COVID-19 Government Resources for CDFI Banks and Borrowers
Multiple federal agencies are responding to the needs of CDFI banks and their customers during the COVID-19 crisis. To address the needs of small business, the Keeping American Workers Paid & Employed Act was passed as Division A of the Coronavirus Aid, Relief, and Economic Security Act (CARES). Other Divisions of the CARES Act address the regulatory concerns of CDFI banks such as liquidity and asset quality.
Numerous agencies and organizations have published guides to the small business provisions of the CARES Act. Included here are links to some of the most useful ones:
- The Senate Committee on Small Business & Entrepreneurship - Guide to the CARES Act: (Click here for the guide).
- House Committee on Financial Services - Priorities with respect to the CARES Act: (Click here for the guide).
- Federal Deposit Insurance Corporation (FDIC) - COVID Frequently Asked Questions: (Click here for the guide).
- U.S. Treasury - CARES Act Resources for Borrowers and Lenders: (Click here for the lenders info sheet). (Click here for the borrowers info sheet).
- Small Business Administration - Paycheck Protection Program: UPDATE 4/3/2020: (Click here for the interim final rule). (Click here for the new lender application.) UPDATE 4/2/2020: (Click here for the PPP loan application). (Click here for the guide).
- Small Business Administration - Economic Injury Disaster Loans and Loan Advance Overview: (Click here for the guide).
- Small Business Administration - Debt Relief Overview: (Click here for the guide).
- The U.S. Chamber of Commerce - Small Business Emergency Guide and Checklist: (Click here for the guide).
Below are summaries of some of the provisions.
Paycheck Protection Program: UPDATE 4/23/2020: Treasury updated FAQs addressing the ability of large companies with adequate sources of liquidity
to qualify for PPP loans. (Click here for the FAQs). UPDATE 4/14/2020: Treasury released additional PPP guidance addressing the eligibility of self-employed individuals as well as businesses owned by directors or shareholders of PPP lenders. The update also included clarifications of the requirements for pledging PPP loans for borrowing from a Federal Reserve Bank or Federal Home Loan Bank. (Click here for the Treasury guidance). UPDATE 4/13/2020: Treasury released additional PPP guidance in the form of FAQs. Topics included non-bank lender eligibility, the $10 million cap as it relates to franchises, hotels and restaurants under the affiliation rule, and the collection of BSA-related information from business owners with a 20% or higher interest. (Click here for the Treasury guidance). UPDATE 4/7/2020: Treasury and SBA released additional PPP guidance in the form of FAQs. Topics included the subject of faith institutions. (Click here for the Treasury guidance.) (Click here for the SBA faith institution guidance). UPDATE 4/7/2020: American Banker reported that Treasury plans to request an additional $250 billion supplement for PPP. (Click here for article). UPDATE 4/6/2020: The Federal Reserve announced it will establish a facility to facilitate lending to small businesses via the PPP by providing term financing backed by PPP loans. (Click here for the announcement). UPDATE 4/3/2020: Detailed guidance for implementing the program is published. (Click here for the interim final rule). All existing SBA-certified lenders will be given delegated authority to speedily process PPP loans. (Click here to see if your CDFI bank is SBA-approved). All federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to participate in this program. (Click here for the new lender application.) The New Lender Application Form (Federally Insured Depository Institutions, Federally Insured Credit Unions, Farm Credit System Institutions) can be submitted to email@example.com
The PPP provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans will be forgiven (as long as at least 75% of the loan has used for payroll related expenses). PPP also includes no SBA fees, and six months of deferral. Small businesses and other eligible entities, including non-profits and veterans organizations, will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program will be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
CDBA joined other banking trades in supporting the PPP under the CARES Act. (Click here for the support letter).
Small Business Debt Relief Program: UPDATE 4/8/2020: SBA issued Procedural Guidance. (Click here). This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under this program:
The SBA will pay the principal and interest of new 7(a) loans issued prior to September 27, 2020, and the SBA will pay the principal and interest of current 7(a) loans for a period of six months.
Economic Injury Disaster Loans (EIDL) & Grants: The SBA has also been authorized to modify its direct disaster lending through the Economic Injury Disaster Loans (EIDL) program. (Click here for the application). The program can be used in conjunction with the PPP. The program offers loan amounts up to $2 milion, terms of up to 30 years based on ability to repay, rates of 2.5% for nonprofits and 3.5% for for-profits, as well as expedited approval based solely on credit scores, and 1-year deferment on loans provided due to COVID-19. Loan advance grants now also provide an emergency advance of up to $10,000 to borrowers harmed by COVID-19 within three days of applying. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
Counseling and Training: Business owners are encouraged to contact “Small Business Development Centers (SBDC), Women’s Business Centers (WBC), or SCORE mentorship chapters. These resource partners, and the associations that represent them, will receive additional funds to expand their reach and better support small business owners with counseling and up-to-date information regarding COVID-19. There will soon be a joint platform that consolidates information and resources related to COVID-19 in order to provide consistent, timely information to small businesses. To find a local resource partner, visit https://www.sba.gov/local-assistance/find/. In addition, the Minority Business Development Agency’s Business Centers (MBDCs), which cater to minority business enterprises of all sizes, will also receive funding to hire staff and provide programming to help their clients respond to COVID-19.”
Troubled Debt Restructurings: UPDATE 4/7/2020: The agenices published an updated joint statement. (Click here for the statement). On March 22, the Agencies (OCC, FDIC, Federal Reserve, FASB) published a joint statement to assure lenders that efforts to provide relief to COVID-19 impacted borrowers will not necessarily lead to criticism of modified loans as Troubled Debt Restructurings. (Click here for the statement).
The Statement encourages lenders “to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19,” and states:
“The agencies will not criticize financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices. The agencies consider such proactive actions to be in the best interest of institutions, their borrowers, and the economy.”
Evaluations and Appraisals for Real Estate Transactions: UPDATE 4/15/2020: The federal banking agencies have issued an interim final rule to temporarily defer real estate-related appraisals and evaluations under the agencies' interagency appraisal regulations. (Click here).
Current Expected Credit Losses (CECL): The CARES Act also provides that banks have the option to temporarily delay measuring credit losses on financial instruments under the new Current Expected Credit Losses methodology promulgated under Financial Accounting Standards Board Accounting Standards Update No. 2016-13. The option to delay expires at the earlier of December 31, 2020, or the date on which the national emergency declaration related to COVID-19 is terminated. The FDIC issued a Financial Institutions Letter on the interaction of the CARES Act with the CECL rule. (Click here for the letter).
Fair Credit Reporting: The CARES Act amends the Fair Credit Reporting Act to provide that, if an institution that furnishes information to credit reporting agencies makes an "accommodation" with respect to one or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make one or more payments pursuant to the accommodation, then the furnisher must report such obligation or account as "current" (or as the status reported prior to the accommodation) during the period of accommodation.
Foreclosure Moratoriums and Consumer Forbearance: A borrower with a federally-backed mortgage loan may request forbearance regardless of delinquency status by submitting a request to the borrower's servicer and affirming that the borrower is experiencing a financial hardship during the COVID-19 pandemic. Upon such a request, borrowers are provided up to 180 days of forbearance, which will be extended for an additional period of up to 180 days, provided that the borrower requests an extension.
CRA Consideration for COVID-19 Related Activities: On March 9, 2020, the federal financial institution regulatory agencies and state bank regulators issued a statement to encourage financial institutions to meet the financial services needs of their customers and members in areas affected by COVID-19. Favorable will be given to retail services that include accomodations such as waiving fees and modifying loan terms. Also, favorable consieration will be given for activities conducted in a bank's broader statewide or regional area. (Click here for the statement).
Liquidity: The CARES Act authorizes the FDIC to implement liquidity guarantee programs, including unlimited insurance for accounts held in non-interest-bearing transaction accounts through December 31, 2020. (Click here for the legislation).
The FDIC has acknowledged the liquidity concerns of CDFI and community banks as depositors have acted on the impulse to remove accounts in a perceived “flight to quality.” Chairman Jelena McWilliams recorded a video to explain that the best place to keep money remained in an FDIC-insured bank (Click here for the video) and the Corporation has provided a FAQ on their COVID-19 resource page. (Click here for the FAQ).
Liquidity: UPDATE 4/16: The Federal Reserve on Thursday announced that its PPP Liquidity Facility is fully operational and available to provide liquidity to eligible financial institutions, which will help support small businesses. (Click here). UPDATE 4/9: The Federal Reserve has released details of the facilities it is introducing to provide up to $2.3 trillion in loans to support the economy. At present, the facilities do not mention special provisions for CDFIs or other community lenders. (Click here for announcement and draft term sheets). UPDATE 4/6/2020: The Federal Reserve announced it will establish a facility to facilitate lending to small businesses via the PPP by providing term financing backed by PPP loans. (Click here for the announcement). The CARES Act authorizes the Federal Reserve to provide liquidity to the financial system that supports lending to eligible businesses, States, or municipalities by "purchasing obligations or other interests directly from issuers of such obligations or other interests; purchasing obligations or other interests in secondary markets or otherwise; or making loans, including loans or other advances secured by collateral." (Click here for the legislation).
Fund Operations: On April 1, Director Harris released a statement acknowledging the operational challenges facing CDFIs and CDFIs' concerns about meeting reporting deadlines. Director Harris stated that the Fund takes the concerns seriously and will handle reporting issues on a case-by-case basis. (Click here for the message).
Reporting and Performance Deadlines: UPDATE 4/7/2020: The Community Development Financial Institutions Fund (CDFI Fund) will extend the upcoming application deadlines for the fiscal year (FY) 2020 funding round of the Community Development Financial Institutions Program (CDFI Program) and Native American CDFI Assistance Program (NACA Program). The new deadlines are:
- April 28, 2020 at 5:00 p.m. ET: the last day to contact CDFI Program and NACA Program staff with questions about the application (previously April 17, 2020)
- April 30, 2020 at 5:00 p.m. ET: the last day to contact the CDFI Fund’s IT Help Desk with any technical problems with the Awards Management Information System (AMIS) (previously April 21, 2020)
- April 30, 2020 at 11:59 p.m. ET: the last day to submit a complete FY 2020 CDFI Program or NACA Program Financial Assistance or Technical Assistance Application through AMIS (previously April 21, 2020)
All other deadlines and requirements in the FY 2020 CDFI Program and NACA Program NOFAs as previously published on February 21, 2020, remain in effect and unchanged. The deadline to submit the SF-424 via Grants.gov to request assistance through the FY 2020 application round was March 23, 2020.
CDBA had previously asked the CDFI Fund to provide extensions without adverse consquences for reporting and performance requirement submissions. (Click here for the letter).
Emergency Appropriation: UPDATE 4/7/2020: CDBA has organized other banking trades to support a $1 billion emergency appropriation in an expected fourth round of emergency legislation. (Click here for the letter). Unfortunately, the stimulus packages to date have not included increased funding for the CDFI Fund. Prior to the passage of the CARES Act, CDBA joined other CDFI trades in supporting a $1 billion emergency appropriation for the Fund and is now working with partners to ensure that an emergency appropriation will be included in an expected fourth stimulus package.
News Related to Covid-19
CDBA wrote to the Chairman of the Board of Governors of the Federal Reserve System, Jerome Powell, to submit comments and recommendations on the proposed expansion of liquidity facilities to nonprofit entities released by the Board of Governors on June 15, 2020. While CDBA commends the agency for its willingness to step in to help financial institutions meet the credit needs of nonprofits during the crisis, the facilities must position the smaller nonprofits that comprise the great majority of the sector and are part of America’s “Main Street,” for long-term recovery. As such, CDBA recommends that the Federal Reserve lower thresholds so that lenders, particularly CDFIs, may better serve the nonprofit sector.
The entire cohort of Alabama-based Community Development Financial Institutions (CDFIs) wrote to the Chairman of the U.S. Senate Appropriations Committee, Senator Richard Shelby, urging the Senator to support $1 billion in emergency funding for the Community Development Financial Institutions Fund (CDFI Fund) of the U.S. Department of the Treasury in the next economic stimulus package. These institutions further urged Congress to waive any matching funds requirements to get funds onto the street expeditiously. Given the CDFI Fund's reputation as one of the Federal government’s best market-based strategies for restoring economic vitality in underserved markets, the resources will be vital to stabilizing Alabama’s economy, preserving jobs, and creating new job opportunities.
The Community Development Bankers Association (CDBA) and Inclusiv - the trade associations for CDFI banks and credit unions - wrote to Senate and House leadership regarding critical considerations for SBA Paycheck Protection Program reforms. To ensure federal funding meets the needs of small businesses and nonprofits, the associations urge that reform include measures such as reducing the limitations on using PPP loans for non-payroll expenses, updating the fee structure for PPP lenders, and authorizing more forgiveness flexibility. These reforms would not only enable small businesses to retain and rehire employees, but would also ensure CDFIs can address the long-term recovery needs of their business customers in low- and moderate-income markets.
CDBA CEO Jeannine Jacokes wrote to the Secretary Mnuchin of the U.S. Department of the Treasury and Administrator Carranza of the Small Business Administration (SBA) urging the SBA to immediately promulgate revised Interim Final Rules and/or FAQs clearly affirming the eligibility of CDFIs to apply for PPP loans, given their qualification as small businesses or nonprofits under the CARES Act. Under the CARES Act, the great majority of CDFI banks qualify as small businesses. Likewise, their nonprofit counterparts are explicitly eligible as nonprofit 501(c)(3) organizations. Yet, the agency has imposed a rule that arbitrarily excludes some organizations as borrowers based on the type of businesses in which they engage.
Over 500 organizations signed onto a CDFI Coalition letter to House and Senate leadership urging that $1 billion in additional funding for the Community Development Financial Institutions (CDFI) Fund be included in the next federal coronavirus recovery act. The letter notes that an additional appropriation for the CDFI Fund will provide CDFIs the tools they need to ensure patient, flexible capital reaches communities and businesses at the
CDBA joined other trade associations representing banks and credit union members in a letter to Small Business Administration (SBA) Administrator Jovita Carranza to share the continuing concerns about the loan submission process and ongoing E-Tran access issues for lenders participating in the SBA Paycheck Protection Program. The letter asks that the SBA continue its collaboration with the Treasury to provide timely and consistent guidance to financial institutions as they work to provide their communities with this critical assistance.
CDBA joined a coalition of civil rights, faith, and community development organizations led by the Center for Responsible Lending in writing to Secretary of the Treasury Steven Mnuchin urging that the Treasury direct the Small Business Administration (SBA) to designate that Community Financial institutions (CFIs) receive one-third of the $30 billion set aside for three groups of lenders—CFIs, small insured depository institutions, and credit unions—pursuant to H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act. Because CFIs—a group which includes MDIs and CDFIs—are the only lenders among those three that specifically aim to serve communities of color, the letter contends that reserving $10 billion to CFIs is the only way to ensure that businesses of color have access to this lifeline before the money runs out.
In a letter to Jodie Harris, Director of the Community Development Financial Institutions (CDFI) Fund, CDBA CEO Jeannine Jacokes urged the CDFI Fund to ensure that all Paycheck Protection Program (PPP) loans originated by CDFI banks be considered to meet the "primary mission" and "target market" eligibility criteria for ongoing CDFI certification and compliance purposes. Given the PPP program's effectiveness as a short-term tool to prevent employees of small businesses from joining the ranks of the unemployed, the letter argues that participating CDFIs should be lauded for their leadership in a time of economic crisis and not penalized by the CDFI Fund as part of the certification or compliance reporting process.
CDBA CEO Jeannine Jacokes wrote to Chairman Jerome Powell of the Board of Governors of the Federal Reserve System to submit comments and recommendations on the liquidity facilities released by the Board of Governors on April 9, 2020. The letter outlines comments and questions about the Federal Reserve's three liquidity facilities (PPP, Main Street New Loan and Main Street Expanded) that most directly address the liquidity of concerns of CDFI banks, with a focus on positioning Low- and Moderate-Income (LMI) communities that are part of America's "Main Street" for long-term recovery.
CDBA CEO Jeannine Jacokes wrote to the House Financial Services and Small Business Committees urging that the next recovery package addressing the current health and economic crisis provide meaningful support for low- and moderate-income communities. To ensure resources are directed to the most severely impacted people and places, CDBA asks that Congress provide $1 billion for the Community Development Financial Institutions (CDFI) Fund, direct the Board of Governors of the Federal Reserve to create a meaningful set-a-side within its Main Street program for CDFIs and Minority Depository Institutions (MDIs), and ensure that half of any further funding for the SBA's Paycheck Protection Program is specifically earmarked for CDFIs, MDIs and small banks under $10 billion that will target the resources for borrowers in low- and moderate-income communities.
Major banking trades, including the Community Development Bankers Association (CDBA), American Bankers Association (ABA), Bank Policy Institute (BPI), Independent Community Bankers of America (ICBA), National Bankers Association (NBA), and National Association of Affordable Housing Lenders (NAAHL), are collectively urging Congress to appropriate $1 billion for the Community Development Financial Institutions (CDFI) Fund to aid in economic recovery in response to the coronavirus pandemic. In letters to House and Senate leadership, as well as Appropriations Committees, Financial Services and General Government Subcommittees, and authorizing committees, the banking trades described the CDFI industry's track record of promoting economic stabilization, job preservation and creation, and addressing community needs that would enable them to effectively channel federal funds into the low-income communities they serve.
CDBA CEO Jeannine Jacokes wrote to Secretary Steven Mnuchin of the U.S. Department of Treasury requesting additional consideration of the 1% interest rate introduced in the Interim Final Rule for the Small Business Administration's (SBA) Paycheck Protection Program (PPP), a new program authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. CDBA members have expressed concern that PPP is insufficiently responsive to the need for bank liquidity, an essential consideration for CDBA members and all small- or mid-size banks rising to meet the rush of borrowers.
CDBA CEO Jeannine Jacokes wrote to Jodie Harris, Director of the Community Development Financial Institutions (CDFI) Fund, requesting that the CDFI Fund undertake considerable relief measures to support CDFIs as they face unprecedented challenges through the course of the COVID-19 health and economic crisis. The letter's requests include: extending deadlines without adverse consequence for CDFI banks submitting reporting and performance requirements, extending application deadlines, and allowing extended use periods and flexibility in how awarded funds are used.
CDBA joined other banking and credit union trade associations in a letter to Small Business Administration (SBA) Administrator Jovita Carranza emphasizing the need for timely and clear guidance regarding the temporarily expanded SBA 7(a) loan program aimed at providing small businesses with funds for critical items such as payroll, rent obligations, and utilities. Lenders that will participate in these programs will require clear and consistent guidance on how SBA intends them to operate in order to effectively serve their small business customers.
CDBA and the major banking trades wrote congressional leaders to strongly urge that the provisions which would enhance and incentivize SBA's 7(a) loan program be included in the final CARES Act legislation. Private-sector banks and credit unions, whether they currently participate in SBA lending or not, will be turning to the SBA’s 7(a) loan program as the way to deliver capital and economic relief to the economy while conventional lending recedes in the wake of the current economic turmoil. However, in order to quickly stimulate essential lending, lenders need the tried and true enhancements that would encourage banks and credit unions to lend and borrowers to seek capital now.
The Federal Reserve will temporarily stop all examination activity for banks with less than $100 billion of assets as it shifts supervisory priorities due to the coronavirus pandemic, the central bank said Tuesday. The Fed is shifting its supervisory focus to monitoring and outreach to "help financial institutions of all sizes understand the challenges and risks of the current environment." The agency said it will be minimizing examination activities in order to do so, with the greatest reduction at smallest banks. The temporary shift will last until at least the end of April, when the Fed will reassess whether conditions have changed.
Banks and credit unions are eager to take advantage of newfound flexibility for restructuring loans battered by the coronavirus outbreak. Federal regulators and the Financial Accounting Standards board gave lenders a helping hand Sunday, agreeing that short-term loan modifications tied to the pandemic do not have to immediately count as troubled-debt restructurings. Normally, any concession made to a borrower would trigger classification as a TDR. In the aftermath of the financial crisis, restructured loans at banks topped $140 billion at the end of 2011. Clearly, regulators are hoping to head off a similar surge due to the coronavirus outbreak. The issue had also gained the attention of some lawmakers. Many banks, including Howard, the $4.4 billion-asset Camden National in Maine, and the $6.7 billion-asset Tompkins Financial in Ithaca, N.Y., started approving temporary deferments and other loan modifications for hard-pressed clients well in advance of Sunday's statement.
The stakes are high for the financial services industry as lawmakers battle over the details of a new stimulus package to provide economic relief for businesses and consumers affected by the coronavirus outbreak. Although Senate Democrats blocked a vote on a package sponsored by Majority Leader Mitch McConnell, R-Ky., a whole host of provisions benefiting banks, credit union and other financial firms appears still to be on the table in McConnell's plan and other proposals being floated on Capitol Hill. McConnell's package included several industry-backed measures intended to make it easier for banks to lend and protect client funds. His bill would authorize an expansion of Federal Reserve liquidity programs, delay a controversial new accounting standard for loan losses, give the Federal Deposit Insurance Corp. the authority to guarantee business transaction accounts, provide regulatory relief for troubled debt restructurings, and ease a capital requirement for community banks. Democrats, who decried Senate Republicans' package as putting corporations over workers and families, have offered up a number of their own proposals to help consumers in the midst of the pandemic. These proposals include a temporary cap on interest rates for consumer loans, a moratorium on negative credit reporting, and a temporary ban on overdraft fees. Here is a cheat sheet of the proposals that have been floated by Republicans and Democrats as Congress is working out how to provide relief to banks and consumers during the national emergency.
The Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) recognize the potential for Coronavirus Disease (also referred to as COVID-19) to adversely affect the customers and operations of financial institutions. On March 9, 2020, the federal financial institution regulatory agencies and state bank regulators issued a statement to encourage financial institutions to meet the financial services needs of their customers and members in areas affected by COVID-19.