Wednesday, December 2, 2020

Week of April 20

In This Issue…

Clarifying SBA First Interim Rule …

We’ve been trying to clarify some questions about the SBA’s First Interim Final Rule. The rule covers three separate areas of concern that have been raised by bankers. The one that grabbed our attention deals with loans to directors. It provides guidance on PPP loan eligibility in two separate situations.

The first deals with businesses owned by bank directors and other bank insiders. The original rule (issued April 2) included information on eligible borrowers and ineligible borrowers:

  • The Code of Federal Regulations includes a list of entities or organizations that are generally ineligible for SBA loans.
  • The original rule clarified that those same borrowers were also ineligible for PPP loans.
  • But that same declaration created a new exception for Section 501(c)(3) organizations, charitable organizations and 501(c)(19) veteran’s organizations.

Moreover, 13 CFR 120.110. Subsection (o) confirms that “Businesses in which the Lender or CDC, or any of its Associates owns an equity interest” are also ineligible for PPP loans. So – what constitutes an “associate?” SBA regulations define the term “Associate” as:

  • An officer, director, key employee, or holder of 20 percent or more of the value of the Lender’s or CDC’s stock or debt instruments, involved in the loan process; or
  • Any entity in which one or more individuals referred to in paragraphs (1)(i) of this definition or a “Close Relative” of any such individual owns or controls at least 20 percent.

We received some calls from bankers about what the term “associate” meant for purposes of getting access to PPP loans, primarily because so many bank directors are local small business owners. These are the questions that continue to be on top of mind for many of our member banks:

  • Can my bank director get a PPP loan from my bank?
  • Can my bank director get a PPP loan from a different bank?
  • What does that “Close Relative” language mean?

A number of well-meaning law firms and other groups put out a lot of information opining about the applicability of this regulation to the PPP process. Your OBA staff worked diligently, as a part of our “Alliance” with the ABA and all the other state bankers associations, in an attempt to bring clarity as to which kinds of organizations were eligible for PPP access and which entities were not.

Finally, the Alliance was able to demonstrate once again why it is both so effective and it does so because it carries a lot of (political) clout. Last week, the SBA finally provided some answers. The major take-away is PPP loans are different from regular SBA Section 7 loans. Specifically, here’s the “new” and most reliable set of rules to be followed:

  • A business owned by bank officers and key employees may only get a PPP loan from another lender, but not from the bank with which they are associated. This clarification simply reaffirms the general rule above, for all the individuals covered by the regulation. The SBA concluded the existing rules do apply to businesses owned by these bank officials.
  • In contrast, a business owned by a bank’s OUTSIDE directors is eligible to get a PPP loan from that same bank. This conclusion is reached because there is no underwriting required for PPP loans, and every borrower gets the same terms. As a result, the risk that there would be a conflict of interest for the bank making a PPP loan to these businesses is minimal.

Note: This information may have come too late for some banks who relied upon the information in the original Treasury rule and required their directors to get a PPP loan from another bank.

  • The SBA chose to relax the current rule for bank shareholders as well. A business owned by a shareholder owning less than 30 percent of your bank may also get a loan from your bank.
  • Also, notice the SBA increased the shareholder ownership level from 20 percent in the regulation to 30 percent.
  • A business owned by an immediate family member of your bank officers, directors, key employees and shareholders who own 20% or more of the bank get this same authority insofar as being eligible for PPP loans.
    • Businesses owned by these immediate family members are generally ineligible to obtain an SBA loan from your bank.
    • The SBA chose to allow these family members of bank insiders to apply for a PPP loan from your bank. However, they added a condition.
    • Each PPP loan application has one “Authorized Lender Official” representing the bank, and a banker cannot act as the Authorized Lender Official for a loan to his or her family member’s business.

Another area of confusion from the very first day of the Program (March 27) relates to the gambling industry. Generally speaking, the gambling entity is eligible, but only if it derives less than 30 percent of its income from legal gambling activities (13 CFR 120.110 (g).

However, the CARES Act specifically added Section 501(c)(3) charitable organizations to the list of businesses eligible for PPP loans. There is a large number of charitable groups that derive some of their income from legal gambling. For example, gas stations/convenience normally offer chances to win big by selling various kinds of “pull-tab or scratch off tabs. Would the 30 percent limitation apply to charitable organizations and other businesses?

The SBA modified the current rule, replacing the 30 percent rule with a two-part test. A business with legal gambling activities is eligible for a PPP loan if:

  • Legal gaming revenue (net of payouts, but not other expenses) did not exceed $1 million in 2019.
  • Legal gaming revenue (net of payouts but not other expenses) comprised less than 50 percent of the business’s total revenue in 2019.

Finally, the SBA has provided some issues about its own guarantee of these loans. The bottom line is:

  • Selling loans into the secondary market: You do not have to get SBA approval.
  • PPP Loan Sales Retain their SBA Guaranty: PPP loans may be sold into the secondary market at any time after the loan is fully disbursed; it may be sold at a premium or at a discount to par value. Click here to read Treasury’s updated FAQ.

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OBA Emerging Leaders Division chairman elected

NBC Oklahoma’s Brandon Bixler was recently elected chairman of the Oklahoma Bankers Association Emerging Leaders Division. Bixler was elected by bankers from across the state. As part of his chairmanship, Bixler was appointed to the OBA Board of Directors and will serve a two-year term.

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Physical Treasury stimulus checks hitting banks: watch for fraud

The first batch of physical stimulus checks have been printed and are being reported by our bankers as having been received by customers.

Your customers who have not yet received expected funds can check on the status of their payment at IRS.gov, then clicking on Get My Payment and submitting their information.  Since there will be an opportunity for fraudsters to mimic these Treasury checks, you can verify the validity of checks presented by going to tcva.fiscal.treasury.gov.

At that site, you will find a link for check verification as well as a link for treasury check security features.  One of the easiest physical features to check is the bleeding ink seal next to the Statue of Liberty’s head, which will turn red when moisture is applied to the black ink of the seal.

If you encounter counterfeits, you can notify the OBA’s Elaine Dodd (elaine@oba.com) and we will ensure Secret Service and FBI are made aware. Also if you have any concerns or questions don’t hesitate to reach out to OBA.

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COVID-19 protective masks inside banks?

Several banks have asked the question as to how the wearing of protective masks during the pandemic affects our banks and their security.

As always, OBA does not set security standards and all our banks make those decisions based on their unique locations and situations. But, two factors that might factor into you decisions are the rationale behind the masks and the rate of bank robberies in the recent past.

The first is the masks are being worn, not just to protect the customer wearing it, but also to protect your staff who might not be able to social distance entirely from all customers.  If you choose to allow masks in the bank, it would clearly be acceptable to have a policy to ask the customer to remove a mask momentarily to get a more positive ID if necessary.

A second factor is the rate of recent robberies. Numbers have been consistently lower the last few years, ranging from 12 to 24 annually.  The rate has remained low so far this year, though there is a possibility the economy could drive the numbers up at least in the short term.

Hopefully this information will help you to make the best informed decision for your bank.  If you have questions or just want to discuss, email or call the OBA’s Elaine Dodd (elaine@oba.com).

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2020 OBA Directory of Banks available for order

The latest edition of the OBA Directory of Banks is now available for order. This essential reference includes important information about all Oklahoma banks, savings and loans, savings banks and holding companies. It also has key personnel listed as well as a fast-find index and more!

Click here for more information to order.

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Check out OBA’s Strategic Members COVID-19 Resource Page

To help our member banks have access to as many resources as possible during the COVID-19 pandemic, the OBA is collecting information from our strategic members and other affiliated businesses that are providing important information and help.

Click here to visit the page on the OBA website. And if you’re a strategic member and would like to have your own information listed, send an email to Thi (thi@oba.com) at the OBA!

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OBA education corner …

While live events and seminars are currently on hold, the OBA’s education department has plenty of webinars lined up:

NOTE: Effective March 16, and until further notice, TTS (our webinar provider) has extended the OnDemand access period for all ‘Live Plus Five (Days)’ registrants to 60 days (versus five business days). Also, they are waiving the $75 per location fee for additional locations.

  • Equipment Lease Financing, April 28, webinar — This webinar focuses on the many aspects of equipment lease financing, from structure and documentation to monitoring and administration. It will also include a review of the OCC Lease Financing Guidelines. Both new and experienced equipment lease financing lenders will find this program to be informative and useful.
  • Reg E Compliance – Five Best Practices for Handling Disputes, May 6, webinar — Our topic for the webinar will focus on several simple steps to handle Reg E customer disputes and inquiries. Understanding the rules will help you satisfy the regulators but can also SAVE YOUR FINANCIAL INSTITUTION MONEY by only paying the claims that you are required to reimburse for unauthorized transactions. We will review the steps required to handle disputes and inquiries and the time frames for resolving a claim for an unauthorized transaction.
  • Edit Writing BSA Policy and Procedures, May 7, webinar — It’s 2020 and may be time to update your policy and procedures for BSA. We introduced the fifth pillar and beneficial ownership in 2018. So where are you now? Do you need to add cannabis? Add the new CTR Changes? Examiners continue to criticize risk assessments, policy and procedures connections. Learn how to use the regulation and exam manual to really massage your program. What do you need to add, take out or revamp in BSA? Learn during this program.
  • Intro to ACH: The Basics, May 8, webinar — The ACH product has been around for a long time and it’s easy to get complacent with it. It always works, so why mess with it. But, do you really understand what it is and how it works? This session is designed for those that are new to operations and those that want to confirm they really understand ACH.
  • Basic Personal and Business Tax Return Analysis, May 11, webinar — Attend this proactive webinar and gain an understanding of the often complex and confusing topic of TAXES! Bank personnel are required to obtain and properly interpret tax returns for both commercial and consumer lending purposes. The first part of this seminar will concentrate on personal tax return analysis while the second part will focus on the analysis of various business tax returns.

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