SBA Issues Interim Final Rule Implementing PPP Changes

The Small Business Administration last Thursday issued an interim final rule implementing changes to the Paycheck Protection Program that were included in the American Rescue Plan law enacted earlier this month. The IFR will take effect upon publication in the Federal Register.

Among other things, the IFR changes the interplay between the Shuttered Venue Operator (SVO) Grant Program and the PPP. Under the IFR, borrowers who received a first- or second-draw PPP loan after Dec. 27, 2020, and have been subsequently approved for an SVO grant will have the SVO grant reduced by the amount of the PPP loan. If a PPP applicant is approved for an SVO grant before SBA issues a loan number for the PPP loan, the applicant is ineligible for the PPP loan and acceptance of any PPP loan proceeds will be considered an unauthorized use.

In addition, the IFR makes several clarifications and changes, including:

The addition of businesses with an NAICS code beginning with 72 that employ no more than 500 employees per physical location to the list of entities eligible for first-draw PPP loans.
A clarification that electric cooperatives and telephone cooperatives are eligible if they have no more than 300 employees per physical location.
A clarification that electric cooperatives and telephone cooperatives are no longer permitted to use the employee-based SBA size standard for their industry or SBA’s alternative size standard to determine size.
Additional detail on the types of payroll costs that are not eligible for loan forgiveness.

Read the IFR. For more information, email [email protected].

SBA Updates PPP Borrower Forms to Reflect Recent Changes

The Small Business Administration has issued several updated forms for Paycheck Protection Program borrowers and lenders, reflecting changes announced in the most recent interim final rule. The changes were included in the American Rescue Plan law that was enacted earlier this month. Among other things, the IFR changed the interplay between the Shuttered Venue Operator Grant Program and the PPP. It also addressed the types of businesses eligible to receive first-draw PPP loans, and the eligibility of electric cooperatives and telephone companies. It also provided additional details on the types of payroll costs that are not eligible for loan forgiveness.

The updated forms include:

Read the IFR.

State Bankers Associations Raise Concerns About 90-Day PPP Forgiveness Window

Fifty-one state bankers associations on Monday urged the Small Business Administration to provide clarity about the status of Paycheck Protection Program loans that have surpassed the 90-day period by which SBA is required to provide a decision on whether to forgive the loan, under a January 2021 interim final rule. The groups urged SBA to immediately review all loans that have been in review for more than 90 days.

“We have heard repeatedly from our members across the country that SBA has exceeded this regulatory deadline, sometimes by weeks or months,” the state associations said. “When lenders inquire with SBA, they are often met with silence about when SBA’s review will conclude and whether the loans in question will be forgiven. This lack of information leaves the small business borrowers in a state of uncertainty and without the ability to fully utilize their capital resources while they wait for a decision from SBA.” Read the letter.

Agencies Allow Temporary Supplementary Leverage Ratio Change to Expire

With the acute phase of the coronavirus crisis past and a return to normal economic activity in sight, the federal banking agencies last Friday said they would let a temporary change to the supplementary leverage ratio expire as scheduled on March 31. In May 2020, the agencies allowed depository institutions to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio (SLR), which facilitated banks increasing their balance sheets to support consumers and businesses.

While the Treasury market has stabilized, the Federal Reserve noted that as a result of “recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability.” The Fed said it would “shortly seek comment on measures to adjust the SLR” for an environment with higher reserves and “take appropriate actions to assure that any changes to the SLR do not erode the overall strength of bank capital requirements.”

ABA continues to encourage agencies to consider extending their pandemic response measures, including the SLR and community bank leverage ratio, that make bank balance sheets more flexible during times of stress. The association welcomes a review of potential leverage ratio improvements that will enable banks to remain a source of strength. Read more. For more information, contact ABA’s Hu Benton.

House Lawmakers Reintroduce Bill to Leverage Playing Field Between Banks, FCS

Reps. Ron Kind (D-Wis.) and Randy Feenstra (R-Iowa) last week introduced the ABA-backed Enhancing Credit Opportunities in Rural America (ECORA) Act. The bill, H.R. 1977, would end the taxation of interest earned from agricultural real estate loans.

This would not only reduce servicing costs for community banks providing these types of loans, it would also level the playing field between banks and the tax-advantaged Farm Credit System—making it easier for banks to support the farm sector through real estate loans. The ECORA Act was introduced during the prior Congress.

“By removing this taxation, the cost to make farm and ranch real estate loans will be reduced and the savings will be passed on to farmer and rancher customers,” the ABA said, noting that ECORA could reduce the average interest rate on a farm and ranch real estate loan by 21%.

ABA Urges Bankers to Oppose NCUA CUSO Proposal

The ABA is calling on bankers to write to the National Credit Union Administration (NCUA) to oppose a proposed rule that would expand the range of permissible lending activity for credit union service organizations (CUSO). The proposed rule would allow CUSOs to originate any type of loan a federal credit union may originate, including auto and payday loans.

The proposal also seeks comment on broadening federal credit unions’ investment authority in CUSOs. As CUSOs may serve people who are not members of a credit union, the expanded authority would undermine credit union field-of membership restrictions.

The proposal also creates safety and soundness and consumer protection risks, as NCUA has no examination or oversight authority over CUSOs, so there is no mechanism to hold them accountable for unsafe and unsound practices or violations of federal consumer financial protection laws. Comments on the proposal are due March 29. ABA has provided a sample comment letter for bankers to easily complete and send through its grassroots platform, Secure American Opportunity. Take action now.

Hacker Hour: The Importance of Patch Management

Most organizations rely on vendors that frequently develop and issue patches to correct bugs, improve performance or enhance the security of their software. While organizations are looking to identify and protect against any identified vulnerabilities, cyber criminals are racing to exploit them before any patches are launched.

According to the Ponemon Institute, 57% of cyber attack victims say an available patch could have prevented their breach. Even further, 34% of respondents were already aware of the vulnerability before they were attacked.

Join SBS CyberSecurity on Wednesday, March 31, at 2 p.m. CDT for the free webinar Hacker Hour: The Importance of Patch Management. SBS will discuss the importance of patch management, what is holding organizations back from timely patching and what you can do to help your organization improve its patch management program. Register for the webinar.

Early Registration Deadline Nearing for Tri-State Trust Conference

Trust officers from three states will gather virtually to learn from experts and one another at the 2021 Tri-State Trust Conference on April 28-29. The early registration deadline to receive a welcome gift is Thursday, April 1. The final deadline to register is April 21.

Keynote sessions include "Two Timely Retirement Planning Topics" by Sharon Carson with J.P. Morgan, "Economic Assessment and Fixed Income Outlook" by Linda Duessel with Federated Hermes, "Point of View: The Economy, Markets and Investment Strategy" by Fritz Meyer with Point of View and "2021 Tax and Estate Planning: What to Tell Clients Now" by Martin Shenkman with Shenkman Law.

Both days will include a morning session (9:30-11:30 a.m. CDT) and an afternoon session (1-3 p.m. CDT). 2021 Tri-State Trust Virtual or Trust Conference Online Registration Form

Question of the Week

Question: Bank ABC has a new business customer that will require flood insurance. Their insurance agent just sent over what they are saying is their flood policy. However, it looks like it is just an endorsement under their business policy. Is that acceptable or should Bank ABC request a separate policy?

Answer: The bank would want to review it and determine whether to accept this under the private flood insurance policy. The only time the Bank would "have" to accept it is if it meets the mandatory acceptance requirements as set out below:

“Mandatory Acceptance

Under the regulation, “private flood insurance” means an insurance policy that: is issued by an insurance company that is licensed, admitted or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located, or
is recognized, or not disapproved as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property;
provides flood insurance coverage that is at least as broad as the coverage provided under the NFIP’s Standard Flood Insurance Policy (SFIP) for the same type of property, including when considering deductibles, exclusions and conditions offered by the insurer; to be at least as broad as the coverage provided under an SFIP, the policy must at a minimum:
...”
https://www.fdic.gov/regulations/compliance/manual/5/v-6.1.pdf

If it does not meet that, then the bank won't be required to accept it. The bank can require a separate flood policy in this case if it requires it for its internal underwriting standards or as a part of secondary market investor requirements.

C/A has a checklist to help for private flood insurance here: https://www.compliancealliance.com/find-a-tool/tool/private-flood-insurance-policy-checklist

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email and ask for our Membership Team.

For timely compliance updates, subscribe to Bankers Alliance’s email newsletters.