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COVID-19 and Economic Stabilization Act, Foreclosures, Disaster Assistance Loans, and Consumer Class Actions

The devastating impact of the Coronavirus (COVID-19) needs no introduction.  BCLP has consolidated all of its client alerts regarding Coronavirus (COVID-19) as one page of resources. On that page, you can also limit by topic area, jurisdiction and areas of practice.

In this post, which is the second of many, we have highlighted some of the client alerts that we believe may be of specific importance to our community bank clients.

Economic Stimulus under the U.S. Coronavirus Economic Stabilization Act of 2020

The Coronavirus Economic Stabilization Act of 2020, Title IV of the CARES Act provides, among other things, $500 billion to the U.S. Treasury’s Exchange Stabilization Fund to provide loans, loan guarantees, and other investments in support of eligible businesses, States and municipalities and subsidies necessary for such loans, loan guarantees and other investments. This alert summarizes what impact the Stabilization Act may have on businesses and whether those businesses may be eligible for assistance.

Foreclosure and Receiver Issues in the United States during COVID-19

This alert provides an overview of the responses of courts and local and state governments of certain jurisdictions, as well as of the federal government, to the COVID-19 outbreak. The analysis has a particular focus on mortgage foreclosures and evictions, particularly in the commercial context, although information and guidance remains limited. Effects on residential foreclosures and evictions have been included as governments have tended to provide protection to residential properties first. Eventually, more state and local governments may provide guidance as to commercial foreclosures and evictions

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COVID-19 and Mortgage Lenders and Services, MAC Clauses in Loan Agreements, Fair Credit Reporting Act Changes, and Employee Benefit Considerations

The devastating impact of the Coronavirus (COVID-19) needs no introduction.  Community banks across the country are feeling the impact, both as small business themselves, and as providers of credit to so many other small businesses. The impacts of COVID-19 and the legislative responses to COVID-19 are increasingly broad, and affecting almost every aspect of American life. The lawyers of Bryan Cave Leighton Paisner (BCLP) are working to address those issues for companies of all sizes and industries, throughout the word.

As we collectively respond to the developing COVID-19 outbreak, the well-being of our clients and colleagues remains our paramount concern. We continue to closely monitor governmental, CDC, and WHO guidelines on travel, exposure and preventative measures and our firm has instituted a number of internal measures to ensure that BCLP is able to continue to consistently serve our clients’ business needs.  You can read more about the steps we have taken here.

In addition, BCLP has consolidated all of its client alerts regarding Coronavirus (COVID-19) as one page of resources. On that page, you can also limit by topic area, jurisdiction and areas of practice.

In this post, which is the first of many, we have highlighted some of the client alerts that we believe may be of specific importance to our community bank clients.

COVID-19: The New Frontier for Mortgage Lenders and Servicers in the U.S.

Most mortgage lenders and servicers already have business continuity plans in place, but those plans may not fully address the dynamics of the COVID-19 crisis.  Typical contingency plans ensure operational effectiveness following events like natural disasters, cyberattacks, and the like.  They do not, in many respects, account for widespread quarantines, extended business closures, and mass job borrower job loss and income disruption, among other things.  Beyond business continuity, lenders and servicers must grapple with evolving regulatory requirements, the risk of downstream regulatory and litigation scrutiny for actions taken today, and management of reputational risk.  This alert details the key regulatory developments, issues and risk mitigation strategies lenders and servicers should consider.

Enforcement of MAC Clauses in Loan Agreements in Light Of COVID-19 and Related Business Disruption

Material adverse change clauses in loan agreements present important issues that borrowers and lenders alike need to consider carefully in this environment.  There are very few published decisions on enforcement of MAC clauses in the lending context and no published cases addressing a pandemic-type situation like the one we are currently facing. A lender that invokes a MAC clause may seek to declare a default under the loan as a prelude to an enforcement action or to avoid funding, or further funding, its loan to the borrower.  Lenders are often confronted with extreme time pressure when a funding request is involved, which makes these situations even more challenging. This alert addresses whether COVID-19 and the resulting business disruption may be reasonably considered a MAC in a typical commercial loan. 

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COVID-19: Due Date Not Extended for Federal Information Returns

In an effort to provide relief to individuals affected by the COVID-19 emergency, the Secretary of the Treasury extended the due date for filing Federal income tax returns and making Federal income tax payments from April 15, 2020 to July 15, 2020 in IRS Notices 2020-17 and -18. However, the Notices did not provide an extension for the filing of any Federal information returns.

Therefore, all Federal information returns, including Form 5498, Form 1099-INT, Form 1099-OID, Form 1099-R, and Form 1099-B, should be filed by their normal due dates.

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What Businesses and Community Banks Need to Know About the CARES Act, SBA Lending, and Loan Forgiveness

The CARES Act has significant relief for small businesses, including $349 billion in Small Business Administration (SBA) loan guaranties and subsidies and additional funding for SBA programs. Highlights include: 

  • Expansion of SBA’s 7(a) Loan Program to Support New “Paycheck Protection Program” Loans. The SBA’s existing 7(a) program will see:
    • Increase in maximum loan amount to $10 million.
    • Allowable uses expanded to include:
      • Payroll support (including paid sick or medical leave);
      • Employee salaries;
      • Mortgage, rent and utility payments;
      • Insurance premiums; and
      • Other debt obligations. 
  • Loan Forgiveness. Certain borrowers would be eligible for loan forgiveness equal to the amount spent during an eight-week period after the origination date of the loan on:
    • Payroll costs;
    • Interest payment on any mortgage incurred before Feb. 15, 2020;
    • Rent on any lease in force before Feb. 15, 2020; and
    • Utilities for which service began before Feb. 15, 2020.

The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of prior year compensation.

  • Subsidies for Certain Existing SBA 7(a) Loans
  • Special Terms for SBA Loans.
    • No personal or collateral guarantee will be required.
    • The eligible recipient does not have to certify that it is unable to obtain credit elsewhere.
    • Eligible borrowers must make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; that funds will be used for a permitted purpose; and that they are not receiving fund from another SBA program for the same uses.
    • Maximum term of loan is 10 years.
    • Interest rate cannot exceed 4% but interest payments are completely deferred for 1 year.
    • No prepayment penalty.

Who Qualifies?

The CARES Act program covers business with 500 or fewer employees, unless the covered industry’s SBA size standard allows more than 500 employees, which were operational on Feb. 15, 2020. The size standards are tested on an affiliate basis—combined with all businesses under common control (50% ownership or contractual control)—counting on an aggregate basis towards the size test, except for hospitality and restaurant businesses, franchises, and recipients of Small Business Investment Company (SBIC) investment.

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Bank Regulatory Provisions in the CARES Act

On March 25, 2020, senators released an updated draft of the Coronavirus Aid, Relief, and Economic Security Act (a.k.a the “CARES Act”) (the acronym is so much better than EGRRCPA!) to provide emergency assistance and health care response for individuals, families, and businesses.  Bryan Cave Leighton Paisner’s initial review of the overall Act is available here.

The current draft contains a number of bank regulatory provisions of potential interest to financial institutions of all sizes.

Section 4008 – Debt Guaranty Authority.  Authorizes FDIC to re-implement transaction account guarantee program, subject to cap on amounts insured.  In the 2008 financial crisis, the FDIC provided unlimited insurance for amounts held in noninterest-bearing transaction accounts (i.e. checking accounts that don’t pay interest).  Dodd-Frank prohibited the FDIC from every doing that again.  The CARES Act authorizes the FDIC to provide the program again through December 31, 2020.  Current draft of legislation limits coverage to “a maximum amount” without specifying the amount.  Effectiveness will require FDIC action.  Current draft of legislation also allows the NCUA to provide comparable insurance for credit unions, and permits the NCUA to provide insurance on an unlimited amount in such accounts.  Since its formation, no depositor has ever lost a penny of FDIC-insured funds.

Section 4014 – Optional Temporary Relief from Current Expected Credit Losses.  No financial institution or holding company shall be required to comply with FASB’s current expected credit loss methodology (i.e. CECL) (which otherwise is scheduled to become effective for the largest public bank holding companies for Q1 2020).  Effective from adoption of the Act and ending on the earlier of December 31, 2020 or the termination date of the national emergency. 

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Banking Regulators Clarify TDR Relief for COVID-19 Modifications

On March 18, 2020, the FDIC issued guidance in its Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 indicating the potential for relief from the Troubled Debt Restructuring (TDR) reporting requirements.

Financial institutions should determine whether loans with payment accommodations made to borrowers affected by COVID-19 should separately be reported as TDRs in separate memoranda items for such loans in regulatory reports. A TDR is a loan restructuring in which an institution, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. However, a loan deferred, extended, or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not reported as a TDR.

FDIC FAQ published March 18, 2020

While appreciated, that guidance left a lot of discretion to the regulators to second guess the interpretations by financial institutions and essentially just repeated existing guidance. On Sunday, March 22, 2020, the federal banking regulators collectively issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. This new Interagency Statement fortunately goes further.

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Financial Services Regulators Respond to COVID-19

March 21, 2020

Categories

In just a few short weeks, COVID-19 has had far reaching impacts on public health and the global economy. Regulators overseeing banks and non-bank financial services companies are trying to maintain operations, adapt oversight models and promulgate COVID-19 crisis-specific directives and guidance.

As with the crisis itself, these developments are fast-moving. We anticipate facts and details to change from day-to-day. To be clear, this is the first post on COVID-19 on BankBCLP.com, but it will most certainly not be the last. On our firm website, we are tracking regulatory developments that could have a broad impact across the industry.

BCLP Summary of Financial Services COVID-19 Regulatory Response

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2019 Year in Review for Financial Services Class Actions

This Roundup provides a recap of a variety of key developments and summarizes a number of interesting federal case rulings. It is not an exhaustive survey of rulings in state and federal courts nationwide, but should help provide flavor for the current environment as we look forward to 2020. Highlighted in this issue:

  • CFPB Director Kraninger’s 2019 Priorities and 2020 Constitutionality Developments
  • Federal Case Developments of Note
  • 2020 Issues to Watch
  • FTC 2019 Class Notice Study

Access the full 2019 Year in Review here.

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In Memory of Walt: Beware the False Assumptions!

March 4, 2020

Categories

One year ago today, on March 4, 2019, we lost our patriarch, colleague and friend, Walt Moeling.  I don’t know that any client situation, much less a working day, goes by without each of us thinking about how Walt would have handled it.

On one hand, that makes the writing of this blog post one of the more difficult assignments.  On the other hand, I have the good fortune of knowing exactly what Walt thinks about this post (albeit in a wholly different context).  I wrote the first draft of this post almost five years ago.  After sharing with Walt, he commented that he liked the concept, but didn’t want it to be “all about him.”  The post then got added to my ever-growing “blog post ideas” folder, potentially never to be seen again.

But this post is supposed to be all about Walt, so I’m happy to publish it now.

One advantage of Bryan Cave Leighton Pasiner’s banking practice is our depth and camaraderie.  Based on what Walt Moeling and Kathryn Knudson have built over the last 40+ years, we have a breadth of experience that few can match.

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Survey of Banks’ Privacy Practices

To help identify trends in privacy representations, Bryan Cave Leighton Paisner LLP reviewed the websites and privacy notices of Fortune 500 companies identified as primarily engaged in the banking and financial service sectors.

The following summarizes current industry trends: 

  • The vast majority of companies updated their privacy notices to account for the California Consumer Privacy Act (CCPA).
  • Financial institutions are complying with some, but not all, of the enumerated category disclosures required by the CCPA.
  • While only one financial institution stated that they sold personal information, one in five financial institutions failed to clearly articulate whether they did, or did not, sell data.
  • The vast majority of bank and financial institution websites do not include a “Do Not Sell” option.
  • The single financial institution that disclosed that it sold information did comply with the CCPA’s requirement to provide a “Do Not Sell” option.
  • Most banks and financial service companies offered access and deletion rights.
  • The average quantity of behavioral advertising cookies on a bank / financial service company homepage is 10.6.
  • Only one in twelve banks and financial institutions are deploying a cookie notice that seeks opt-in consent.
  • Increased use of adtech cookies negatively correlates to the deployment of an opt-in cookie notice.
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