Lenders, borrowers have new opportunities under CARES Act

The recent Coronavirus Aid, Relief, and Economic Security (CARES) Act has contributed major changes and a call to action for financial institutions across the United States. Consumers feeling the effects of unemployment caused by COVID-19 are strongly encouraged to reach out to their lenders to discuss their individual situation and current debt obligations.

Financial institutions that previously did not participate in the Small Business Administration (SBA) lending programs are discussing if now is the time to register, since the SBA is streamlining its processes to enable the institution to offer assistance for small businesses. The institutions that become registered or are already registered can then provide their current small business owners with access to funds earmarked to help small businesses meet payroll obligations and enough aid to hopefully sustain the business during this uncertain time.

For consumers

Title II of the CARES Act addresses assistance for American workers, families, and businesses. The section provides pandemic unemployment assistance through Dec. 31, 2020, and it provides payment to those not traditionally eligible for unemployment benefits such as the self-employed, independent contractors, those with limited work history, and others who are unable to work as a direct result of the coronavirus public health emergency.

While this is a positive, the delay in receipt of the unemployment benefit may still cause a consumer to become delinquent on a current debt obligation. Institutions are encouraged to work with their customers on an individual basis to assess if the situation warrants workout strategies such as forbearance or modification of terms to assist the customer.

When considering COVID-19 related modifications, the interagency statement issued on March 22, 2020 was revised on April 7, 2020 (FIL 36-2020 Revised Interagency Statement on Loan Modifications by Financial Institutions Working with Customers affected by the Coronavirus) to clarify the interaction between the March 22, 2020, interagency statement and section 4013 of the CARES Act, Temporary Relief from Troubled Debt Restructurings (section 4013), as well as the agencies’ views on consumer protection considerations. The agencies will continue to communicate with the industry as this situation unfolds, including through additional statements, webinars, frequently asked questions, and other means, as appropriate.

FIL 36-2020 ends with the following statement: When working with borrowers, lenders and servicers should adhere to consumer protection requirements, including fair lending laws, to provide the opportunity for all borrowers to benefit from these arrangements. (In addition to the CARES Act, to the extent applicable, other actions taken by federal and state entities may result in certain consumer protections for borrowers.)

When exercising supervisory and enforcement responsibilities, the agencies will take into account the unique circumstances impacting borrowers and institutions resulting from the National Emergency. The agencies will take into account an institution’s good-faith efforts demonstrably designed to support consumers and comply with consumer protection laws.

The agencies expect that supervisory feedback for institutions will be focused on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers. The agencies do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to the National Emergency and that the institution made good faith efforts to support borrowers and comply with the consumer protection requirements, as well as responded to any needed corrective action.

Section 4021 of the act requires furnishers to credit reporting agencies who agree to account forbearance, or agree to modified payments with respect to an obligation or account of a consumer impacted by COVID-19, report such obligation or account as “current” or as the status reported prior to the accommodation during the period of accommodation. This only applies to accounts for which the consumer has fulfilled requirements pursuant to the forbearance or modified payment agreement. Such credit protection is stated as being available beginning Jan. 31, 2020, and ends at the later of 120 days after enactment or 120 days after the date the national emergency declaration related to the coronavirus is terminated.

For more information, please refer to the Consumer Financial Protection Bureau’s policy statement.

The joint statement issued by the Federal Reserve on March 26, 2020, also encouraged institutions to consider small-dollar lending. The statement recognizes responsible small-dollar loans can play an important role in meeting customers’ credit needs because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries. Such loans can be offered through a variety of structures including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.

A joint statement made on March 19, 2020, encouraged financial institutions to meet the financial services needs of their customers affected by COVID-19 by informing institutions the agencies will favorably consider retail banking and lending activities that meet the needs of affected low- and moderate-income individuals, small businesses, and small farms for Community Reinvestment Act (CRA) purposes, consistent with safe and sound banking practices and applicable laws, including consumer protection laws. The agencies are working on future guidance and lending principles for responsible small-dollar loans to facilitate the ability of banks, credit unions, and savings associations to more effectively meet the ongoing credit needs of their customers, members, and communities.

For small businesses

Financial institutions are encouraged to learn more and how to access the new programs using the FDIC’s coronavirus page. The two main programs identified include the Economic Injury Disaster Loan program under Section 7(b) of the Small Business Act, which provides funds to cover economic injury resulting from the disaster, such as loss of revenue; and the Paycheck Protection Program, which provides loans to encourage certain qualified small businesses to retain employees through the COVID-19 pandemic and includes loan forgiveness subject to certain conditions.

FIL-33-2020 issued by the FDIC on April 2, 2020, addresses the new SBA and Treasury programs available for small business relief. The summary provided in the letter identifies multiple forms of relief available in the CARES Act to small businesses through programs administered, not only by the SBA but also the U.S. Department of the Treasury. The FDIC is encouraging financial institutions to consider using these programs in a prudent manner as they actively work with small business borrowers with less flexibility to weather near-term operational challenges due to the Coronavirus Disease 2019 (referred to as COVID-19).

Per the website for the Small Business Administration, the SBA works with local partners to counsel, mentor and train small businesses. The SBA has 68 District Offices, as well as support provided by Resource Partners, such as SCORE offices, Women’s Business Centers, Small Business Development Centers and Veterans Business Outreach Centers. Click here for the SBA’s Local Assistance Directory.

Information is also available online regarding the Treasury’s small business loan programs. The information on the website helps guide users interested in the Paycheck Protection Program implemented by the SBA and further directs lenders to visit www.sba.gov or www.coronavirus.gov for more information.

The Tennessee Bankers Association has provided its own COVID-19 Resources page, which includes recent recordings of conference calls discussing the challenges being faced by the state’s financial institutions and federal regulators.

For information about how these changes could affect you, reach out to us at KraftCPAs. Remember, #weareinthistogether.

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