STATE GOVERNMENT RELATIONS
Indiana Bankers Quoted in National Publication
IBA Chairman Lucas White and Indiana banker Kurt Rosenberger were quoted in a BankingDive.com article published on Tuesday. The article, “Acquisition under the radar: Credit unions resume community bank deals,” examines the growing trend of credit union acquisition of banks, which has been occurring in Indiana more than anywhere else in the nation.
“The fact that they don't pay taxes makes it virtually impossible for us to compete,” says White, regarding high bids from credit unions. Rosenberger comments on factors leading to sale: “We have a fiduciary duty to our shareholders to look out for the best interest and enhance their investment.”
Additionally, Chairman White recently addressed this topic in an opinion piece published by the Indianapolis Business Journal.
Indirect Auto Lending Issue – IBA/DFI-Hosted Webinar
Indiana’s consumer credit code was amended effective July 1 to permit consumer credit sellers, including auto dealers, to charge a nonrefundable prepaid finance charge. As a result, certain forms providers have updated their retail installment agreements accordingly. For financial institutions that purchase retail installment agreements from local auto dealers through their indirect lending programs, certain vendor form changes have resulted in some confusion as to how to service these agreements. In particular, many of the form agreements are unclear regarding how the nonrefundable prepaid finance charge should be collected from the consumer, and whether the agreement allows the financial institution to include the nonrefundable prepaid finance charge in the balance that accrues finance charges over the agreement’s term.
The IBA, in partnership with the Indiana Department of Financial Institution’s Consumer Credit Division, invites all IBA-member banks to a webinar on Oct. 21, 10:30-11:30 a.m. ET, during which the DFI will provide an overview of the issue, as well as guidance and recommendations on how to review its servicing methods for compliance. During the webinar, DFI would welcome questions regarding the nonrefundable prepaid finance charge or related topics covered in its Advisory Letter 2020-01 or the accompanying Q&A.
Prior to the webinar, participants are encouraged to review any new agreements they have purchased after July 1 through their indirect lending programs, as well as the DFI’s revised Q&A on SEA 395, Question/Answer #14.
Q14: The template agreement utilized by my company/car dealership and/or being serviced by my bank/credit union/finance company provides that finance charges will accrue on the unpaid balance, less the amount of the prepaid finance charge. Can interest accrue on the amount of the prepaid finance charge? Can I deduct the full amount of the prepaid finance charge from the first payment? (NEW, 8/14/20)
A. If the agreement dictates that no finance charges will accrue on the prepaid finance charge, a creditor is expected to honor the terms of the agreement. In some instances, the agreement may provide that the finance charge will accrue on the unpaid balance, less the prepaid finance charge. In such an instance, the creditor is expected to deduct the amount of the prepaid finance charge from the unpaid balance due prior to assessing or calculating the finance charge due (i.e., unpaid balance less (-) prepaid finance charge = applicable unpaid balance subject to finance charges). A creditor’s agreement may indicate that the prepaid finance charge or any charge be deducted in the manner dictated by the creditor. An agreement may permit the creditor to deduct the prepaid finance charge from the first payment or spread the prepaid finance charge throughout installments over the life of the loan. Additionally, interest may accrue on the prepaid finance charge if permitted by the terms of the agreement and is otherwise in compliance with Q10 above. If an agreement is silent regarding the manner in which the prepaid finance charge will be paid, collected, or otherwise amortized, a creditor is encouraged to contact the Department to discuss its specific scenario and proposed method to collect the prepaid finance charges or amortize the transaction.
FEDERAL GOVERNMENT RELATIONS
SBA Streamlines Forgiveness for Some PPP Loans
Late yesterday the Small Business Administration and Department of the Treasury released a simpler loan forgiveness application for Paycheck Protection Program loans of $50,000 or less to provide needed relief to lenders and borrowers.
The agencies released a two-page Form 3508S application, a three-page instruction sheet, and an interim final rule on the streamlined forgiveness process, which they said will allow lenders to process forgiveness applications more swiftly.
Under the simplified process, borrowers with loans of less than $50,000 are exempt from reductions in the forgiveness amount based on reductions in full-time equivalent employees, salary or wages.
While these borrowers need not make those calculations or show they qualify for a safe harbor, they still must submit documentation to lenders supporting the amounts they paid for payroll costs or other forgivable expenses.
PPP Loan Forgiveness Application Form 3508S
View instructions for Form 3508S
SBA Issues Guidance on PPP Deferral Period
The Small Business Administration updated its frequently asked questions on Oct. 7 on the Paycheck Protection Program with guidance on the extended deferral period for borrower payments on PPP loans.
Per the update, the extension of the deferral period under the Paycheck Protection Program Flexibility Act of 2020 automatically applies to all PPP loans. Lenders are required to give immediate effect to the extension and should notify borrowers of the change. Further, SBA indicates it does not require a formal modification to the promissory note.
SBA Starts PPP Forgiveness Amid Relief Push
The Small Business Administration announced it began approving Paycheck Protection Program forgiveness applications and sending payments to lenders last Friday, Politico reported.
The announcement offers the first glimmer of certainty for borrowers and lenders over forgiveness of PPP loans, nearly 60% of which were originated by community banks. The SBA began accepting forgiveness applications in August and has 90 days to act on them.
The agency recently told Congress that it has received forgiveness requests for less than 2% of PPP loans.
SBA Issues Guidance on PPP Borrower Changes of Ownership
The Small Business Administration last Friday issued a notice explaining required procedures when an entity that has received a Paycheck Protection Program loan experiences a change in ownership. Borrowers must notify their PPP lenders in writing prior to the closing of any covered change in ownership, which occurs when at least 20% of common stock or other ownership interest in a PPP borrower is sold or transferred, when the borrower sells or transfers at least 50% of its assets, or when the borrower merges with or into another entity.
The lender may approve a change in ownership without prior SBA approval for changes structured as a sale or transfer of common stock or other ownership interest, as a merger or as an asset sale. Sales or transfers of ownership interest and mergers are exempt from SBA approval provided the transfer or sale is 50% or less of the ownership interest or the borrower submits a PPP forgiveness application. (The borrower must escrow funds to pay any unforgiven PPP balance.) Asset sales are exempt when they amount to less than 50% of the borrower’s assets, a forgiveness application is filed and funds escrowed to pay any unforgiven balance. The notice includes notification requirements of lenders for all covered changes of ownership.
In all other cases, the PPP lender must submit a request for SBA approval to the appropriate SBA Loan Servicing Center. The notice provides a list of what these requests must include. SBA approval “will be conditioned on the purchasing entity assuming all of the PPP borrower’s obligations under the PPP loan, including responsibility for compliance with the PPP loan terms,” according to the SBA. Regardless of any change, the PPP borrower remains responsible for performing loan obligations, PPP-related certifications and preparing and retaining all required documentation.
Powell: Economic Outlook Uncertain, Depends on Controlling Spread of Coronavirus
The U.S. economic outlook remains highly uncertain and depends on controlling the spread of the COVID-19 pandemic, Federal Reserve Chairman Jerome Powell said Tuesday at an economics conference. While the recovery “has progressed more quickly than generally expected,” there is a risk that any initial gains from reopening may transition to “a longer-than-expected slog back to full recovery as some segments struggle with the pandemic's continued fallout,” Powell said.
He also cautioned that a long period of slow economic progress could further exacerbate existing disparities in the economy, as “weakness feeds on weakness,” he said. The pandemic-related downturn has fallen heavily on lower-wage workers in public-facing service industries, job categories overrepresented by minorities and women, and employment in the bottom quartile of wage distribution is still 21% below the level in February, while only 4% lower for other workers, he noted.
As policymakers work to address the economic effects of the pandemic, Powell suggested that a strong policy response is needed. “Too little support would lead to a weak recovery, creating unnecessary hardships for households and businesses,” he said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.” He added that “even if policy actions ultimately prove to be greater than needed, they will not go to waste.”
CFPB Outlines Consent Order Termination Process
The Consumer Financial Protection Bureau has issued a policy statement outlining the process of applying for early termination of administrative consent orders. For consent orders to be terminated early, applicants must demonstrate that they meet certain threshold eligibility criteria, have fully complied with the terms, and have a satisfactory compliance management system in applicable areas.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.