Possible PPP Relief
Progress is taking place on the narrowly targeted 3.5 COVID response by Congress. (This is not to be confused with 4.0 that Congress will debate until late June or early July. The U.S. House passed its $3T version of 4.0 a week ago; the Senate is taking a slower and different (and probably smaller) approach.)
It appears the U.S. House may vote tomorrow, May 28, on this focused 3.5 version. CBA and other state bankers associations and ABA are moving quickly to urge support for this needed improvement. CBA is contacting our Colorado Members of Congress prior to tomorrow’s House action, and we’re contacting other business groups to do likewise. While still being negotiated we think 3.5 will:
- Give more flexibility to small businesses that receive forgivable loans from the Paycheck Protection Program, removing certain requirements and extending several deadlines
- Extend the June 30 deadline to December 31, 2020
- Replace the 75/25 requirement (that at least 75% of forgivable funds be payroll) with a 60% requirement, thus easing restrictions on the amount of loan forgiveness a small business receives, such as small businesses with high rents and low labor costs, including many retail establishments
- Extend the time during which businesses can rehire people from 8 weeks to 24 weeks
- Lengthen the loan payback period up to 5 years
- Does so prospectively for new loans
- Does so retroactively only if agreement between lender and borrower
- Allow cash-starved companies to receive both the PPP loan forgiveness and the CARES Act’s refundable payroll tax credit for 50% of employee wages for certain companies (CARES only allowed one program)
- Allow more time to rehire workers, extending the deadline to match up with the end of beefed-up unemployment benefits that give some lower-wage workers more than their salaries
- Other provisions
This approach has support in both parties and both chambers of Congress. House Speaker Nancy Pelosi spoke positively about the bill and confirmed that it is slated for a vote in the chamber this week. Sen. Marco Rubio, who chairs the Senate Small Business Committee, said a bipartisan Senate bill introduced last week would give 16 weeks for PPP recipients to rehire workers and use the funds. He believes a narrow measure could easily pass the Senate, unless members seek to attach something more controversial. Consumer advocacy groups such as the Center for Responsible Lending also support the 3.5 bill.
CBA has been vocal in advocating much of the above to provide relief to small businesses and to avert frustration/anger directed at banks when businesses get less loan forgiveness than they expected, which means larger debt than they envisioned.
Other Developments
- FDIC is aware of the issue associations have raised that PPP lending increases bank total assets and thus increases FDIC insurance premiums. No FDIC action has taken place but they are assessing it.
- Wednesday OCC issued an FAQ (expected soon from other agencies) regarding CRA and COVID-19
- Augments the March 19 CRA guidance and recognizes FEMA’s nationwide disaster declaration, PPP and MSLP
- Makes an exception for CRA credit
- For years, category B disasters (includes COVID-19) were excluded from CRA credit
- Under this guidance, CRA credit can be obtained for category B disasters if the activity is focused on health and safety (versus economic development…)
- Makes a conservative approach on CRA consideration for PPP loans:
- Loans <$1M will be considered small business loans for CRA purposes
- Loans >$1M will qualify for CRA credit if they are community development loans – so document this
- There may be CRA consideration for loans to small businesses with income <$1M
- FYI community groups elsewhere in the U.S. have asked banks for data on PPP loans to small and minority businesses – banks are not required to collect such data from the customer
- As a note about the kind of crazy anti-business local regulations that can spread across the country, at least one major city is seriously considering a proposal on all businesses (including but not limited to banks) that regardless of current pay requires an additional premium pay for “essential” hourly workers:
- $10/hour additional pay if the employee works <4 hours
- $20/hour additional pay if the employee works 4-8 hours
- $30/hour additional pay if the employee works >8 hours
Hopefully we will not see such proposals here but CBA will oppose if we do.
