Washington Perspectives
This Week in Washington for April 13, 2020
April 20, 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
Cases of the coronavirus in the United States topped 750,000 with over 40,000 deaths. Data suggested that infections had begun to peak in some areas, such as hard-hit New York City. The President was eager to shift focus to reopening the country, establishing bipartisan working groups and consulting business leaders as widespread economic harm caused by social distancing continued to grow. Early in the week President Trump claimed he had “total” control over the decision to reopen, but governors pushed back, asserting their constitutional independence. Regional state blocks banded together to coordinate plans to lift restrictions with California, Oregon, and Washington joining forces and establishing a task force and several Northeastern states following suit. Availability of widespread testing remains a major concern, despite the President’s assurance that states have adequate testing capacity to begin reopening. Minneapolis Fed chief Neal Kashkari predicted that the country may face several rolling shutdowns until there is a vaccine or an effective treatment is developed.
The Small Business Administration reported that funding for the Paycheck Protection Program had run dry as of Thursday, after 1.6 million applications were approved. Loans averaged US$206,000, with only 4% receiving over US$1M. Reports that some large restaurant chains received loans sparked a backlash against the program’s implementation, as many other small businesses were left in limbo until Congress passes additional funding. The deadlock over the parameters of another relief measure continued through majority of the week, as both sides remained entrenched, but on Friday Congressional leadership signaled that a compromise measure was beginning to take shape. Negotiations over a reported US$400B interim bill that includes funding for hospitals in addition to replenishing the PPP continued over the weekend, and the House could consider it as early as Wednesday.
Democrats consolidated support behind their presumptive nominee Joe Biden. Sen. Bernie Sanders (I-VT) formally endorsed Biden during a livecast appearance, saying that he “will do all that I can” to ensure Biden’s victory in November. Later in the week, President Barack Obama and Senator Elizabeth Warren both released endorsement videos, touting Biden as someone who will “run with integrity, competence, and heart” and “will save lives and save livelihoods.”
Other highlights of last week include:
The Labor Department reported an additional 5.2 million Americans filed jobless claims last week, bringing the total to 22 million since the outset of the pandemic.
The President announced he would halt funding to the World Health Organization pending a review of their coronavirus response.
Paul O’Neill, who served as Treasury Secretary under George W. Bush, passed away over the weekend at the age of 84.
LAST WEEK ON THE HILL
Proposals on Virtual Committee Work and Voting Alternatives Gain Traction: Members of Congress are reluctant to return to Washington in the midst of the coronavirus pandemic, which has led to several proposals around the potential for remote work. On Thursday, House Rules Committee Chairman Jim McGovern proposed a temporary low-tech proxy voting arrangement, whereby members could arrange to have another lawmaker vote on their behalf. House Speaker Nancy Pelosi had thrown some cold water on a fully remote voting environment, describing it as “not as easy as you think” to implement. Earlier in the week, House Budget Committee Chairman John Yarmuth indicated committee work may proceed virtually, saying, “There’s pretty much agreement that we should do that if we can.”
House Financial Services and Oversight Committee Chairs Seek Briefing on FDIC’s Readiness for Financial Crisis during Pandemic: On Tuesday, Financial Services Committee Chair Maxine Waters (D-CA), Oversight Committee Chair Carolyn Maloney (D-NY), and Oversight Subcommittee on Economic and Consumer Policy Chair Raja Krishnamoorthi (D-IL) sent a letter to the FDIC seeking information on the agency’s preparedness for a financial crisis as coronavirus poses a threat to the stability of the nation’s economy. “In light of the ongoing coronavirus pandemic and resulting strains on the global financial system, we urge you to act immediately to establish robust crisis readiness,” the Chairs wrote.
Waters and Brown Call on Administration to Stabilize the Housing Market during the Coronavirus Pandemic: On Wednesday, Sen. Sherrod Brown (D-OH), Ranking Member of the Senate Banking Committee, and Rep. Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, sent a letter to Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin urging them to ensure the stability of the housing market in the face of the Coronavirus pandemic. The lawmakers called on the Federal Reserve and Treasury to use the authority provided to them by Congress to prepare to ensure the stability of nonbank mortgage servicers in the event of increased liquidity need.
Brown and Warren Call on Banks to End the Seizure of Stimulus Checks: On Wednesday, Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) sent letters to banks and credit unions through their trade organizations urging them to cease the seizure of CARES act stimulus payments from hardworking American families. The Senators’ push follows recent reports that banks are seizing the CARES Act stimulus payments from their customers to pay themselves. “During this time of crisis, we must come together to protect our collective health and mitigating the financial blow that Covid-19 is taking . . . We ask that your member banks do the right thing—for their customers, our country, and our economy—and publicly commit that they will not offset their customers’ stimulus payments to pay for any fees, charges, or allegedly past due debts,” wrote the Senators.
Crapo Outlines Robust Oversight Requirements in Title IV of CARES Act, Urges Action on Lending Facilities: On Thursday, Senate Banking Committee Chairman Mike Crapo (R-ID) sent two letters to the Department of Treasury and Federal Reserve on provisions under Title IV of the CARES Act. The first letter highlighted the Committee’s robust oversight role over Title IV of the CARES Act, which include 13(3) reporting requirements under the Federal Reserve Act and the creation of a Special Inspector General for Pandemic Recovery and the Congressional Oversight Commission. The second letter urged action on several issues with respect to 13(3) emergency lending facilities announced recently, including the Paycheck Protection Program (PPP) Loan Facility, Main Street Lending Facilities, TALF, Primary and Secondary Market Corporate Credit Facilities, and the Municipal Lending Facility.
Democrats Call on Administration to Ensure That Minority-Owned Small Businesses Are Not Shut out of PPP Funding: On Thursday, Representatives Ayanna Pressley (D-MA) and Gregory Meeks (D-NY) and Senators Kamala Harris (D-CA) and Sherrod Brown (D-OH) led Democratic lawmakers in calling for the Small Business Administration and Treasury to ensure that minority-owned businesses are not shut out of the Paycheck Protection Program (PPP). The lawmakers also called for the Administration to amend guidance on PPP, to reaffirm lending institutions’ obligation to comply with fair lending laws and to require lenders to report on the demographics of any PPP lending.
Brown and Booker Urge Banks to Temporarily Ban Burdensome Overdraft Fees: On Friday, Senators Sherrod Brown (D-OH) and Cory Booker (D-NJ) urged more than a dozen bank CEOs to temporarily ban charging customers burdensome bank overdraft fees during the coronavirus emergency. The Senators urged the banks “to take steps to relieve consumers from burdensome practices as they face financial constraints related to the COVID-19 pandemic,” including ceasing the charge of “overdraft and non-sufficient funds fees during this time. Reasonably priced overdraft lines of credit are a far better and more fair alternative, especially during a time of financial crisis.”
Democrats Urge Fed to Fix Rules That Block City, County Governments from Receiving Direct COVID-19 Relief: Senators Sherrod Brown (D-OH), Chris Van Hollen (D-MD), Elizabeth Warren (D-MA), and Chuck Schumer (D-NY) sent a letter to Fed Chairman Jerome Powell expressing serious concern with the arbitrary population thresholds used to determine eligibility for cities and counties to receive relief under the newly created Municipal Liquidity Facility program. The Senators urged Chairman Powell to expand eligibility for the program, which was authorized by the CARES Act and allows the Fed to purchase up to US$500B of debt from eligible entities. As noted in their letter, under the current requirements laid out by the Fed, the program will only directly benefit 15 counties and 10 cities across the United States.
Senate Dems Push for Increased Transparency and Oversight of CARES Act Funding: Senate Minority Leader Chuck Schumer (D-NY) and Senators Sherrod Brown (D-OH), Chris Van Hollen (D-MD), Elizabeth Warren (D-MA), Catherine Cortez-Masto (D-NV), Brian Schatz (D-HI), and Tina Smith (D-MN) sent a letter to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell calling for increased oversight and transparency into how the Administration is allocating the US$454B in funding under the CARES Act. The Senators are urging Treasury and the Federal Reserve to keep the American people and Congress informed and to ensure that the money goes to small and mid-sized businesses, non-profit organizations, and states and municipalities and to stabilize the housing market. The Senators argued that “the American public deserves to understand how these facilities are run and that funding is allocated fairly and in a way that helps the real economy.”
LEGISLATION INTRODUCED AND PROPOSED
H.R. 6476: Rep. Al Green (D-TX) introduced H.R. 6476, which would amend the CARES Act to establish a loan program to provide liquidity to eligible lenders for the purpose of providing loans under the Paycheck Protection Program.
H.R. 6492: Rep. Bobby Rush (D-IL) introduced H.R. 6492, which would require any payments of principal or interest on a residential mortgage loan that are deferred during a COVID-19 emergency period to be due no earlier than the last day of the loan term.
H.R. 6494: Rep. Mike Thompson (D-CA) introduced H.R. 6496, which would make available insurance coverage for business interruption losses due to viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shut-offs.
H.R. 6497: Rep. Brian Fitzpatrick (R-PA) introduced H.R. 6497, which would make available insurance coverage for business interruption losses due to national emergencies.
H.R. 6501: Rep. Chuy Garcia (D-IL) introduced H.R. 6501, which would strengthen the Financial Stability Oversight Council.
S. 3578: Sen. Chuck Grassley (R-IA) introduced S. 3578, the COVID-19 Funding Accountability Act of 2020, which would provide oversight for the use of assistance provided to businesses under COVID-19 relief programs.
Essential Workers Bill of Rights: Sen. Elizabeth Warren (D-MA) and Rep. Ro Khanna (D-CA) unveiled a proposal for an Essential Workers Bill of Rights to protect frontline workers during the coronavirus pandemic. They outlined several rights, including (1) health and safety protections; (2) robust premium compensation; (3) protections for collective bargaining agreements; (4) truly universal paid sick leave and family and medical leave; (5) protections for whistleblowers; (6) an end to worker misclassification; (7) health care security; (8) support for child care; (9) treat workers as experts; and (10) hold corporations accountable for meeting their responsibilities. The lawmakers called for the next coronavirus relief package to pass Congress to include the policies in the Essential Workers Bill of Rights. Khanna argued, “This crisis needs to open our eyes to the value of workers who are often invisible, and we need to give them the pay and benefits they deserve.”
THIS WEEK ON THE HILL
Congress remains in recess; lawmakers are not expected to return to DC until May 4th at the earliest.
THE REGULATORS
Federal Banking Agencies to Defer Appraisals and Evaluations for Real Estate Transactions Affected by COVID-19: On Tuesday, the Federal Reserve, FDIC, OCC, NCUA, and CFPB issued an interim final rule to temporarily defer real estate-related appraisals and evaluations under the agencies' interagency appraisal regulations. The agencies are providing this temporary relief to allow regulated institutions to extend financing to creditworthy households and businesses quickly in the wake of the national emergency declared in connection with COVID-19. The agencies are deferring certain appraisals and evaluations for up to 120 days after closing of residential or commercial real estate loan transactions. Transactions involving acquisition, development, and construction of real estate are excluded from this interim rule. These temporary provisions will expire on December 31, 2020, unless extended by the federal banking agencies.
Federal Reserve Announces Its Paycheck Protection Program Liquidity Facility Is Fully Operational: On Thursday, the Federal Reserve announced that its Paycheck Protection Program Liquidity Facility is fully operational and available to provide liquidity to eligible financial institutions, which will help support small businesses. The Federal Reserve's facility will support the effectiveness of the PPP by extending credit to financial institutions that make PPP loans, using such loans as collateral. Supplying financial institutions with additional liquidity will help increase their capacity to make PPP loans.
Federal Reserve Board Announces Rule Change to Bolster the Effectiveness of the Small Business Administration's Paycheck Protection Program: On Friday, the Federal Reserve announced a rule change to bolster the effectiveness of the Small Business Administration's Paycheck Protection Program. The change will temporarily modify the Board's rules so that certain bank directors and shareholders can apply for PPP loans for their small businesses. To prevent favoritism, Board rules limit the types and quantity of loans that bank directors, shareholders, officers, and businesses owned by these persons can receive from their related banks. These requirements have prevented some small business owners from accessing PPP loans—especially in rural areas. The SBA recently clarified that PPP lenders can make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits and without favoritism. The Board's change will allow those individuals to apply for PPP loans, consistent with SBA's rules and restrictions.
SEC Staff Urge Timely Disclosures Despite Virus Disruption: In a statement on Tuesday, staff from the SEC’s Division of Investment Management advised that “In light of the current uncertainties and market disruptions, investors need high-quality financial information more than ever,” adding, “We are committed to promoting the updating and delivery of such information, which is particularly important to keep Main Street investors up to date about their investments.”
CFTC Unanimously Approves Three Proposed Rules and Two Final Rules at Open Meeting: On Tuesday, the CFTC unanimously approved three proposed rules and two final rules. The proposed rules include (1) amendments to part 190 regulations that govern bankruptcy proceedings of commodity brokers; (2) a proposal to amend certain compliance requirements for commodity pool operators (CPO) in Regulation 4.27 and Form CPO-PQR.; and (3) proposed amendments to the regulations governing which swaps are exempt from the clearing requirement in section 2(h)(1) of the Commodity Exchange Act. The two final rules approved were: (1) a rule that codifies CFTC No-Action Letter 19-22 concerning the European Stability Mechanism; and (2) a rule that adopts the Commission’s proposal to restore detailed requirements for policies and procedures to safe-guard customer records and information in Commission regulation part 160 that were inadvertently deleted in a 2011 amendment.
CFPB and FHFA Announce Borrower Protection Program: On Wednesday, the CFPB and FHFA announced the Borrower Protection Program, a new joint initiative that enables CFPB and FHFA to share servicing information to protect borrowers during the coronavirus national emergency. Under the program, the CFPB will make complaint information and analytical tools available to FHFA via a secure electronic interface, and FHFA will make available to the Bureau information about forbearances, modifications, and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac.
CFPB Issues Final Rule Raising Data Reporting Thresholds Under the Home Mortgage Disclosure Act: On Thursday, the CFPB issued a final rule raising the loan-volume coverage thresholds for financial institutions reporting data under the Home Mortgage Reporting Act. The final rule, amending Regulation C, increases the permanent threshold for collecting and reporting data about closed-end mortgage loans from 25 to 100 loans effective July 1, 2020. The final rule will also amend Regulation C to increase the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, effective January 1, 2022. Senate Banking Committee Ranking Member Sherrod Brown criticized the move, saying it would make it “easier to hide discrimination in the mortgage market from regulators and from the public” adding that “weakening oversight during this pandemic will only exacerbate housing disparities.”
IRS Begins Disbursement of Stimulus Payments and Sets Up Online Tracker: The U.S. Department of the Treasury and IRS announced that nearly 80 million Americans received their payments via direct deposit by April 15. These payments are being automatically issued to eligible 2019 or 2018 federal tax return filers who received a refund using direct deposit. The IRS launched a separate online application, “Get My Payment.” This app allows taxpayers who filed their tax return in 2018 or 2019 but did not provide their banking information on their return to submit direct deposit information so they can receive payments immediately, as opposed to getting mailed checks, which will start being distributed before the end of April. “Get My Payment” also allows taxpayers to track the status of their payment.
Education Department Announces $3 Billion in Emergency Education Block Grants for Governors: On Tuesday, Education Secretary Betsy DeVos announced that nearly US$3B will quickly be made available to governors to ensure education continues for students of all ages impacted by the coronavirus national emergency. The Governor's Emergency Education Relief (GEER) Fund, authorized by the CARES Act, is an extraordinarily flexible emergency block grant designed to enable governors to decide how best to meet the needs of students, schools (including charter schools and non-public schools), postsecondary institutions, and other education-related organizations.
Freddie Mac Multifamily Revises COVID-19 Forbearance Program to Further Align with CARES Act: On Thursday, Freddie Mac announced revisions to its Multifamily COVID-19 forbearance program to further align with CARES Act provisions related to multifamily borrowers and tenants. Freddie Mac’s program provides three months of forbearance for borrowers affected by COVID-19 along with a no-evictions policy for tenants during the forbearance period. Freddie Mac is changing its program in three ways to better align with the CARES Act: (1) updated evictions prohibition during forbearance period; (2) explicit prohibition on charging tenants late fees, penalties, or other charges for nonpayment; and (3) extension of program to end of emergency period.
FDIC to Postpone Effort to Modernize Agency's Signage & Advertising Requirements: On Thursday, the FDIC announced it will temporarily postpone its efforts to modify its signage and advertising requirements. The agency remains committed to modernizing these rules at a future date to better reflect how banks and savings associations are transforming their business models to take deposits via physical branches, digital, and mobile banking channels.
USDA Announces Coronavirus Food Assistance Program: On Friday, Agriculture Secretary Sonny Perdue announced the Coronavirus Food Assistance Program (CFAP). This new USDA program will take several actions to assist farmers, ranchers, and consumers in response to the COVID-19 national emergency. The relief program will provide critical support to farmers and ranchers, maintain the integrity of the food supply chain, and ensure every American continues to receive and have access to the food they need. The program includes two major elements: (1) Direct Support to Farmers and Ranchers—the program will provide US$16B in direct support based on actual losses for agricultural producers where prices and market supply chains have been impacted; and (2) USDA Purchase and Distribution—USDA will partner with regional and local distributors, whose workforce has been significantly impacted by the closure of many restaurants, hotels, and other food service entities, to purchase US$3B in fresh produce, dairy, and meat.
Departments Publish Advisory on the Cyber Threat Posed by North Korea: On Wednesday, the Departments of State, Homeland Security, and Treasury, and the FBI issued an advisory to raise the awareness of the cyber threat posed by North Korea. The advisory highlights North Korea’s malicious cyber activities around the world, identifies U.S. government resources that provide technical and threat information, and includes recommended measures to counter the cyber threat.
EXIM Board Takes Action in Fight against COVID-19 Pandemic by Temporarily Restricting Export Support for Needed U.S. Medical Supplies and Equipment: On Tuesday, the Export-Import Bank of the United States Board of Directors unanimously approved new temporary measures to help ensure the United States has medical supplies and equipment that are in short supply and necessary to combat and prevent the spread of the COVID-19 pandemic in the United States. Specifically, EXIM’s Board of Directors approved a resolution to temporarily exclude from EXIM coverage or financing any exports of critically needed personal protective equipment and other medical supplies and equipment.
COMINGS AND GOINGS AT THE AGENCIES
Coronavirus Oversight Committee Continues to Take Shape: On Friday, House Speaker Nancy Pelosi announced that she had selected Rep. Donna Shalala (D-FL), Senate Majority Leader Mitch McConnell announced his choice of Sen. Pat Toomey (R-PA), and House Minority Leader Kevin McCarthy announced his selection of Rep. French Hill (R-AR) as their respective choices to serve on the five member committee overseeing the US$500B in loans included in the CARES Act.
Natasha Guinan Named Chief Counsel at SEC’s Office of the Chief Accountant: On Monday, the SEC announced that Natasha Guinan had been named Chief Counsel, Office of the Chief Accountant. Ms. Guinan served most recently as Senior Special Counsel for Legal Policy in the Office of General Counsel.
Blake Paulson Named OCC's Next Chief National Bank Examiner: On Thursday, the OCC announced that Blake Paulson would become the agency's Chief National Bank Examiner at the end of the month. Mr. Paulson will add the title to his current role as Senior Deputy Comptroller for Midsize and Community Bank Supervision.
THE COURTS
Supreme Court to Hear Oral Argument by Teleconference in Certain Cases: The Supreme Court announced on Monday that it would hear oral arguments by telephone conference on May 4 – 6 and 11 – 13 in a limited number of previously postponed cases, including Trump v. Mazars USA, LLP, and Trump v. Deutsche Bank AG. In keeping with public health guidance in response to COVID-19, the Justices and counsel will all participate remotely. The Court anticipates providing a live audio feed of these arguments to news media.
OTHER NOTEWORTHY ITEMS
Financial Stability Board Publishes Recommendations for Regulation of Stablecoins: On Tuesday, the G-20’s Financial Stability Board published for consultation 10 high-level recommendations to address the regulatory, supervisory, and oversight challenges raised by “global stablecoin” arrangements. The FSB’s recommendations call for regulation, supervision, and oversight that is proportionate to the risks, and stress the need for flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination, and information sharing arrangements that take into account the evolution of “global stablecoin” arrangements and the risks they may pose over time. They apply the principle of “same business—same risks—same rules,” independent of the underlying technology.
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