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FTC and SBA warn companies about misleading PPP marketing
On May 14, the FTC and SBA sent letters to two companies for allegedly misleading small businesses seeking Paycheck Protection Program (PPP) loans. The first letter was sent to a California-based media company, which owns the web address “sba.com.” The letter claims the website suggests an “an affiliation or relationship with the SBA and approved PPP lenders” and encourages customers to apply for PPP loans through the site. The second letter, sent to a Utah-based company, asserts the company and its affiliate lead generators may be violating Section 5 of the FTC Act. Among other things, the FTC notes that one of the company’s affiliate lead generators advertises itself as an SBA loan packager for a $495 fee, even though the SBA prohibits lead generators from charging fees to PPP loan applicants. Both letters instruct the recipients to remove all deceptive claims and advertisements and remediate any harm that may have been caused. The letters require the companies to notify the FTC within 48 hours of the actions taken in response.
SEC charges two companies with fraudulent Covid-19 claims
On May 14, the SEC announced separate charges against two companies claiming to offer products to combat the Covid-19 virus in violation of the antifraud provisions of federal securities laws. One of the SEC’s complaints alleges the company issued a press release on March 31 advertising finger-prick Covid-19 tests that could be used at home and in schools, when in actuality the tests could be administered only in consultation with a medical professional and were not intended for home use by the general public. Moreover, the company failed to disclose the product was not authorized by the U.S. Food and Drug Administration. In the second complaint, the SEC alleges a company and its owner issued press releases claiming to sell, through a public and private partnership, thermal scanning equipment to detect fevers, that would help to “break[] the chain of virus transmission through early identification of elevated fever, one of the key early signs of COVID-19.” However, the SEC argues the company did not have an agreement to sell the product, nor did it have a partnership with any government entities.
In both complaints, the SEC alleges that the false or misleading statements materially affected the price of each company’s stock after the releases were made. The SEC is seeking permanent injunctive relief and civil penalties against both companies.
Fed details Covid-19 economic strain on households and financial sector
On May 14, the Federal Reserve Board (Fed) issued the latest Report on the Economic Well-Being of U.S. Households, which outlines the results of an October 2019 survey of over 12,000 adults. Notably, the Fed included supplemental data from an April 2020 survey of 1,000 adults, which caused the Fed to state that financial conditions “changed dramatically for people who experienced job loss or reduced hours during March 2020 as the spread of COVID-19 intensified in the United States.” Highlights of the supplemental data include: (i) 19 percent of all adults reported either losing a job or experiencing a reduction in work hours in March; and (ii) among the adults who experienced a job loss or had hours cut in March, 51 percent indicated they were at least “doing okay” financially, while 48 percent were “finding it difficult to get by” or “just getting by.”
Additionally, on May 15, the Fed released its Financial Stability Report, which focuses on the effect of the Covid-19 pandemic on U.S. financial stability and discusses the Fed’s response. The report notes that due to the Covid-19 pandemic, “disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit” and that the banking sector “may experience strains as a result,” even though it had large capital and liquidity buffers before the shock. Overall, the Fed concludes that the outlook for the pandemic and economic activity is “uncertain.” The report also notes that (i) asset prices remain vulnerable to significant price declines; (ii) the issuance of high-yield corporate bonds and the origination of leveraged loans appear to have slowed appreciably; (iii) the prospect for losses at financial institutions appears elevated; and (iv) while funding markets proved less fragile than during the 2007-09 crisis, Fed actions were required to stabilize short-term funding markets.
Federal Reserve issues FAQs on recent Regulation D changes
On May 13, the Federal Reserve published updated frequently asked questions (FAQs) regarding savings deposits under the recent changes to Regulation D. On April 23, the Federal Reserve issued an interim final rule amending Regulation D, which we previously covered here. Among other things, the interim rule deleted restrictions on transfers to address financial disruptions related to Covid-19. The FAQs clarify the definition of a savings deposit under the regulation, requirements for reporting savings deposits, reservation rights, and whether amendments to Regulation D impact Regulation CC.
Wisconsin Supreme Court strikes down state’s stay-at-home order
On May 13, the Wisconsin Supreme Court ruled that the state’s stay at home order was invalid and unenforceable. In a 4-3 decision, the court held that the state’s health services secretary exceeded her authority when issuing the order because she did not follow guidelines in place for emergency rule procedures when issuing the rule. The court further concluded that, even if emergency rulemaking were not required, the order’s requirements for all people to stay in their homes and the closure of businesses exceeded the secretary’s statutory authority. The ruling took immediate effect, lifting the state’s stay-at-home order.
FinCEN renews GTOs covering 12 metropolitan areas
On May 8, the Financial Crimes Enforcement Network (FinCEN) reissued the renewal of its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the November 2019 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The GTOs do not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.
The renewed GTOs take effect May 10, will extend until November 5, 2020, and cover certain counties within the following areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
FinCEN FAQs regarding GTOs are available here.
Agencies finalize policy changes to CECL
On May 8, the FDIC, Federal Reserve Board, OCC, and NCUA finalized an interagency policy statement on allowances for credit losses and interagency guidance on credit risk review systems. As previously covered by InfoBytes, the proposed policy statement and interagency guidance were released in October 2019.
The final policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology. The CECL methodology determines allowances for credit losses applicable to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. The final policy statement becomes applicable to an institution upon that institution’s adoption of a CECL methodology.
The interagency credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—updates the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.
See also FDIC FIL-54-2020 and FIL-55-2020 and OCC 2020-49 Bulletin and 2020-50 Bulletin.
Texas regulator extends reporting deadlines for property tax lenders, urges working with borrowers
On May 13, the Texas Office of Consumer Credit Commissioner revised an advisory bulletin (previously discussed here) for property tax lenders, which sets forth guidance regarding annual report deadlines, electronic signatures, activity from unlicensed locations, and working with borrowers, including by increasing communications, working out modifications, waving late charges, and suspending foreclosures, among other things.
SBA issues IFR extending PPP Safe Harbor
The Small Business Administration (SBA) recently issued an interim final rule (IFR) to supplement the CARES Act and extend the Paycheck Protection Program (PPP) safe harbor for repayment from May 7 to May 14. Borrowers who received a PPP loan prior to April 24 but determined that the funds were “obtained based on a misunderstanding or misapplication of the required certification standard” will be deemed by the SBA to have made the borrower certification on a loan application in good faith if they repay the loans in full by May 14. Additional guidance on the safe harbor extension is forthcoming. (The SBA first announced the repayment extension last week in updated Frequently Asked Questions, covered by InfoBytes here.) Due to the safe harbor extension, the IFR also extends the deadline to May 22 for PPP lenders to file yet-to-be released Form 1502 in order to receive their lender processing fees. As previously covered by InfoBytes, the SBA stated that PPP lenders must disburse each loan and submit SBA Form 1502 within 20 days of loan approval. The IFR takes effect upon publication in the Federal Register, with comments due within 30 days.
CFPB issues policy statement on billing error responsibilities, two sets of Covid-19 FAQs
On May 13, the CFPB released a policy statement and two FAQ documents outlining the responsibilities of financial firms during the Covid-19 pandemic. The policy statement covers Regulation Z’s billing error resolution timeframe in light of the operational disruptions faced by many merchants and small businesses, causing delays in responses to creditors’ inquiries and thus making it difficult for creditors to accurately and timely resolve consumers’ billing error notices. The statement emphasizes that the CFPB will be flexible with its supervisory and enforcement approach during the pandemic as it relates to billing error resolution set forth in §1026.13(c)(2), stating “the Bureau intends to consider the creditor’s circumstances and does not intend to cite a violation in an examination or bring an enforcement action against a creditor that takes longer than required by [Regulation Z] to resolve a billing error notice, so long as the creditor has made good faith efforts to obtain the necessary information and make a determination as quickly as possible, and complies with all other requirements pending resolution of the error.” The Bureau notes that creditors are still expected to fully comply with the other requirements of billing error disputes in Regulation Z.
The Bureau also released payment and deposit rule FAQs related to the Covid-19 pandemic, which state that financial or depository intuitions may change account terms due to the pandemic so long as they provide appropriate notice to consumers. However, if a change is favorable to the consumer, it can be implemented immediately without advance notice. Additionally, the Bureau released open-end (not home-secured) rule FAQs related to the Covid-19 pandemic, which state that creditors may change account terms in response to the pandemic but most changes will require advance notice. However, changes that may help a consumer in need—such as reducing a finance charge—do not require advance notice.