Like our clients, Holland & Knight's Financial Services Industry Group is committed to actively contributing to our nation's response to the coronavirus (COVID-19) pandemic and related economic fallout and recovery efforts. For our part, Holland & Knight's 300-plus lawyers and professionals who comprise our Financial Services Industry Group want to ensure that bank and non-bank financial institutions, financial intermediaries and other financial services industry participants and stakeholders have access to timely, accurate and succinct updates on federal and state legislative, regulatory and administrative responses to the COVID-19 pandemic that are most relevant to our financial services clients.

To that end, we are pleased to share with you the latest edition of The RESPONSE.

DOJ Employs Data Analytics to Detect PPP Fraud and Initiate Investigations

Assistant Attorney General Brian Benczkowski announced late last week that a U.S. Department of Justice (DOJ) investigation of the Paycheck Protection Program (PPP) is under way, and that signs of fraud in loan applications have already been detected. Benczkowski, who runs the criminal division of DOJ, said prosecutors have contacted 15 to 20 of the nation's largest loan processors as well as the U.S. Small Business Administration (SBA), which oversees the PPP program. Borrowing from the playbook of its aggressive Healthcare Fraud Task Force, DOJ is employing data analytics to spot trends and detect fraud. According to Benczkowski, applicants are "overstating their payroll costs, overstating the number of employees they've had, overstating the nature of their business." At DOJ, responsibility for overseeing PPP-related investigations has been assigned to the market integrity unit, which will also coordinate with various U.S. Attorneys in their own PPP enforcement efforts. Following on the joint statement of Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza pledging to review all PPP loans in excess of $2 million, in addition to others "as appropriate," it is now more clear than ever that intense government scrutiny of PPP borrowers and lenders is imminent. Holland & Knight has published previous alerts on other expected sources of congressional and executive oversight of federal COVID-19 pandemic spending programs and insights on key areas of enforcement risk and the safe harbor to return PPP funds to SBA.

SBA Issues PPP Interim Final Rule for Corporate Groups and Non-Bank Lenders

 The SBA has issued an interim final rule that limits the aggregate amount of PPP loans that may be received by companies in a corporate group to $20 million and provides additional guidance for PPP participation by non-bank lenders.

SBA Updates Paycheck Protection Program FAQs

The SBA has updated the PPP FAQs for Lenders and Borrowers to include new questions 40-42 regarding loan forgiveness amounts for employees who decline offers of rehire, certification of loan amounts by seasonal employers, and qualification under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for hospitals exempt from certain taxes under the Internal Revenue Code.

OCC and Federal Reserve Clarify Capital Implications Under Market Risk Capital Rule

The Office of the Comptroller of the Currency (OCC) and Federal Reserve have responded to a public question about capital implications under the market risk capital rule where a bank has reported increases in the number of backtesting exceptions in light of the impact of COVID-19. In response, the OCC and Federal Reserve noted that certain banks may apply the multiplication factor that applied as of Dec. 31, 2019, as opposed to other methods.

CFPB Reports Substantial Decline in Consumer Credit Applications in March

The Consumer Financial Protection Bureau (CFPB) has reported that the effects of COVID-19 resulted in a substantial decline in consumer credit applications for March, with mortgage loan inquiries dropping 27 percent and auto loan inquiries dropping by 52 percent. The report associates the drop in inquiries to two factors: 1) the COVID-19 case rate and 2) the share of workers filing for unemployment insurance benefits, finding a strong correlation between the inquiry rate and the two factors.

SEC Provides Conditional Relief to Certain Requirements of Regulation Crowdfunding

The U.S. Securities Exchange Commission (SEC) has issued a temporary final rule whereby certain established smaller companies affected by COVID-19 may use a Regulation Crowdfunding offering to meet their funding needs. The temporary changes will allow eligible issuers to expedite the offering process, to close the offering and access funds sooner than normally allowed, and to avoid certain financial statement review requirements.

Originally published 5 May, 2020

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