CARES Act lending issues
PPP, loan forbearance, and Fair Lending come to the fore.
From a compliance perspective, 2020 started as any other year: waiting for the National Credit Union Administration's (NCUA) annual Letter to Credit Unions (LCU 20-CU-01) detailing the agency’s supervisory priorities for the upcoming year.
No one realized the coronavirus (COVID-19) pandemic would soon turn compliance officers, credit unions, our country, and the world upside down. To reflect this, NCUA issued a July update to the supervisory priorities via LCU 20-CU-22.
Where do credit unions and boards focus? How do you stay in compliance in this quickly evolving environment with so many regulatory changes?
A good starting point is to evaluate lending issues as a result of Coronavirus Aid, Relief, and Economic Security (CARES) Act provisions and other operations and governance matters.
These issues include:
Paycheck Protection Program
The CARES Act’s Paycheck Protection Program (PPP) offers potentially 100% forgivable, low-interest loans to eligible small business borrowers impacted by COVID-19 to retain and pay employees, and pay mortgage interest, rent and utilities.
SBA has issued 24 interim final rules to provide PPP guidance to lenders and borrowers. A June interim final rule makes revisions to the loan forgiveness guidance and SBA loan review procedures guidance.
This includes allowing borrowers to use proceeds from PPP loans for eligible nonpayroll costs in an amount not to exceed 40% of the loan amount to be eligible for full loan forgiveness, an increase from the original 25%.
PPP borrowers should anticipate a review of their calculations by a certified public accountant to confirm they’re achieving the highest possible forgiveness amount for which they’re eligible.
Congress is considering several proposals for a revived PPP (which closed on August 8), including additional funding and second draw loans for the hardest-hit small businesses.
The CARES Act required lenders to forgive federally backed mortgages for up to 180 days (borrowers can request an additional 180 days), and credit unions were left scrambling to implement these new mandates.
Fortunately, agencies have expressed flexibility regarding issues such as structuring forbearance requests, modification versus restructuring, escrow payments, and force-placed insurance.
FCRA temporary amendments
The CARES Act amended the federal Fair Credit Reporting Act (FCRA) to impose temporary COVID-19 reporting requirements on furnishers of information to consumer reporting agencies.
The provision applies to “accommodations” made from Jan. 31, 2020, until the later of 120 days after March 27, 2020, or 120 days after the date the national emergency is terminated.
Credit unions that make an “accommodation” (e.g., payment deferral, loan modification, etc.) on a credit obligation or consumer account should continue to report the account as “current” if the member fulfills the terms of the accommodation.
UDAAP and Fair Lending
With interest rates at all-time lows and many members experiencing the need to access cash due to financial hardship, refinances are reaching record highs again. As a result, many lenders face resource constraints and may have to limit refinancings, picking and choosing which members to serve.
This situation is ripe for Fair Lending issues if lenders serve some members over others. Approach these decisions in a fair and equitable manner to avoid Fair Lending issues when selecting who to serve across the membership.
JARED IHRIG is chief compliance officer for Credit Union National Association.