More Important PPP And Garnishment Developments You Need To Know About

April 23, 2020 at 8:33 am 1 comment

Good morning folks.  It’s another one of those days when the tough part of doing the blog is deciding what NOT to put in, a task made all the more difficult because yours truly was not motivated enough to make himself a cup of coffee before heading down to the home office.  But here goes….

With the House expected to act on legislation replenishing the PPP, I wanted to highlight one thing Congress decided to do and one thing it decided not to do as part of the re-authorization.  Responding to criticism that the last round of funding went disproportionately to sophisticated businesses with existing business relationships to the largest banking institutions (I’m shocked), $30 billion is being set aside exclusively for credit unions and CDFIs with less than $10 billion in assets and another exclusive pool is being set aside for banks and credit unions with between $10 billion and $50 billion in assets.  Stay tuned for guidance from the SBA as to how this set-aside is going to work.

Meanwhile, if you’re still fretting over how to handle those stimulus checks, you are not alone.  In the “politics makes strange bedfellows” category, a coalition including the U.S. PIRG and the American Bankers Association sent a joint letter to Congress urging it to make stimulus checks exempt from garnishments.  As they explain in the letter,

Banks are obligated to comply with garnishment orders unless lifted by a court. Yet many consumers do not know that they may have a legal defense to those orders under state exemption laws or for other reasons, and the crisis has also made it difficult to impossible to access attorneys or the courts – presenting due process issues. The lack of clear, self-executing protection for the stimulus payments imposes a significant burden for some families facing unprecedented circumstances.

The legislation to be acted on by the House today does not clarify this issue so unless the Treasury feels empowered to independently offer its own guidance, we will continue to have to use our best judgment.  In states like New York, where the Attorney General has opined that it is illegal to garnish these funds, at the very least you now have a good faith basis for refusing to honor levy and restraint orders issued by third parties.

NCUA Grants Capital Relief To PPP Participants

NCUA followed the lead of the other financial regulators yesterday when it issued regulations granting capital relief for credit unions that make PPP loans.  Now pay attention here because this is one area where semantics make a huge difference.  Under existing regulations

 …a credit union is defined as “complex” if “[i]ts quarter-end total assets exceed fifty million dollars ($50,000,000); and . . . [i]ts [RBNW] requirement . . . exceeds six percent (6%).”

This is an existing obligation which is different from the enhanced risk-based capital requirements which take effect in 2022.  The interim rule grants PPP loans a zero percent risk rating for RBNW purposes.

Secondly, the Federal Reserve recently established a lending facility under which it will accept PPP loans as collateral for loans from Federal Reserve banks.  This collateral will also have a zero risk rating.

Last but not least, PPP loans are not going to be classified as commercial loans which provides you greater flexibility under your MBL cap.

That’s it folks!  Now I’m going to drink the tea my wife was kind enough to bring me.

 

Entry filed under: Compliance, Regulatory. Tags: , , , , , , .

Why Credit Unions Should Follow The Attorney General’s Guidance Federal Reserve Gives Financial Institutions Greater Transaction Account Flexibility

1 Comment Add your own

  • 1. Lorraine Keegan  |  April 23, 2020 at 9:07 am

    I have a question and maybe no one knows the answer due that all this is so new but I realize the stimulus checks had to go out quickly to help people and rightly so, but some members died last year and it is still going into their accounts. (The account was left open for a couple of months after death to finish the affairs of the deceased). I wonder if years from now the government will go back and try to reclaim these funds? Or do you think that they realized people were the number one priority and will leave it as is.

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    Lorraine T Keegan
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    Ocean Financial
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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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