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Treasury issues emergency capital investment program FAQs
On March 30, the U.S. Treasury Department issued frequently asked questions to provide timely guidance concerning all aspects of the Emergency Capital Investment Program (ECIP). The FAQs cover issues regarding:
- The types of institutions eligible to participate in the ECIP;
- Submission of an ECIP application and emergency investment lending plan;
- How Treasury will decide allocation of the available capital among applicants that meet the thresholds for eligibility, including how well an applicant has responded to the needs of communities impacted by the Covid-19 pandemic;
- Whether an institution can choose to issue preferred stock or subordinated debt in the ECIP; and
- Compliance and reporting requirements.
The ECIP was established by the Consolidated Appropriations Act of 2021 (covered by InfoBytes here), and will provide up to $9 billion in capital directly to Community Development Financial Institutions and minority depository institutions to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities” that may be disproportionately impacted by the Covid-19 pandemic. As previously covered in InfoBytes, on March 22, the OCC, Federal Reserve Board, and the FDIC published an interim final rule (IFR) to facilitate the implementation of the ECIP.
Biden extends PPP deadline
On March 30, President Biden signed the PPP Extension Act of 2021, extending the covered period for the Paycheck Protection Program from March 31 to June 30. However, new loan applications will not be accepted after May 31.
OFAC sanctions Burmese military holding companies
On March 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 14014 against two military holding companies in Burma. According to OFAC, these sanctions specifically target “the Burmese military’s control of significant segments of the Burmese economy.” As a result of the sanctions, all property and interests in property belonging to the sanctioned entities subject to U.S. jurisdiction, which enjoy a privileged position in the Burmese economy, are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.
Concurrent with the sanctions, OFAC issued four general licenses (GL) and related FAQs: (i) GL 1, “Official Business of the United States Government”; (ii) GL 2, “Official Activities of Certain International Organizations and Other International Entities”; (iii) GL 3, “Certain Transactions in Support of Nongovernmental Organizations’ Activities”; and (iv) GL 4, “Authorizing the Wind Down of Transactions Involving Myanmar Economic Corporation and Myanma Economic Holdings Limited.” GLs 1, 2, and 3 authorize certain transactions prohibited by E.O. 14014 that are associated with, respectively, the official business of the U.S. government, the official business of certain international organizations and other international entities, and certain nongovernmental organizations’ activities. GL 4 authorizes, through June 22, transactions and activities ordinarily incident to the wind down of transactions involving the two sanctioned companies as well as any entity owned by 50 percent or more of the sanctioned companies. Additionally, FAQ 882 clarifies which organizations within the United Nations’ programs are covered by GL 2, whereas FAQ 883 stipulates that “wind down transactions may be processed through the U.S. financial system or involve U.S. persons, as long as the transactions comply with the terms and conditions in GL 4.”
NY AG exempts stimulus payments from garnishment
On March 24, the New York attorney general issued official guidance for New York state banking institutions, creditors, and debt collectors to clarify that federal stimulus payments are exempt from garnishment under New York law. The guidance, which is based on multiple state and federal consumer protection laws, explains that any attempt to garnish stimulus funds from consumers in the state would constitute “illegal acts” because such garnishment would violate prohibitions under the New York City Consumer Protection Law, New York General Business Law 601(8), the FDCPA, and Dodd-Frank prohibitions of unfair, deceptive, and abusive acts or practices. Banking institutions are also advised to treat these stimulus payments “as subject to the same protections as statutorily exempt payments.”
Fed sets resumption of share repurchases, dividends for July
On March 25, the Federal Reserve Board announced that measures previously instituted to ensure that large banks maintain a high level of capital resilience in light of uncertainty introduced by the Covid-19 pandemic would expire for most banks after June 30. As previously covered by InfoBytes, the Fed’s measures prohibited large banks from making share repurchases and capped dividend payments. The Fed most recently advised that “[i]f a bank remains above all of its minimum risk-based capital requirements in this year’s stress test, the additional restrictions will end after June 30 and it will be subject to the [stress capital buffer]’s normal restrictions.” Banks whose capital levels fall below required levels in the stress tests will remain subject to the restrictions through September 30. Further, banks still below the capital required by the stress test at that time will face even stricter distribution limitations.
FATF updates virtual assets and service provider guidance
In March, the Financial Action Task Force (FATF) updated pre-existing guidance on its risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs). The draft updated guidance revises guidance originally released June 2019, wherein FATF members agreed to regulate and supervise virtual asset financial activities and related service providers (covered by InfoBytes here) and place anti-money laundering and countering the financing of terrorism (AML/CFT) obligations on VAs and VASPs. According to FATF, the revisions “aim to maintain a level playing field for VASPs, based on the financial services they provide in line with existing standards applicable to financial institutions and other AML/CFT-obliged entities, as well as minimizing the opportunity for regulatory arbitrage between sectors and countries.” The revisions provide updated guidance in six main areas intended to:
- Clarify VA and VASP definitions to make it clear that these definitions are expansive and that “there should not be a case where a relevant financial asset is not covered by the FATF Standards (either as a VA or as a traditional financial asset)”;
- Provide guidance on how FATF Standards apply to so-called stablecoins;
- Provide further guidance on risks and potential risk mitigants for peer-to-peer transactions;
- Provide updated guidance on VASP licensing and registration requirements;
- Provide additional guidance for public and private sectors on the implementation of the “travel rule”; and
- Include principles of information sharing and cooperation among VASP supervisors.
FATF intends to consult private sector stakeholders before finalizing the revisions, and is separately considering implementing revised FATF Standards on VAs and VASPs—as well as whether further updates are necessary—through a second 12-month review.
FTC restructures rulemaking as justices debate its limits on consumer redress
On March 25, FTC acting Chairwoman Rebecca Kelly Slaughter announced a new rulemaking group within the FTC’s Office of the General Counsel created to streamline and strengthen the Commission’s rulemaking process and coordinate rulemaking among various units. The FTC’s current rulemaking process is decentralized, according to Slaughter, with individual bureaus and divisions responsible for particular rules. “The new structure will aid the planning, development, and execution of rulemaking,” she said, noting that with the “new group in place, the FTC is poised to strengthen existing rules and to undertake new rulemakings to prohibit unfair or deceptive practices and unfair methods of competition.” Slaughter also emphasized the critical importance of effective rulemaking “given the risk that the Supreme Court substantially curtails the FTC’s ability to seek consumer redress under Section 13(b)” through enforcement actions.
As previously covered by InfoBytes, last year the Court granted review in two cases that had reached different conclusions regarding the availability of restitution under Section 13(b) of the FTC Act: (i) the 9th Circuit’s decision in FTC v. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s ruling in FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
The same day, Acting Chairwoman Slaughter released the FTC’s 2020 Annual Highlights. Among other things, it discusses the Commission’s response to the Covid-19 pandemic and efforts to educate consumers about Covid-19-related scams, as well as businesses’ responsibilities concerning honest advertising.
Italian company settles with OFAC for violating Iranian Transactions and Sanctions Regulations
On March 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $950,000 settlement to resolve alleged violations of the Iranian Transactions and Sanctions Regulations with an Italian company that produces and reexports air pressure switches. According to OFAC’s accompanying web notice, between 2013 and 2017, the company allegedly “knowingly reexported 27 shipments of air pressure switches procured from a U.S. company intended for as many as ten customers in Iran and caused a U.S. company to indirectly export its goods to Iran.” OFAC also alleged that the company engaged in efforts to obfuscate its reexportation of goods from the U.S. to Iranian end-users by, among other things, having employees use deceptive replacement terms for Iran in communications with the U.S company in order to avoid referencing Iranian end-users, and requesting that the term “Made in USA” be removed from the switches to disguise their origin.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the company willfully reexported air pressure switches even though it knew it was violating U.S. sanctions; (ii) company management “either failed to provide effective oversight of its employees and operations or chose to ignore these prohibited trade practices”; and (iii) the conduct caused over $2.5 million worth of goods to be diverted from the U.S. to Iran.
OFAC also considered various mitigating factors, including that the company (i) has not received a penalty notice from OFAC in the proceeding five years; (ii) ceased the conduct at issue and took remedial measures, including implementing a sanctions compliance program and agreeing to enhanced compliance commitments; and (iii) cooperated with OFAC’s investigation.
CFPB and FTC monitoring eviction practices
On March 29, CFPB acting Director Dave Uejio and FTC acting Chairwoman Rebecca Kelly Slaughter issued a joint statement indicating staff at both agencies will be monitoring and investigating eviction practices to ensure that they comply with the law. The statement follows the CDC’s March 28 announcement extending its current moratorium on residential evictions for three additional months, through June 30. Uejio and Slaughter noted that the agencies are coordinating with the CDC to ensure renters are informed of their rights under the eviction moratorium and understand how to complete declarations needed to stop evictions. Additionally, the agencies are monitoring consumer complaints for spikes and trends in potential Covid-19-related violations of the prohibitions against deceptive and unfair practices, including those under the FDCPA and the FTC Act.
SBA gives guidance on PPP loan-error codes
On March 29, the Small Business Administration (SBA) issued an updated procedural notice to lenders providing instructions on Paycheck Protection Program (PPP) loan error codes. The notice revises guidance provided in a previously issued procedural notice (covered by InfoBytes here) and addresses (i) Second Draw PPP loan guaranty applications where there is a hold code on the borrower’s First Draw PPP loan, as well as (ii) First Draw PPP loan guaranty applications and Second Draw PPP loan guaranty applications with compliance check error messages. The updates address compliance check error messages related to disqualifying criminal history, delinquent or defaulted federal student loan restrictions, and updated lender certification.