What Will COVID-19 Relief Look Like and How Will It Affect Financial Services Companies?

Bradley Arant Boult Cummings LLP

Both parties have recognized the need for significant and immediate relief to assist consumers and small businesses affected by COVID-19. On March 18, 2020, Rep. Maxine Waters (D-CA), the chairwoman of the House Financial Services Committee, released plans for responding to the COVID-19 pandemic. At this point, the plans are merely a high-level list of proposals that, if implemented, would significantly affect the financial services industry:

  • Suspension of all consumer and small business credit payments – The plans call for the suspension of all consumer and small business credit payments, including payments on mortgages, car notes, student loans, credit cards, small business loans, personal loans, etc. While the plans do not provide critical details about how these suspensions would be operationalized, they do indicate that suspended payments should not accrue interest or fees during the suspension period and that lenders should provide affordable repayment arrangements.
  • Create a means for the Federal Reserve or Treasury to reimburse creditors and servicers for lost revenue and expenses – The Federal Reserve or Treasury would provide financing related to the suspended credit payments in order to allow financial institutions to remain solvent.
  • Suspend all negative consumer credit reporting – The plans call for a suspension of all negative credit reporting for the duration of the pandemic and for 120 days after the pandemic, as well as a prohibition on lowering consumer’s credit scores. This proposal is far broader than the existing guidance from Fannie Mae and Freddie Mac regarding mortgages.
  • Prohibition on debt collection activities – The plans propose a complete moratorium on all consumer debt collection, repossessions, and wage garnishments for the duration of the pandemic and for 120 days after the pandemic. While details are not provided, we presume this includes collection calls and mailings, as well as any litigation to pursue collection.
  • Moratorium on foreclosures, evictions, and repossessions – The plans would ban all foreclosures, including the initiation of new foreclosure actions, as well as the suspension of all pending foreclosure actions, evictions, and repossessions, for the duration of the pandemic. This proposal aligns closely with the foreclosure moratoriums recently issued by Fannie Mae, Freddie Mac and HUD.
  • Forbearance for mortgages secured by rental properties – The plans would require lenders to institute forbearance programs for mortgages secured by rental properties.
  • Designate $290 million for fair housing enforcement activity – The plans would provide $90 million to state and local agencies to deal with fair housing related complaints and investigations, including pandemic-related scams, as well as $200 million to HUD’s Office of Fair Housing and Equal Opportunity.
  • Suspend commercial rental payments by private sector actors – The plans would suspend rental payments for small businesses and non-profit organizations.
  • Enhanced corporate disclosures – The plans would require the SEC to implement rulemaking requiring companies to disclose their supply chain disruption risks, as well as their pandemic risks.
  • Moratorium on federal rulemaking – Federal financial regulators would be prohibited from rulemaking, with the exception of rulemaking related to COVID-19, during the pandemic.
  • Ban on stock buybacks and dividends – The plans would ban corporate stock repurchase activities and paying dividends until the impact of the coronavirus on the American financial system has ended.
  • Requirements on corporations receiving government assistance – Corporate recipients of government assistance would have to implement restrictions on executive compensation, golden parachutes, stock buybacks, and dividend payments. Additionally, these companies would have to provide additional disclosures, including human capital disclosures, environmental disclosures, social and governance disclosures, and disclosures regarding how the company uses financial assistance to support the company’s employees.
  • Forgive at least $10,000 of student loan debts for each borrower – The plans would require a minimum $10,000 reduction for each borrower with student loan debt.
  • Repayment arrangements – The plans would require lenders to offer borrowers affordable repayment arrangements that would allow borrowers to repay arrearages without late fees or back interest.

Many of Rep. Waters’ proposals may fail to garner necessary support in Congress. Indeed, on March 19, 2020, Senate Majority Leader Mitch McConnell introduced a COVID-19 relief bill that was focused on cash payments to affected Americans, small business loans, loans to support affected industries, and resources to combat the virus. However, Congress is under immense pressure to pass additional COVID-19 relief, and it is possible that some of the ideas from Rep. Water’s plans could find their way into a pending or future proposed relief package. We urge financial services companies to closely monitor any updates and work through their government relations groups and industry trade associations to ensure COVID-19 relief legislation incorporates industry feedback.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Bradley Arant Boult Cummings LLP

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