COVID-19 UPDATES / GOVERNMENT RELATIONS
House Votes to Extend Paycheck Protection Program
The House last night approved by unanimous consent legislation extending authorization for the Small Business Administration’s Paycheck Protection Program through August 8, 2020. The bill would also decouple PPP authorization from the SBA’s 7(a) lending program, allowing regular 7(a) lending to continue once the PPP has reached its authorization cap. The legislation was already approved by unanimous consent by the Senate late Tuesday night. The bill now awaits a signature by President Trump.
Gov. Announces New Stage 4.5 as Indiana Reopens
On Wednesday, Gov. Holcomb announced the creation of a new Stage 4.5 for Indiana as the state adjusts measures related to reopening. The state had been scheduled to move to Stage 5 – the final stage in the Back on Track reopening plan for Indiana – on July 4. The governor has paused the implementation of Stage 5, however, for two more weeks, now tentatively set for July 18.
Read about Stage 4.5 restrictions
Supreme Court: CFPB Director Must Be Removable ‘At Will’
The Supreme Court has held that the Consumer Financial Protection Bureau may continue to operate, but ruled that the bureau’s single powerful director must be able to be removed at will by the president. The court ruled that the current legal framework under which the director may only be removed “for cause” is unconstitutional.
The court issued its ruling in a case involving a debt relief company called Seila Law, which asked the Supreme Court to hear its appeal of a 2017 civil investigative demand from the bureau. Seila Law resisted the CID on the grounds that the bureau’s structure is unconstitutional. The Ninth Circuit Court of Appeals upheld the CFPB’s structure in Seila Law, as did the full D.C. Circuit Court of Appeals in a separate 2018 ruling.
Read the Supreme Court's decision
Delayed Interpretation of New Law Creates Confusion
A delayed interpretation of language in SEA 340 by a few stakeholders has created confusion and initial challenges for lenders. SEA 340 included a change to Indiana law intended to further clarify the existing practice of the execution and recording of documents. In review of the change, the IBA and other stakeholders determined that no significant operational changes resulted from the new language. Unfortunately, the IBA learned recently that other industry stakeholders determined that the language created a new requirement for an additional witness to “prove” documents.
The conflicting interpretation of what SEA 340 now requires has created questions on how to conform to the new potential legal risks involving bankruptcy court and challenges to recording documents. The IBA has been working with stakeholders on various approaches to mitigate the new challenges this latest interpretation has created. While solutions include both legislative and legal, nothing will bring immediate relief in the short term. Please click below for legal memos from both Krieg DeVault LLP and SmithAmundsen LLC for reference.
Powell: Fed ‘Not Looking to Raise Capital Standards During Crisis’
Testifying before the House Financial Services Committee on Tuesday, Federal Reserve Chairman Jerome Powell again emphasized the strong position of the financial sector going into the COVID-19 pandemic and noted that banks have performed well in their response to the crisis. “The banks have been taking on a wave of deposits, they’ve been engaging in forbearance, they’ve been making loans,” he told House lawmakers. “They’re a source of strength in this situation.”
According to a sensitivity analysis the Fed conducted along with the recent Comprehensive Capital Analysis and Review process, “we found that the majority of firms were still sufficiently capitalized” under three different recovery scenarios, Powell said. He added that recent actions by the Federal Reserve to halt stock buybacks and dividend distributions were taken to preserve the level of capital in the banking system.
Powell added that as part of its monitoring efforts, the Fed will require large firms participating in CCAR to resubmit their capital plans later in the year, and said that the agency would provide additional clarity “in terms of the precise metrics we’ll be looking at.” He emphasized, however, that “we’re not looking to raise capital standards during a crisis – that’s not what’s going on here.”
Gov. Extends Foreclosure Moratorium Until July 31
On Tuesday, Gov. Holcomb issued Executive Order 20-33 which extended moratoriums on foreclosures, evictions and utility disconnects. The current foreclosure moratorium had been set to expire on July 1. This new executive order extends the foreclosure moratorium for another 30 days. The order notes that it does not impact the national moratorium on all FHA-insured mortgages, which is set to expire on Aug. 31.
The order does permit for emergency foreclosures which are outlined as vacant or abandoned properties, or “where there is a specific immediate and serious injury, loss or damage to the property.” The eviction moratorium was also extended until July 31, and the utility disconnect was extended until Aug. 14.
Supreme Court Declines to Consider Credit Union Redlining Case
On Monday the U.S. Supreme Court declined to review the National Credit Union Administration's field-of-membership rules, ending an industry-supported legal challenge.
The NCUA rules significantly expands the service areas in which community credit unions can do business. Among its provisions, the rule would allow credit unions to include suburbs of metropolitan areas in their fields of membership while cutting out their urban cores. It would also define entire states and major metro centers as rural districts.
An August 2019 U.S Court of Appeals decision largely upheld the NCUA's rules, citing the "Chevron doctrine" that grants considerable rulemaking discretion to regulatory agencies. However, that court also found that the provision on urban cores could have a discriminatory impact on lower-income and minority residents, permitting the NCUA to issue a new proposal to address its concerns.
Fed Launches Task Force to Address Coin Shortages During Pandemic
The Federal Reserve announced Tuesday that it is forming a task force to address the issue of low coin inventories during the coronavirus pandemic. The task force – which includes representatives from the Fed, the U.S. Mint, armored carriers and several industry stakeholders – will work to identify and implement potential solutions to reduce these disruptions. The task force will hold its first meeting in early July, with the goal of creating its first set of recommendations by the end of the month.
With many physical retail businesses and other firms closed during the pandemic, the Fed noted that the coin supply chain has seen significant disruption in recent days. “The Federal Reserve is working on many fronts with our industry partners, including the U.S. Mint, to minimize supply constraints and maximize coin production capacity,” the Fed noted. “We are encouraging depository institutions to order only the coin they need to meet near-term customer demand and to remove barriers to customer coin deposits.”
FinCEN Issues BSA/AML Guidance on Hemp-Related Businesses
The Financial Crimes Enforcement Network has issued guidance for institutions on how they can conduct due diligence on hemp-related businesses and on what types of information and documentation they may be required to collect from these businesses to comply with Bank Secrecy Act requirements.
Institutions should obtain basic identifying information about hemp-related businesses according to their customer identification programs and risk-based due diligence processes, according to FinCEN. Additionally, “for customers who are hemp growers, financial institutions may confirm the hemp grower’s compliance with state, tribal government, or the USDA licensing requirements, as applicable,” by obtaining a written attestation from the grower that they carry a valid license, or a copy of the license.
The guidance also noted that institutions are not required to file a Suspicious Activity Report on customers solely because they are engaged in the growing or cultivation of hemp. “For hemp-related business customers, financial institutions are expected to follow standard SAR procedures and file a SAR if the financial institution becomes aware, in the normal course of business, of suspicious activity.” In cases where transactions of a hemp-related business are comingled with marijuana-related activities, financial institutions should apply FinCEN’s 2014 guidance on marijuana when determining whether and how to file a SAR.
Labor Department Re-Proposes Fiduciary Rule, Proposes Class Exemption
The Department of Labor has issued its long-awaited re-proposal to regulate investment advice fiduciaries under the Employee Retirement Income Security Act. The re-proposal includes two major regulatory actions: a reinstatement of the so-called “five-part test,” which determines whether a person renders investment advice under ERISA, and a proposed class exemption. This exemption would be available to banks—among other investment advice fiduciaries—and would permit those entities to receive compensation as a result of providing fiduciary investment advice, including advice to roll over a participant’s account in an employee benefit plan to an IRA and other similar types of rollover recommendations.
The new proposed class exemption would require fiduciary investment advice to be provided in accordance with the following “impartial conduct standards” to advance retirement customer protections: a best interest standard; a reasonable compensation standard; and a requirement to make no materially misleading statements about recommended investment transactions. The exemption would include other protections that would require disclosures to retirement investors, conflict mitigation and a retrospective compliance review. The DOL noted that this approach further will preserve wide availability of investment advice arrangements and products for retirement investors.
View additional info on the proposal
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.