FinReg Roundup Vol 2, No 2
As we enter the second year of the COVID-19 pandemic, we can see the light at the end of the social distancing tunnel, with the deployment of three highly effective vaccines and the potential of at least two more promising on the horizon. . March also brought good news for businesses seeking Paycheck Protection Program (PPP) loans and those who may be eligible for the Shuttered Venue Operators Grant (SVOG). We also have new developments in the move to shelve LIBOR (the London Interbank Offered Rate) as the benchmark interest rate for financing deals around the world. And, in a significant development without much fanfare, the Consumer Financial Protection Bureau (CFPB) has clarified that sex discrimination includes discrimination based on sexual orientation and gender identity.
Launch of the Site Operator Grant Program for the Extended and Closed PPP Application Period
There is some good news for companies interested in PPP loans and the SVOG program.
With the March 31 deadline for new PPP loans rapidly approaching, Congress passed the PPP Extension Act of 2021. The Small Business Administration (SBA) will accept PPP applications from lenders until May 31 and until May 30. June to process all submitted requests. Funding for the PPP has also been extended until June 30.
Applicants should note that the application period ends on June 1, not June 30, as has sometimes been reported, and the June 1 deadline is the deadline for lenders to submit applications to the SBA, and not for borrowers to submit requests to lenders. Borrowers eligible for first- or second-draw PPP loans will want to continue to move forward as quickly as possible in the loan application, as the 60-day extension will pass quickly and lenders need time to review applications before making them. submit to the SBA.
More than four months after its inception, the SVOG program is expected to launch on April 8. The SBA released information about the program in small chunks, including Faq which are updated from time to time (the current version is the seventh version), guides on documents that may be required for the application, and even video tutorials. More recently, the SBA officially released the application rules for and the awarding of SVOG scholarships. The documentation requirements are long and substantial, and applicants must also open an account on SAM.gov, which can also take some time.
Another notable development, the American Rescue Plan Act of 2021, which was enacted on March 11, changed the SVOG program so that eligible entities can apply for both a PPP loan and an SVOG. The amount of any PPP loan will be deducted from the amount of SVOG. This is a welcome change, as SVOG’s extended deployment timeline forced some small businesses to forgo applying for a PPP loan in the hope that they would be eligible for a SVOG. The extension now allows businesses to have “two-track” regulation, which we strongly recommend.
Both PPP and SVOG continue to be fluid. Unlike PPP, which was an extension of the existing SBA 7 (a) loan program, the SVOG program is entirely new. Given the diversity of entities that may be eligible for SVOG and the many fact-specific differences between these entities, additional guidance from the SBA at the start of the SVOG application process is expected.
Timetable and guidelines published for LIBOR’s transition to a new global benchmark
LIBOR, the set of benchmark interest rates that the world’s major banks lend to each other, has historically been used as the benchmark rate for a wide variety of contracts in the financial services market, from sophisticated syndicated loan arrangements and from commercial loans to residential mortgages and consumer finance.
Intercontinental Exchange Benchmark Administration Limited (IBA), the authorized and regulated administrator of LIBOR, has announced the withdrawal schedule for this global benchmark for lenders, which provides that the use of certain LIBOR benchmarks will cease to exist. here December 31 and others through June. 2023. The Federal Reserve Board followed the IBA’s announcement of the LIBOR phase-out schedule by confirming that the announcement triggered the start of the transition process and the resulting obligations for market participants. The Fed also announced guidelines for reviewers to assess whether companies are well prepared for the transition.
The need to transfer LIBOR stems from the discovery of an international scheme involving several banks to manipulate LIBOR rates that has eroded the credibility of the benchmark and spurred calls for its replacement.
IBA said in its March 5 announcement that most LIBOR parameters will cease to be provided by an administrator or will no longer be representative by the end of 2021. This deadline applies to all LIBOR parameters in pounds sterling. , in euros, Swiss francs and Japanese yen. as well as the one-week and two-month US dollar LIBOR parameters. The remaining USD LIBOR settings, which are more widely used in the United States, will expire on June 30, 2023. The Secure Overnight Funding Rate (SOFR) is expected to replace LIBOR.
In anticipation of the abandonment of LIBOR, the Federal Reserve Board formed the Alternative Reference Rates Committee (ARRC), which has prepared language that market participants can use in their agreements to address the move from LIBOR to SOFR. In the language recommended by the ARRC, one of the triggers of a “benchmark transition event” is a public statement by the administrator of a benchmark announcing that the administrator has ceased or will cease. to provide the benchmark.
The purpose of a baseline transition event is to establish the start of the transition process. ARRC confirmed on March 9 that IBA’s March 5 announcement and a similar announcement by the UK’s Financial Conduct Authority (FCA) was a benchmark transition event with respect to all USD LIBOR parameters. , setting up obligations for market players, lenders in bilateral loans and agents in syndicated loans. (Read our alert on the latest LIBOR developments and their impact here.)
The Federal Reserve Board also issued guidance in March for reviewers reviewing transition plans for companies overseen by the Federal Reserve. According to these guidelines, reviewers must assess six key aspects of all transition efforts: transition planning, financial exposure measurement and risk assessment, operational readiness and controls, legal contract preparation , communication and surveillance.
In recent remarks at an ARRC symposium, Randal Quarles, the Fed’s vice president for banking supervision, noted that despite the planned retirement of LIBOR sooner rather than later, the use of USD LIBOR as benchmark rate had actually increased over the past three years. and warned that market participants “should be aware of the cautious attention we are giving to their transition, and in particular to their plans to end the issuance of new contracts by the end of the year. “.
CFPB rule clarifies sex discrimination, including sexual orientation and gender identity
The CFPB clarified that the prohibition of sex discrimination against credit applicants under two federal anti-discrimination regulations also includes discrimination based on sexual orientation and gender identity.
In a Interpretation rule published on March 9, the CFPB said that the prohibitions in the Equal Credit Opportunities Act (ECOA) and Regulation B also encompass “discrimination based on actual or perceived non-compliance with based stereotypes. on sex or gender and discrimination based on a candidate’s associations ”.
The ECOA prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age or because the applicant receives public aid, and Regulation B protects applicants from discrimination in any aspect of a credit transaction.
The CFPB released the rule of interpretation in response to the landmark U.S. Supreme Court ruling in Bostock v. Clayton County, Georgia, finding that the prohibition of sex discrimination in Title VII of the Civil Rights Act of 1964 encompasses discrimination based on sexual orientation and gender identity.
By publishing this rule of interpretation, the CFPB is innovating in terms of anti-discrimination policies for lenders. While critics say these policy-making decisions are a circumvention of Congress and its legislative powers, issuing rules of interpretation falls under the authority of the CFPB.