FEDERAL GOVERNMENT RELATIONS
Action Alert: Take Action on EIDL-PPP Conflict
While Paycheck Protection Program lending has been the cornerstone of the U.S. economic recovery, many lenders and borrowers are bumping into an unexpected hindrance – the treatment of federal Economic Injury Disaster Loan advances. To address this growing conflict between EIDL advances and the PPP, we are urging bankers to use the IBA VoterVoice system to contact members of Congress.
More than 1 million PPP borrowers are coming to the realization that the EIDL advances originated by the Small Business Administration are not the grants they anticipated. Rather, for any EIDL advance recipient who also received a PPP loan, the advance amount is deducted from the loan forgiveness. This leaves borrowers with as much as $10,000 in unexpected debt, while banks are left with loan balances on their books. Legislation to address the issue has been introduced in Congress, but we must not wait to get Washington's attention. We need to act now to ensure this problem gets the attention it deserves.
SBA Issues Questionnaires to Borrowers for PPP Loans of $2M or More
As part of its review of Paycheck Protection Program loans totaling $2 million or more, the Small Business Administration will begin sending loan necessity questionnaires to borrowers that will inform SBA’s evaluation of their good-faith certification of their economic need. SBA has developed two versions of the questionnaire – one for nonprofit borrowers and one for for-profit borrowers.
Lenders who have submitted loan forgiveness decisions for these borrowers can expect to receive notification letters through the SBA Forgiveness Platform requesting that borrowers complete the questionnaire and providing general instructions on which documents to provide to the SBA. However, SBA noted that lenders are not required to verify or validate borrowers’ responses or any supporting documents related to the questionnaire. Lenders may contact PPPForgivenessRequests@sba.gov with questions.
OCC Finalizes ‘True Lender’ Rule
The Office of the Comptroller of the Currency on Tuesday issued a long-awaited final rule establishing a clear test to determine when a bank making a loan is considered the “true lender” in the context of a partnership between a bank and a third party. Under the final rule, a bank makes a loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.
A loan originated by a bank that satisfies either part of this test would retain its status as a bank-originated loan if the loan is sold, assigned or otherwise transferred to a nonbank entity. In cases where the bank funds the loan, if a bank funds a loan as of the date of origination, the OCC concluded that it has a predominant economic interest in the loan and, therefore, has made the loan – regardless of whether it is the named lender in the loan agreement as of the date of origination. The final rule further states that “if, as of the date of origination, one bank is named as the lender of the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan.”
The OCC clarified in the preamble to the final rule that the bank would not be considered the true lender in certain traditional lending or finance arrangements such as mortgage warehouse lending, indirect automobile finance, loan syndication and other structured finance. The OCC also clarified that the rule “does not affect the applicability” of the Home Mortgage Disclosure Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act or their implementing regulations. The final rule will take effect 60 days after publication in the Federal Register.
FHFA Releases Strategic Plan for 2021-2024
The Federal Housing Finance Agency on Tuesday released its strategic plan for fiscal years 2021-2024. The plan outlines three broad strategic goals: ensuring safe and sound regulated entities through world-class supervision; fostering competitive, liquid, efficient and resilient national housing finance markets; and positioning FHFA as a model of operational excellence. A key part of the strategic plan involves responsibly ending the conservatorships of Fannie Mae and Freddie Mac and allowing them to build adequate capital.
In addition to outlining strategic goals, the plan also addresses the challenges and risks that could hinder the achievement of these goals, including the current economic environment due to COVID-19. FHFA warned that “the Enterprises currently lack the capital to withstand a serious housing downturn,” noting that the GSEs’ leverage ratio after the second quarter of 2020 “was over 200 to 1.” This degree of leverage over the long term could ultimately hinder FHFA’s ability to ensure that Fannie and Freddie are able to respond to market events and downturns, according to the agency.
FHFA also called on Congress to address the need for comprehensive housing finance reform, and for flexibility that would enable FHFA to simplify its proposed capital framework.
IRS Issues Guidance on IRA Distributions to State Unclaimed Property Funds
The Internal Revenue Service has issued two new guidance documents on the transfer of individual retirement account funds into a state unclaimed property fund. In a revenue ruling, the IRS addressed the federal income tax withholding and reporting obligations that are imposed when IRA funds are transferred to a state unclaimed property fund.
A second piece of procedural guidance expands the list of permissible reasons for which a taxpayer may self-certify eligibility for a waiver of the 60-day rollover requirement to include transfers to a state unclaimed property fund. Bank IRA custodians and trustees are responsible for transferring IRA funds to state unclaimed property funds if the IRA is deemed “abandoned” or “unclaimed” under state law.
IRS Finalizes Rule on Trusts, Estates Deductions
The IRS has issued a final rule confirming that deductions allowed under Internal Revenue Code section 67(e) for costs incurred in connection with the administration of a trust or estate are deductible despite the suspension of miscellaneous itemized deductions under the 2017 tax reform law. The final regulations provide guidance on the character, amount and allocation of deductions in excess of gross income that a beneficiary receives when an estate or trust terminates.
Notably, the IRS amended an example provided in the regulation, but declined to amend Schedule K-1 to provide information on excess deductions to assist beneficiaries with their state income tax filings. The rule took effect on Oct. 19.
Fed, FinCEN Propose to Lower Reporting Threshold for Funds Transfers
The Federal Reserve and the Financial Crimes Enforcement Network on Friday proposed to reduce the transaction volume threshold for when banks must collect and retain information on funds transfers and remittances that start or end outside of the United States. The proposal would reduce the threshold from $3,000 to $250 for when insured depository institutions must comply with the recordkeeping and travel rules under the Bank Secrecy Act.
The agencies also proposed to clarify that “money,” as defined in the recordkeeping and travel rules, includes convertible virtual currencies like bitcoin that have an equivalent value as currency or act as a substitute for currency but do not have legal status.
The agencies said there would be benefits to law enforcement investigations from retaining data associated with more transfers and added that they believe the effects on the financial system of lowering the threshold would be low. The Fed and FinCEN have sought comments, due by Nov. 26, on the extent of the burden on financial institutions.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.