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Banks face class actions for prioritizing large customers for PPP loans
On April 20, five class action lawsuits were filed in the U.S. District Court for the Central District of California against six of the nation’s largest banks, alleging that the banks prioritized existing, large customers over smaller businesses for the Small Business Administration’s (SBA's) Paycheck Protection Program (PPP) loans. The suits claim that the banks submitted PPP applications for existing large customers first, failing to process applications in the order they were received. Moreover, pursuant to the CARES Act, the SBA provided PPP lenders with origination fees on a sliding scale, from 1 percent to 5 percent, based on the amount of each loan. The complaints allege that higher origination fees provided incentive for the banks to process higher dollar loans ahead of smaller dollar loans. See the complaints here, here, here, here, and here.
Massachusetts enacts legislation imposing moratorium on certain evictions and foreclosures and requiring forbearance upon request
On April 20, the governor of Massachusetts signed legislation imposing a moratorium on certain eviction and foreclosure proceedings for the earlier of 120 days from the enactment of the legislation or 45 days after the state of emergency. In addition, the bill requires a creditor to grant a forbearance to a mortgagor that submits a request and affirms that the mortgagor has experienced a financial impact from Covid-19. Any payment subject to the forbearance must be added to the end of the term, unless otherwise agreed to. The legislation also prohibits a mortgagee or landlord from furnishing negative mortgage payment information or rental payment data to a consumer reporting agency related to payments subject to the act.
Fed provides FAQs on PPP liquidity facility
On April 20, the Federal Reserve Board (Fed) released a series of frequently asked questions (FAQs) and answers relating to the agency’s newly launched Paycheck Protection Program Liquidity Facility (PPPLF). As previously covered by InfoBytes, the PPPLF was up and running on April 16 to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The SBA-guaranteed PPP loans are used as collateral for term financing provided by the PPPLF. The PPPLF extends credit to financial institutions participating in the PPP at a fixed rate of 35 basis points. Additional information regarding the PPPLF, including a term sheet, borrowing documentation, and operational documentation including samples can be found on the Fed website here.
OCC bulletin highlights Covid-19 assistance to businesses, consumers, and governments through Fed facilities
On April 20, the OCC issued a bulletin to spotlight the many Federal Reserve (Fed) lending programs established to provide relief from the effects of the Covid-19 pandemic and to highlight how the programs benefit consumers, businesses, and state and local governments. The Fed has supported the economy in a number of ways, particularly through establishing or expanding loan, credit, and liquidity facilities including (i) the Paycheck Protection Liquidity Facility (PPPLF); (ii) the Term Asset-Backed Securities Loan Facility (TALF); (iii) the Primary and Secondary Market Corporate Credit Facilities (PMCCF) and (SMCCF); (iv) the Municipal Liquidity Facility (MLF); and (v) the new Main Street Facility. As previously covered by a Buckley Special Alert, the PPPLF provides liquidity to banks to enable them to lend to small business owners so they can keep their businesses running and pay their employees. The TALF, PMCCF, and SMCCF ensure the flow of credit to consumers and businesses for things such as auto loans, credit card loans, and student loans. The MLF facilitates the flow of cash into states, counties, and cities so that their governments may continue to provide services to residents. Finally, the Main Street Facility—like the PPPLF—supports lending to businesses, in which banks originate Main Street Lending Program loans to small and medium-sized businesses by selling the majority of the loans to the Main Street Facility. Further details about the Main Street Facility can be found in a Buckley Special Alert here.
OFAC advises risk-based compliance approach during Covid-19 crisis
On April 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a statement reminding businesses—including financial institutions—to adhere to a risk-based administration of their sanctions compliance plans. The release notes that, in light of Covid-19, businesses may need to reassign resources otherwise dedicated to sanctions compliance to other areas. If apparent violations are made due to this reallocation of resources, OFAC asserts that it will take this into consideration when determining the appropriate response to the business. Also, businesses and persons subject to OFAC regulatory authority are urged to contact OFAC if the businesses anticipate any delays in satisfying deadlines or in filing required submissions and reports, including meeting the 10-day deadline for filing reject reports. The statement provides OFAC contact information appropriate to a number of situations, including matters related to reject reports, subpoenas, license reports, requests for reconsideration, and self-disclosures.
Debt collection trade association claims Massachusetts emergency regulation is unconstitutional
On April 20, a debt collection trade association filed a complaint in the U.S. District Court for the District of Massachusetts against the Massachusetts attorney general, challenging the state’s emergency regulation issued in March, which makes numerous standard debt collection actions an unfair and deceptive act or practice during the Covid-19 pandemic. As previously covered by InfoBytes, the emergency regulation includes provisions that prohibit both creditors and debt collectors from (i) initiating, filing, or threatening to file debt collection lawsuits; (ii) garnishing wages and repossessing vehicles; and (iii) initiating phone calls with debtors, unless necessary to discuss a rescheduled court appearance or at the request of the debtor. Alleging violations of both state and federal law, including the First Amendment, Fourteenth Amendment, and the separation of powers, the trade association argues that the emergency regulations are a content-based restriction on free speech and unconstitutional because they, among other things, exclude six classes of collectors from the prohibition on placing collection calls, and do not treat all “communications” equally by excluding certain types of collections communications. The trade association also contends that the restrictions block members from providing consumers with possible resolutions, such as “temporary hardship repayment plans that may provide a variety of options for deferring payments or determining longer-term payment plans tailored to individual consumer situations where income has been interrupted for any reason.” The complaint also cites examples from debt collectors in the state that detail the negative impact the emergency regulation has had on their businesses. The trade association filed an emergency motion seeking a temporary restraining order and preliminary injunction enjoining enforcement of the regulation.
Maryland commissioner of Financial Regulation issues advisory on lending limits for banks and credit unions
On April 17, the Maryland commissioner of Financial Regulation issued an advisory to address the legal lending limits for Maryland-chartered commercial banks and credit unions. The advisory provides that banks must follow either the Maryland lending limit or the federal lending limit; not both. Banks that are considering relief from the Maryland lending limit must comply with certain requirements. The commissioner also found that, in order to maintain parity with national banks, exemptions to the federal lending limit would be in the public interest and consistent with 12 U.S.C. § 84. Similarly, the governor authorized the commissioner to suspend certain requirements to allow a credit union to engage in transactions exceeding the total credit union limit provided certain requirements are satisfied.
Oregon governor exempts CARES Act payments from garnishment
On April 17, the governor of Oregon issued an executive order exempting all CARES Act stimulus payments to individuals from garnishment, subject to limited exceptions. CARES Act payments will remain exempt from garnishment when deposited into a financial institution. The exemption will remain in effect until terminated by the governor.
Florida expands motor vehicle retail installment initial payment rule
On April 17, the commissioner of the Florida Office of Financial Regulation issued Emergency Order 2020-03, which temporarily expands the motor vehicle retail installment initial pay rule. The order permits a motor vehicle retail installment seller licensed under Chapter 520 of the Florida Statues to allow the first payment of a motor vehicle retail installment contract to be scheduled up to 90 days from the date of the loan.
Alaska Department of Commerce issues special notice regarding premium finance company contracts
The Alaska Department of Commerce, Division of Banking and Securities (Division), issued a special notice responding to inquiries about premium finance companies’ contracts with a power of attorney to cancel all policies upon default. The division notes that while it does not have the authority over the contract or legal agreement, it encourages premium finance companies to review applicable guidance and recent bills passed by federal and state governments related to the Covid-19 crisis pertaining to late payments.