Lending-Related Compliance Updates due to COVID-19
Our role at BKD is to be your trusted advisor and help keep you updated on items that could affect your operations directly. Please see below for pertinent lending-related compliance updates.
ECOA Implications for Credit Applications
PPP Loan Applications
The Consumer Financial Protection Bureau (CFPB) published frequently asked questions (FAQ) to assist with one of the requirements of the Equal Credit Opportunity Act (ECOA) on Paycheck Protection Program (PPP) loans. The FAQ addresses the timing requirement of Section 12 CFR 1002.9(a)(3)(ii), which requires a creditor to notify an applicant within 30 days of application. It clarifies that the 30-day timing requirement won’t start until the application is “completed” with either a loan number from the Small Business Administration (SBA) or a response about the availability of funds. If an SBA loan number or response regarding availability of funds hasn’t been provided to the creditor, the creditor can’t deny the loan on incompleteness alone. If the application is incomplete regarding other information the applicant could have provided, a notice of incompleteness can be delivered.
In addition to the completed application clarifications for PPP loans, the CFPB also clarified that if the creditor refuses to provide credit to the applicant prior to submitting to the SBA, a notification must be sent within 30 days of that decision.
Public Assistance Program Income
During the SARS-CoV-2 virus and the incidence of COVID-19 emergency, financial institutions may see a rise in loan applicants with income solely from public assistance or unemployment compensation. It’s important to note that discrimination of an applicant who derives income from any public assistance program is prohibited. The ECOA, specifically §12 CFR 1002.4(a), prohibits a creditor from discriminating against an applicant on a prohibited basis regarding any aspect of a credit transaction. Section 1002.6(b)(2)(iii) states that a creditor may consider whether an applicant’s income is derived from a public assistance program only for the purpose of determining a pertinent element of creditworthiness. Section 1002.6(b)(5) also states that a creditor is prohibited from discounting or excluding income from consideration because of a prohibited basis; however, a creditor may consider the amount and probable continuance of any income in evaluating an applicant’s creditworthiness.
Flood Insurance Update for Loan Modifications Related to COVID-19
On May 6, the Federal Reserve Board (FRB) issued Consumer Affairs Letter 20-7, “Flood Insurance Compliance in Response to the Coronavirus,” with two FAQ regarding flood insurance compliance requirements during the COVID-19 national emergency.
The first question addresses whether a new flood zone determination must be made when working with borrower(s) due to the COVID-19 emergency. Federal flood statutes generally require a new determination when a triggering event occurs, i.e., making, increasing, renewing or extending a loan, unless an existing exception applies. The FRB responded that there isn’t an exception in place for the COVID-19 emergency. The FRB references the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)” dated April 7, 2020, and states:
“When exercising supervisory and enforcement responsibilities, the Federal Reserve will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency. The Federal Reserve will take into account an institution’s good-faith efforts demonstrably designed to support consumers and comply with the flood insurance requirements. The Federal Reserve expects that supervisory feedback for institutions will be focused on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers. The Federal Reserve does not expect to take a public enforcement action against an institution, provided that the circumstances were related to the COVID-19 emergency and that the institution made good faith efforts to support borrowers and comply with the flood insurance requirements, as well as responded to any needed corrective action.”
The second question and answer addressed Bulletin W-20002, issued on March 29, 2020. This bulletin extended the grace period to renew National Flood Insurance Program (NFIP) policies that expire between February 13, 2020, and June 15, 2020 (FEMA emergency period), from 30 days to 120 days due to the COVID-19 emergency. Coverage of the NFIP policy will remain as long as the premium is paid prior to the end of the 120-day grace period.
The second answer goes on to state that the notice required at 45 days prior to the force-placed insurance requirement has not changed; however, the notice’s content can include an indication that the NFIP grace period has been extended for 120 days, and that force placement then would not occur until after the end of the 120-day period. The lender also may provide the 45-day notice prior to the 120-day grace period expiration.
As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. For more information, contact your BKD Trusted Advisor™ or use the Contact Us form below.