The Office of the Comptroller of the Currency (OCC) released “OCC Bulletin 2020-44” which encourages institutions to “prudently document their implementation and lending decisions” under the Small Business Administration's (SBA) Paycheck Protection Program (PPP) on Saturday April 26, 2020. The guidance goes on to state:
When working with all applicants, in addition to adherence to the SBA PPP program requirements, banks are encouraged to collect and track information provided during the application process regarding borrowers' annual revenue, and for loans that are made in LMI census tracts, distressed areas, and underserved areas, and that benefit LMI individuals, families, and communities. Maintaining and monitoring this information, where available, in the administration of the SBA PPP is a prudent banking practice consistent with the principles of safety and soundness and fair access and fair treatment of borrowers, and other applicable legal requirements. Prudent practices may also include documenting implementation decisions—such as the bank's business justifications and any alternatives considered—when setting eligibility criteria, establishing processes for considering applications, and approving or denying PPP applications. Relevant business considerations may include estimates of resources needed to implement and offer the SBA PPP, current available resources (including staff resources), and ability to access needed information about an applicant in a timely way, among other factors.
The CARES Act provides a general requirement that a lender “may only participate [in PPP] if participation does not affect the safety and soundness of the institution or lender, as determined by the Secretary in consultation with the appropriate Federal banking agencies…” However, the OCC Bulletin is concerning given the fact that neither the CARES Act nor any of the supporting guidance has addressed any specific compliance requirements outside of the mandate that “federally insured depository institutions and federally insured credit unions should continue to follow their existing BSA protocols when making PPP loans to either new or existing customers who are eligible borrowers under the PPP. For existing customers, PPP loans will not require re-verification under applicable BSA requirements, unless otherwise indicated by the institution’s risk-based approach to BSA compliance”.
The FDIC has issued a FAQ on the SBA’s Paycheck Protection Program – As of April 25, 2020, which provides that, in most cases, PPP loans originated will receive CRA credit. Specifically, the FAQ provides that (1) “loans to for-profit business in amounts of $1 million or less are considered small business loans in CRA evaluations and will be considered as such under the lending test,” (2) “PPP loans to small businesses could receive consideration as innovative or flexible lending practices,” and (3) “loans to businesses greater than $1 million to small businesses that create or retain jobs would qualify as community development loans under economic development if the loans create or retain jobs or under revitalization/stabilization if they benefit primarily low- and moderate-income areas or distressed middle-income areas.”
This guidance should serve as a signal that regulators will be looking to apply both CRA and Fair Lending oversight to all of your PPP origination activity and as such you should be documenting the decisions, controls and oversight you are applying to the process including discussion at the Board level in order to capitalize on the possible CRA credit available for PPP loans and build and document a narrative of proper compliance for use when you are examined in the coming months. While we are expecting a “relaxed” approach to oversight around these programs, this guidance signals a different tone to come in future exams.
If you have closed PPP loans without gathering the necessary information from borrowers to capitalize on CRA credit or document a proper compliance narrative, look to your PPP loan documents for further assurance clauses that may allow you to request this information from borrowers post-closing.
