despite the current COVID-19 pandemic affecting the globe. From a proposed safe harbor by U.S. SEC Commissioner Hester Peirce, sometimes referred to as “Crypto Mom,” for network developers to continued state regulatory activity around cryptocurrency exchanges and issuers, the industry has picked up where it left off in 2019 as it continues to develop and grow. Access the flipbook to read about these developments in detail.
On May 1, Goodwin Private Equity partner Kristopher Ring was a guest on an episode of ACG Middle Market’s “Growth TV” series, which highlighted pending changes to the Main Street Lending Program component of the U.S. CARES Act. Watch the webinar recording to learn more.