On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Among the provisions of this wide-reaching legislation designed to address the COVID-19 pandemic are several which directly impact financial institutions, including:

The Payment Protection Program is implemented under the Small Business Act and provides for fully guaranteed loans through December 31, 2020 to businesses with 500 or fewer employees, who were in operation as of February 15, 2020 and adversely affected by COVID-19, to maintain, among other things, payroll, mortgage payments, lease payments, and utility payments. The program is available to SBA lenders and other insured depository institutions and credit unions authorized by the Department of the Treasury. (Sections 1102, 1109)

The Bankruptcy Code is amended to provide small businesses with more access to the Small Business Reorganization Act, increasing the amount of debt eligibility for a small business bankruptcy case from $2,725,625 to $7,500,000. The link to our prior Financial Services Department newsletter. The amendments, among other things, allow debtors to exclude federal payments related to COVID-19 from income determinative of bankruptcy eligibility and Chapter 13 debtors to modify their plans for up to seven years instead of the usual maximum of five years. These provisions remain in effect for one year following enactment of the CARES Act. (Section 1113)

The Debt Guarantee Authority of the Federal Deposit Insurance Corporation under the Dodd-Frank Wall Street Reform and Consumer Protection Act is amended to establish a program to guarantee obligations beyond the current maximum of $250,000 through December 31, 2020. In coordination with the FDIC, the National Credit Union Administration Board may increase the share insurance coverage as applied to federally insured credit unions. The CARES Act does not identify a specific limit, although there is speculation that the FDIC, which is authorized to implement the debt guarantee program, may provide an unlimited guarantee during this time period. We will provide an update once the FDIC issues guidance on the guarantee limit. (Section 4008)

The Temporary Lending Limit Waiver is an amendment to the Financial Stability Act which provides the Comptroller of the Currency authority with respect to national banking associations to exempt any transaction from the single borrower loan limit for loans made to any nonbank financial company, and additional authority to exempt any other transaction from the limit as long as such exemption is in the public interest. This authority ends the earlier of the termination of the national emergency declared on March 13, 2020 or December 31, 2020. (Section 4011)

The Temporary Relief For Community Banks is an amendment to the Economic Growth, Regulatory Relief, and Consumer Protection Act and requires federal banking agencies to issue an interim final rule which lowers the Community Bank Leverage Ratio from 9% to 8% while granting qualifying community banks a “reasonable grace period to satisfy the Community Bank Leverage Ratio.” The interim rule will be effective upon issuance and terminate the earlier of the termination of the national emergency declared on March 13, 2020 or December 31, 2020. (Section 4012)

The Temporary Relief From Troubled Debt Restructurings provision of the CARES Act allows financial institutions, including credit unions, to temporarily suspend requirements under United States Generally Accepted Accounting Principles for any loan modifications made related to COVID-19 that would otherwise be considered troubled debt restructuring. The suspension period lasts from March 1, 2020 to the earlier of sixty days after the date of termination of the national emergency declared on March 13, 2020 or December 31, 2020. (Section 4013)

The Optional Temporary Relief From Current Expected Credit Losses provision of the CARES Act grants financial institutions, including credit unions, the option to temporarily delay measuring credit losses under the new Current Expected Credit Losses (CECL) standards. This temporary relief ends the earlier of the date on which the national emergency declared on March 13, 2020 is terminated or December 31, 2020. (Section 4014)

The Credit Protection During COVID-19 provision of the CARES Act amends the Fair Credit Reporting Act to require a person furnishing information under the FCRA to report as “current” a credit obligation or account if an “accommodation” was made by the furnisher. Except in the case of charge-off, if the consumer’s credit obligation was delinquent prior to an “accommodation,” the furnisher is required to maintain the delinquent status during the accommodation period, and report the obligation or account as “current” if the consumer brings the account current during the accommodation period. The covered period begins Jan. 31, 2020 and ends the later of 120 days after enactment of the CARES Act or 120 days after the national emergency declared on March 13, 2020 is terminated. (Section 4021)

In a separate update, we will provide information on Forbearance of Residential Mortgage Loan Payments For Multifamily Properties with Federally Backed Loans (Section 4023), as well as state and local measures impacting lenders holding loans secured by multifamily properties.

We will continue to closely monitor developments in this arena. Please feel free to contact us if you have any questions or require any assistance. In the meantime, please stay safe.