Money Matters: This Week in Washington

This Week in Washington for March 30, 2020

March 30, 2020

Dina Ellis

THE BIG PICTURE

For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series: https://www.paulhastings.com/coronavirus

The spread of coronavirus continues to accelerate, disrupting lives and markets across the globe. Over 135,000 cases have been confirmed in the U.S., with over 700,000 cases worldwide. A number of high-profile individuals announced they had tested positive for the disease, including British Prime Minister Boris Johnson and Prince Charles. The summer Olympics, which had been set to take place in Tokyo in July, became the latest major event to be postponed due to the virus.

Public health officials across the country are racing to prepare for what many expect to be an onslaught of cases inundating hospitals in the coming weeks. Early in the week, President Trump signaled a desire to “reopen” portions of the economy by Easter; however, warnings from public health officials cast doubt on that possibility, and after reviewing projections that infections in the country would not peak for several weeks, the President announced social distancing recommendations would remain in effect until April 30th. Over the weekend, the President publicly contemplated a short-term quarantine for hard-hit areas such as New York, Connecticut, and New Jersey, ultimately directing the CDC to issue a strong travel advisory.

The fate of a massive stimulus measure remained uncertain at the beginning of the week, with House Democrats introducing a counterproposal to the Senate’s bill. However, on Wednesday, after days of frenzied negotiations—where emotions ran high on both sides of the aisle as the terms were hammered out—lawmakers unveiled the final US$2T Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act includes US$850B in loans and loan guarantees for corporations and small businesses, direct cash payments, emergency funding for hospitals and states, and enhanced unemployment benefits along with disbursement oversight mechanisms. House members were forced to scramble back to Washington after Rep. Tom Massie (R-KY) forced a roll vote on the final package, upending plans to pass the measure by unanimous consent. The move drew the ire of President Trump who criticized Massie in a series of tweets. Despite the delay, on Friday, the House voted to pass the sweeping package and the President signed the historic measure into law later that day.

Other highlights of last week include the following:

• The President announced that White House trade advisor Peter Navarro would serve as the national Defense Production Act policy coordinator.

• Unemployment claims surged to over 3.3 million as the economic fallout from the coronavirus extended to many sectors of the U.S. economy.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Committee Democrats Roll Out Legislation to Provide Comprehensive Stimulus and Public Policy Response to Coronavirus Pandemic: Rep. Maxine Waters (D-CA) led the House Financial Services Committee Democrats in introducing H.R. 6321, the Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act, an omnibus package of 40 bills that would provide a comprehensive stimulus and public policy response to the coronavirus pandemic.

SENATE BANKING COMMITTEE

Committee Chair Crapo Urges Treasury and Fed to Provide Quick Guidance on Title IV of CARES Act: On Saturday, Committee Chairman Mike Crapo (R-ID) urged the Treasury Department and the Federal Reserve to act quickly to provide guidance on Title IV of the CARES Act. Crapo stressed the importance of quick action to issue guidance to the marketplace to ensure that businesses—including small and medium-sized businesses—states, municipalities, and Tribes understand what programs and facilities are available, the terms and conditions of those programs and facilities, and a point of contact or inquiry portal for them to discuss access to those programs and facilities. He also encourages them to prioritize 13(3) facilities that stabilize markets the FSOC has highlighted, such as mortgage servicing.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 6381: Rep. Al Green (D-TX) introduced H.R. 6381, which would require the Board of Governors of the Federal Reserve System to provide zero-interest loans to minority depository institutions and community development financial institutions to combat COVID-19.

H.R. 6385: Rep. John Curtis (R-UT) introduced H.R. 6385, which would provide temporary relief from troubled debt restructuring disclosures, to delay the implementation of certain accounting standards for depository institutions substantially affected by COVID-19.

H.R. 6390: Rep. Tim Ryan (D-OH) introduced H.R. 6390, which would require the President to use authorities under the Defense Production Act of 1950 to require emergency production of medical equipment to address the COVID-19 outbreak.

S. 3544: Senators Bob Casey (D-PA) and Amy Klobuchar (D-MN) introduced S. 3544, the Advancing Connectivity during the Coronavirus to Ensure Support for Seniors (ACCESS) Act, which would assist older Americans and people with disabilities affected by COVID-19 by providing US$50M to expand telehealth for seniors.

S. 3566: Senators Sherrod Brown (D-OH) and Cory Booker (D-NJ) introduced S. 3566, which would amend the Fair Debt Collection Practices Act to provide additional protections for consumers and small business owners from debt collection during a major disaster or emergency by temporarily banning overdraft fees. “At the height of this pandemic, hardworking Americans should be protecting their health not worrying about big banks slapping them with fees for small overdraft amounts. This bill would allow them to keep money in their pockets when they need it most,” said Senator Brown.

S. 3571: Sen. Sherrod Brown (D-OH) introduced S. 3571, which would allow Americans to set up a free bank account that could be used to receive any direct stimulus payments related to coronavirus relief.

THIS WEEK ON THE HILL

Members from both chambers have departed DC for home work periods. The Senate is not set to reconvene until April 20th.

THE REGULATORS

Federal Reserve Announces Extensive New Measures to Support the Economy: On Monday, the Federal Reserve announced a series of aggressive efforts to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions caused by the coronavirus abate, including: (1) the Federal Open Markets Committee will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases; (2) supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300B in new financing; (3) establishing two facilities to support credit to large employers—the Primary Market Corporate Credit Facility for new bond and loan issuance and the Secondary Market Corporate Credit Facility to provide liquidity for outstanding corporate bonds; (4) establishing a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses; (5) facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility to include a wider range of securities, including municipal variable rate demand notes and bank certificates of deposit; (6) facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility to include high-quality, tax-exempt commercial paper as eligible securities.

Federal Reserve Board Announces Technical Change to Support the U.S. Economy: On Monday, the Federal Reserve announced a technical change to support the U.S. economy and allow banks to continue lending to creditworthy households and businesses. The interim final rule will phase in gradually, as intended, the automatic restrictions associated with a firm's "total loss absorbing capacity," or TLAC, buffer requirements, if the levels decline. TLAC is an additional cushion of capital and long-term debt that could be used to recapitalize a bank if it is in distress. The change will facilitate the use of firms' buffers to promote lending activity to households and businesses.

Federal Reserve Board Announces Implementation Delay for Changes to Its Payment System Risk Policy Regarding Intraday Credit: On Tuesday, the Federal Reserve announced a six-month delay in the planned implementation of policy changes to procedures governing the provision of intraday credit to U.S. branches and agencies of foreign banking organizations (FBOs). The changes were initially scheduled to become effective on April 1, 2020. In light of the challenges posed by the coronavirus, the Board is delaying implementation until October 1, 2020. This additional time will allow FBOs and the Federal Reserve Banks to focus on heightened priorities rather than establishing new arrangements for accessing intraday credit.

Federal Reserve Provides Additional Information to Financial Institutions on How Its Supervisory Approach Is Adjusting in Light of the Coronavirus: On Tuesday, the Federal Reserve provided additional information to financial institutions on how its supervisory approach is adjusting in light of the coronavirus. The Board highlighted the following in particular: (1) The Federal Reserve will focus on monitoring and outreach to help financial institutions of all sizes understand the challenges and risks of the current environment; (2) To minimize disruption and to focus on outreach and monitoring, the Federal Reserve will temporarily reduce its examination activities, with the greatest reduction in activities occurring at the smallest banks; (3) Large banks should still submit their capital plans that they have developed as part of the Board's Comprehensive Capital Analysis and Review, or CCAR, by April 6. The plans will be used to monitor how firms are managing their capital in the current environment; and (4) To allow firms to focus on heightened risks in this current environment and assist consumers, additional time will be granted for resolving non-critical existing supervisory findings.

Federal Reserve Offers Regulatory Reporting Relief to Small Financial Institutions Affected by The Coronavirus: On Thursday, the Federal Reserve released a statement recognizing that small financial institutions may need additional time to submit certain regulatory reports in light of staffing priorities and disruptions caused by the coronavirus. In light of that, the Fed will not take action against a financial institution with US$5B or less in total assets for submitting its March 31, 2020 Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) or Financial Statements of U.S. Nonbank Subsidiaries of U.S. Bank Holding Companies (FR Y-11) after the official filing deadline, as long as the applicable report is submitted within 30 days of the official filing due date. Institutions are encouraged to contact their Reserve Bank in advance of the official filing deadline if they anticipate a delayed submission.

Agencies Provide Additional Information to Encourage Financial Institutions to Work with Borrowers Affected by COVID-19: The Federal Reserve, CSBS, CFPB, FDIC, NCUA, and OCC issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The agencies encouraged financial institutions to work with borrowers and indicated they will not criticize institutions for doing so in a safe and sound manner. In addition, they noted they would not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings.

Agencies Encourage Banks, Savings Associations, and Credit Unions to Offer Responsible Small-Dollar Loans to Consumers and Small Businesses Affected by COVID-19: On Thursday, the Federal Reserve, CFPB, FDIC, NCUA, and OCC issued a joint statement encouraging banks, savings associations, and credit unions to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19. The statement recognizes that responsible small-dollar loans can play an important role in meeting customers’ credit needs because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries. The agencies state that loans should be offered in a manner that provides fair treatment of consumers, complies with applicable laws and regulations, and is consistent with safe and sound practices.

Agencies Announce Two Actions to Support Lending to Households and Businesses: On Friday, the Federal Reserve, FDIC, and OCC announced two actions to support the U.S. economy and allow banking organizations to continue lending to households and businesses: (1) Allowing early adoption of a new methodology on how certain banking organizations are required to measure counterparty credit risk derivatives contracts; and (2) Providing an optional extension of the regulatory capital transition for the new credit loss accounting standard.

CFTC Issues Final Interpretive Guidance on Actual Delivery for Digital Assets: On Tuesday, the CFTC announced the Commission voted unanimously to approve final interpretive guidance concerning retail commodity transactions involving certain digital assets. Specifically, the guidance clarifies the CFTC’s views regarding the “actual delivery” exception to Section 2(c)(2)(D) of the Commodity Exchange Act (CEA) in the context of digital assets that serve as a medium of exchange, colloquially known as “virtual currencies.”

SEC Provides Temporary Additional Flexibility to Registered Investment Companies Affected by Coronavirus: On Monday, the SEC announced temporary flexibility for registered funds affected by recent market events to borrow funds from certain affiliates and to enter into certain other lending arrangements. The relief is designed to provide funds with additional tools to manage their portfolios for the benefit of all shareholders as investors may seek to rebalance their investments.

SEC Extends Conditional Exemptions From Reporting and Proxy Delivery Requirements for Public Companies, Funds, and Investment Advisers Affected by Coronavirus: On Wednesday, the SEC announced that it is extending the filing periods covered by its previously enacted conditional reporting relief for certain public company filing obligations under the federal securities laws, and that it is also extending regulatory relief previously provided to funds and investment advisers whose operations may be affected by COVID-19.

SEC Provides Additional Temporary Regulatory Relief and Assistance to Market Participants Affected by COVID-19: On Thursday, the SEC announced that it is providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (COVID-19). The actions announced involve (1) parties needing to gain access to make filings on the EDGAR system, (2) certain company filing obligations under Regulation A and Regulation Crowdfunding, and (3) a filing requirement for municipal advisors.

CFPB Releases Resources for Consumers During COVID-19 Pandemic: On Tuesday, the CFPB announced the release of several resources to help consumers take steps to protect their finances during the COVID-19 pandemic, including how to avoid financial scams and submit complaints to the Bureau. “During this difficult time, the Bureau is doing everything it can to facilitate the work of responsible financial companies supporting their customers and borrowers. We want consumers facing hardships to be are aware of this posture and encourage them to discuss their specific circumstances with their lenders. As a backstop, the CFPB stands ready to help consumers resolve issues with their financial services providers through our consumer complaint system,” said Director Kathleen Kraninger.

CFPB Provides Flexibility During COVID-19 Pandemic: On Thursday, the CFPB announced that it is providing needed flexibility to enable financial companies to work with customers in need as they respond to the COVID-19 pandemic. The Bureau is postponing some data collections from industry on Bureau-related rules to allow companies to focus on responding to consumers in need and making changes to its supervisory activities to account for operational challenges at regulated entities.

FHFA Directs Enterprises to Grant Flexibilities for Appraisal and Employment Verifications: On Monday, in order to facilitate liquidity in the mortgage market during the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac (the Enterprises) to provide alternative flexibilities to satisfy appraisal requirements and employment verification requirements through May 17, 2020. To allow for homes to be bought, sold, and refinanced as the nation deals with the challenges of the coronavirus, the Enterprises will leverage appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages. In addition, in the event lenders cannot obtain verbal verification of the borrower's employment before loan closing, the Enterprises will allow lenders to obtain verification via an e-mail from the employer, a recent year-to-date paystub from the borrower, or a bank statement showing a recent payroll deposit.

FHFA Moves to Provide Eviction Suspension Relief for Renters in Multifamily Properties: On Monday, the FHFA announced that Fannie Mae and Freddie Mac (the Enterprises) will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of coronavirus. The eviction suspensions are in place for the entire duration of time that a property owner remains in forbearance. The forbearance is available to all multifamily properties with an Enterprise-backed performing multifamily mortgage negatively affected by the coronavirus national emergency. “Renters should not have to worry about being evicted from their home, and property owners should not have to worry about losing their building, due to the coronavirus. The multifamily forbearance and eviction suspension offered by the Enterprises should bring peace of mind to millions of families during this uncertain and difficult time," said Director Mark Calabria.

Secretary DeVos Directs FSA to Stop Wage Garnishment, Collections Actions for Student Loan Borrowers, Will Refund More Than US$1.8 B to Students, Families: On Wednesday, Education Secretary Betsy DeVos announced that, due to the COVID-19 national emergency, the Department will halt collection actions and wage garnishments to provide additional assistance to borrowers. This flexibility will last for a period of at least 60 days from March 13, 2020. At the Secretary's direction, the Department has stopped all requests to the U.S. Treasury to withhold money from defaulted borrowers' federal income tax refunds, Social Security payments, and other federal payments. At the same time, the Secretary directed the Department to refund approximately US$1.8B in offsets to more than 830,000 borrowers.

IRS Unveils New People First Initiative: On Wednesday, in order to help people facing the challenges of COVID-19 issues, the Internal Revenue Service announced a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions.

OTHER NOTEWORTHY ITEMS

New York’s Department of Financial Services Issues New Regulation Requiring New York Regulated Financial Institutions to Provide Financial Relief to New Yorkers Demonstrating Financial Hardship From COVID-19 Pandemic: On Tuesday, pursuant to Governor Andrew Cuomo’s Executive Order 202.9, the NY Department of Financial Services issued an emergency regulation requiring that, during a specified time, New York State regulated financial institutions provide residential mortgage forbearance on property located in New York for a period of 90 days to any individual residing in New York who demonstrates financial hardship as a result of the COVID-19 pandemic, subject to the safety and soundness requirements of the regulated institutions. The emergency regulation also requires that, during a specified time, New York regulated banking organizations eliminate fees charged for the use of ATMs that are owned or operated by the regulated banking organization, overdraft fees, and credit card late payment fees for any individual who demonstrates financial hardship as a result of the COVID-19 pandemic, subject to the safety and soundness requirements of the regulated banking organization. This emergency regulation is adopted pursuant to Governor Andrew M. Cuomo’s Executive Order No. 202.9.

Senate Democrats Press Administration on Failure to Help States with Dire Medical Supply Shortages: On Friday, Senators Sherrod Brown (D-OH), Patty Murray (D-WA), Ron Wyden (D-OR), Gary Peters (D-MI), Catherine Cortez Masto (D-NV), and Jacky Rosen (D-NV) wrote a letter to Vice President Mike Pence demanding increased transparency and answers regarding the Administration’s failure to assist states as they face dire shortages of medical supplies needed to combat coronavirus. The Senators also urged the White House to empower the recently formed Supply Chain Stabilization Task Force to activate every avenue available to get essential supplies to communities in need.

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