COVID-19 and Mortgage Lenders and Services, MAC Clauses in Loan Agreements, Fair Credit Reporting Act Changes, and Employee Benefit Considerations
March 28, 2020
Authored by: Robert Klingler
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.
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.
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.