As we reported in our prior client advisory on the wave of investigations to follow the pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act established three new bodies to conduct oversight and investigations on pandemic-related issues. Separately, House Speaker Nancy Pelosi announced a special committee to conduct additional pandemic-related oversight. In recent weeks, these new bodies have begun to take shape. This client alert summarizes the key developments so far.
Federal Agencies Share Principles for Offering Small-Dollar Loans
On May 20, 2020, the federal financial institution regulatory agencies—the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency—issued principles for responsibly offering small-dollar loans in order to meet consumers’ growing short-term credit needs.In the interagency statement of principles, the agencies recognized “the important role that responsibly offered small-dollar loans can play in helping customers meet their ongoing needs for credit from temporary cash-flow imbalances, unexpected expenses, or income shortfalls, including during periods of economic stress, natural disasters, or other extraordinary circumstances such as the public health emergency created by COVID-19.” The lending principles are therefore intended to “encourage supervised banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes.”The guidance explains that small-dollar loan programs should generally reflect the following characteristics:
- A high percentage of customers successfully repaying their small dollar loans in accordance with original loan terms, which is a key indicator of affordability, eligibility, and appropriate underwriting;
- Repayment terms, pricing, and safeguards that minimize adverse customer outcomes, including cycles of debt due to rollovers or reborrowing; and
- Repayment outcomes and program structures that enhance a borrower’s financial capabilities.
Moreover, the agencies set forth core lending principles for financial institutions intending to offer small-dollar loan products:
- Loan products are consistent with safe and sound banking, treat customers fairly, and comply with applicable laws and regulations;
- Financial institutions effectively manage the risks associated with the products they offer, including credit, operational, and compliance; and
- Loan products are underwritten based on prudent policies and practices governing the amounts borrowed, frequency of borrowing, and repayment requirements.
The guidance also explained that “reasonable loan policies and sound risk management practices and controls for responsible small-dollar lending would generally address” loan structures, loan pricing, loan underwriting, loan marketing and disclosures, and loan servicing and safeguards.
Finally, the agencies recognized that technology-enabled alternative underwriting could have a place in a well-managed small dollar lending program and that such a program could be implemented by a bank directly or through “effectively managed third-party relationships.” Citing to prior guidance on these topics generally, the agencies did not provide additional detail aimed at small dollar programs.
We have also described the separate action undertaken by the Consumer Financial Protection Bureau to approve a template that depository institutions may use to obtain a no-action letter that addresses the application of the Dodd-Frank Act’s prohibition on unfair, deceptive, and abusive acts and practices to described aspects of their particular small-dollar lending products.
The Week Ahead in the European Parliament – Friday, May 22, 2020
Summary
Next week, Members of the European Parliament (“MEPs”) will gather in Brussels for a plenary session and committee meetings. Several important debates and votes are scheduled to take place.
On Monday, the Committee on Economic and Monetary Affairs (“ECON”) will have an exchange of views on the Temporary State Aid Framework with Executive Vice-President of the Commission Margrethe Vestager. On March 19, 2020, the European Commission adopted a Temporary Framework for State Aid Measures to support the economy in the current COVID-19 pandemic. This sets out conditions under which the Commission will assess how Member States may make use of the Article 170(3)(b) TFEU exemption to mitigate serious disturbances in the economy. Member State have used this exemption to remedy liquidity shortages and provide access to financing to businesses. It has consequently been updated on April 10, 2020, to include more types of aid that would qualify under the exemption. The Framework has spurred a debate between Member States on the level playing field. Certain Member States have more access to cheap credit and are better equipped to support their economies, creating an unfair competitive edge. See further Covington’s blog posts about the Framework here and here.
On Tuesday, the Employment and Social Affairs Committee (“EMPL”) will have an exchange of views with Croatian Minister of Labour and Pension System and Interim Executive Director of the European Labour Authority, Curell Gotor. The debate will focus on the impact of COVID-19 containment measures on the mobility of frontier workers in the EU. The debate will also likely touch on the Commission’s SURE program, a proposed temporary instrument to mitigate unemployment risks. Under the program, the EU would provide financial assistance to Member States that have to cope with sudden surges in public expenditure to preserve employment. The proposal has run into opposition, particularly from northern Member States, as this would be the first time that the EU would acquire competences in the field of social security.
On Wednesday, Commission President Ursula von der Leyen will present the much-anticipated new draft of the Multi-Annual Financial Framework (“MFF”) and Recovery Plan. Previously, on May 13, 2020, the European Commission presented an outline of a new Recovery Instrument to the European Parliament. The Recovery Instrument will likely have three parts. The first part will deal with public investments and reforms, while a second part will focus on boosting private and strategic investments. The third part sets out funding plans for research and health priorities. The Commission’s outline also includes “grants” and unconditional loans. Several northern countries have already expressed their opposition to grants, as they would rather the Commission gave Member States loans, conditional on strict fiscal reforms. Any proposal of the European Commission would have to be adopted by a majority of the European Parliament and unanimously by the Council of the EU.
Meetings and Agenda
Monday, May 25, 2020
Committee on Economic and Monetary Affairs
17:30 – 18:30
- Exchange of views with Margrethe VESTAGER, Executive Vice-President for a Europe Fit for the Digital Age, on the economic impact and the response to the COVID-19 pandemic
Committee on Fisheries
- Recommendations on the negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland (IN) – Rapporteur for the opinion: François-Xavier Bellamy (EPP, FR) – Adoption of amendments
- The sustainable Fisheries Partnership Agreement and its Implementing Protocol (2020-2026) between the European Union and the Republic of Seychelles (NLE)
- Rapporteur: Caroline Roose (Greens/EFA, FR)
Committee on Legal Affairs
09:00 – 13:00
Debates
- Exchange of views in the context of structured dialogue with the following Commissioners: Thierry BRETON, Commissioner for Internal Market (09.00-10.00) Věra JOUROVÁ, Vice-President – Values and Transparency (10.00-11.00) Maroš ŠEFČOVIČ, Vice-President – Interinstitutional Relations and Foresight (12.00-13.00)
Committee on Civil Liberties, Justice and Home Affairs
12:00 – 16:00
Debates
- COVID-19: Toolkit for Member States – respecting democracy, rule of law and human rights in the framework of the COVID-19 sanitary crisis – presentation by the Council of Europe
- Determination of a clear risk of a serious breach by the Republic of Poland of the rule of law (NLE), rapporteur Juan Fernando LÓPEZ AGUILAR (S&D, ES) – consideration of draft interim report and exchange of views with José Igreja MATOS, President of the European Association of Judges and Joanna HETNAROWICZ-SIKORA, Member of the National Board of IUSTITIA, Polish judges association.
- Digital Services Act and fundamental rights issues posed (INI), consideration of draft report
- Rapporteur: Kris PEETERS (EPP, BE)
Votes
- Recommendations on the negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland (INI), adoption of draft opinion
- Rapporteur for the opinion: Loránt VINCZE (EPP, RO)
- Community statistics on migration and international protection (COD), adoption of draft recommendation for second reading
- Rapporteur Jan-Christoph: OETJEN (Renew, DE)
Committee on Women’s Rights and Gender Equality
09:15 – 11:00
Debates
- The gender perspective in the Covid-19 crisis and post-crisis period – exchange of views
- The EU Strategy for Gender Equality (INI)
- Rapporteur: Maria NOICHL (S&D, DE)
- Exchange of views with Helena DALLI, Commissioner for Equality
Tuesday, May 26, 2020
Committee on Constitutional Affairs
10:00 – 19:00
Debate
- The Conference on the Future of Europe and the role of the European Parliament – exchange of views
Votes
- Recommendations on the negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland (INI), adoption of amendments
- Rapporteur for the opinion: Danuta Maria HÜBNER (EPP, PL)
Wednesday, May 27, 2020
Plenary Session
13:30 – 15:00
Debate
- EU Recovery Package
Thursday, May 28, 2020
Committee on Budgets
16:00 – 18:30
- B.A.
Committee on Transport and Tourism
10:00 – 18:30
- Presentation by the Commission of the package on tourism and transport in 2020 and beyond.
Friday, May 29, 2020
No meetings of note
Effects of Ephemeral Mass Unemployment
The Society of Actuaries recently published an essay by our own Jack Lund. The essay discusses some of the subtle effects a widespread but short-lived unemployment event might have on the American retirement system.
South Africa Prepares to Ease Lockdown Restrictions
On May 13, 2020 South African President Cyril Ramaphosa announced the government’s intention to ease restrictions imposed to curb the spread of COVID-19. This announcement comes seven weeks after South Africa first announced a national state of disaster in accordance with the Disaster Management Act, 2002 (Act No. 57 of 2002) (the “Act”). This decision to ease restrictions was informed by evidence presented by the National Command Council (“NCC”) which indicated that the early implementation of the nationwide lockdown had successfully limited the spread of COVID-19. The significant strain placed on the South African economy as a result of the nationwide lockdown necessitated a considered approach to systematically resuming commercial activity to uphold the health related gains.
The nationwide lockdown period is governed by a robust Risk Adjusted Strategy; a 5 level system of alerts aimed at defining permissible levels of general movement, travel and economic activity. In his national address on May 13, 2020, President Ramaphosa announced that government is contemplating further easing the lockdown regulations for certain provinces to move from Alert Level 4 to Alert Level 3 by the end of May. We anticipate that over the next few days, government will issue further regulations and/or amendments to existing regulations, that will outline the guidelines and directives that govern the easing of trade and permitted commercial activities, while maintaining appropriate health and safety measures.
An example of a recently published regulation is Government Gazette No. 11113 issued on May 14, 2020 which provides directives and protocols which must be observed by retailers, couriers or delivery services and customers in relation to goods transacted through e-Commerce during Alert Level 4. Until May 14, 2020, all commercial activities have been limited to ‘essential services’ and ‘essential goods’ as defined by Government Gazette No 43258 (the “Regulations”) (e.g. supermarkets, medical facilities and pharmacies etc.). Under the newly published e-Commerce Regulations, all goods may be transacted through e-commerce platforms, except for goods prohibited for sale in terms of regulations 26 and 27 of the Regulations (such as liquor, tobacco, tobacco products, e-cigarettes and related products).
For further information, please reach out to Covington’s COVID-19 Task Force at COVID19@cov.com, Robert Kayihura at RKayihura@cov.com or Mosa Mkhize MMkhize@cov.com.
This post can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.
Federal Reserve Publishes Additional Detail on TALF
On Wednesday, May 20, 2020, the Board of Governors of the Federal Reserve System (the “Board”) announced further details on the Term Asset-Backed Securities Loan Facility (“TALF”). The Board’s announcement contains key documents and forms, including the Master Loan and Security Agreement; updated FAQs and a blackline reflecting changes made against the version published on May 12, 2020; and an initial list of TALF Agents.
The announcement states that the first subscription date for TALF loans will be June 17, 2020, and that the first loan closing date will be June 25, 2020. The updated FAQs require that sponsors or issuers of proposed asset-backed securities (“ABS”) for the TALF provide certain information to the Federal Reserve Bank of New York (“FRBNY”) at least three weeks in advance of the applicable subscription date. The FAQs also note that there will be approximately two TALF loan subscription dates per month.
The updated FAQs contain extensive details on how the FRBNY will operate the TALF. Among other new details and changes to the previous FAQs, the FAQs now:
- Clarify that there is no unique regulatory capital treatment or relief for a depository institution or bank holding company holding ABS financed by a TALF loan;
- Expressly state that the compensation, stock repurchase, and capital distribution restrictions in section 4003(c)(3)(A)(ii) of the CARES Act do not apply to the TALF;
- Specify that only ABS tranches that are not junior to any other class of securities backed by the same pool of assets are eligible for TALF;
- Require that ABS eligible collateral entitle their holders to payments of both principal and interest;
- Add the new restriction that ABS issued or sponsored by entities that have received specific support in the form of Treasury direct loans, loan guarantees, or investments under section 4003(b)(1)-(3) of the CARES Act are not eligible for TALF (the Main Street Lending Program has a similar restriction such that applicants are not eligible for the Main Street Lending Program if they received specific support under section 4003(b)(1)-(3); there is no prohibition on an entity borrowing under the Main Street Lending Program and also serving as an issuer or sponsor of eligible ABS under TALF);
- Describe how the FRBNY will review collateral for TALF eligibility, including that the FRBNY may reject ABS as collateral even if the ABS satisfy these eligibility standards;
- Set the minimum TALF loan amount at $5 million; and
- Provide significant detail on information and data requirements, certification and documentation requirements, the loan subscription and closing process, and a range of post-closing issues.
These updates follow the Board’s publication of a revised TALF term sheet and extensive FAQs on May 12, 2020 (see our blog post on this announcement). The updates also come one day after Federal Reserve Chairman Powell and Treasury Secretary Mnuchin testified before the Senate Banking Committee on the Quarterly CARES Act Report to Congress. During this testimony, Chairman Powell stated that he anticipates that the four not-yet-operational Federal Reserve liquidity facilities – the Main Street Lending Program, Municipal Liquidity Facility, Primary Market Corporate Credit Facility, and the TALF – would be operational by the end of May or early June 2020.
No new TALF loans will be made after September 30, 2020, unless the Board and Treasury Secretary extend the facility.
FEMA Continues to Push Defense Production Act Authority On Several Fronts
Two notices recently published in the Federal Register indicate the Federal Emergency Management Agency (“FEMA”) intends to exercise Defense Production Act (“DPA”) authority in novel ways during the current coronavirus pandemic.
On May 12th, FEMA announced that it plans to invoke DPA authority which permits the President to consult with representatives of industry, business, financing, agriculture, labor, and other interests in order to enter into voluntary agreements or plans of action to help provide for the national defense.The following day, FEMA published the Emergency Management Priorities and Allocations System (“EMPAS”) regulations governing FEMA’s use of DPA priorities and allocations authority — which, as we’ve previously covered on several occasions, permit the executive branch to require private companies to prioritize its orders and allocate resources in the private sector as needed to promote the national defense. FEMA included a new concept of third-party rated orders in its version of DPA regulations.
The Coronavirus Voluntary Agreement
The first notice published last week announces FEMA’s intention to create a voluntary agreement with industry under Title VII of the DPA. FEMA’s stated purpose “is to maximize the effectiveness of the distribution of critical health and medical resources nationwide to respond to pandemics in general, and COVID-19 specifically, by establishing unity of effort between agreement participants and the Federal Government for integrated coordination, planning, information sharing, and distribution of critical medical resources.” FEMA envisions the agreement establishing “the terms, conditions, and procedures under which participants agree voluntarily to contribute and facilitate health and medical resource production and distribution capacity as requested by FEMA and other Federal Government entities.”
To begin, FEMA is planning to hold a tele-/web conference on May 21, 2020 at 2:00 – 3:30 p.m. EST (with potentially a second meeting on May 27). The meeting will be open to the public, though FEMA notes attendees should register by May 20. At the meeting, FEMA aims to identify agreement participants and gather technical advice on scope and substance for the draft agreement.
A key aspect of the DPA voluntary agreement authority that FEMA intends to use is the special legal defense parties entering into a DPA voluntary agreement are afforded if their actions within the scope of the agreement would otherwise violate antitrust or contract laws. This protection extends to both federal and state laws for “any action taken to develop or carry out any [DPA] voluntary agreement” provided the party complied with the DPA and the terms of the voluntary agreement itself.
The only currently-established DPA voluntary agreements are Department of Transportation-managed agreements targeted at ensuring the maritime industry can respond to rapid mobilization, deployment, and transportation requirements if DOD requires. For these programs, voluntary participants from the maritime industry are solicited to join annually. Historically, the voluntary agreement authority has also been used to enable companies to cooperate on weapons manufacture — for example, with respect to production processes or standardizing design specifications.
In comparison to the maritime DPA voluntary agreement, the Civilian Reserve Air Fleet (“CRAF”) program is also managed by the Department of Transportation and allocates civilian aircraft for potential use, if required, by DOD to augment its airlift capability if needed. Although CRAF is established using the DPA allocation authority rather than the voluntary agreement authority, civilian carriers are given preference in carrying commercial peacetime cargo and passenger traffic for DOD in return for their participation in CRAF.
Emergency Management Priorities and Allocations System
The second publication last week sets out FEMA’s new EMPAS regulations governing their use of DPA prioritizations and allocations authority with respect to coronavirus response. These regulations follow the President’s delegation to FEMA of certain DPA authority related to the coronavirus response in an April executive order.
The EMPAS will be codified at 44 C.F.R. Part 333 as part of the Federal Priorities and Allocations System (“FPAS”) — the set of regulations promulgated by the various executive agencies to exercise DPA authority that has been delegated by the President in executive orders over the years. This set of regulations already includes the Defense Priorities and Allocations System (“DPAS”), the Health Resources Priorities and Allocations System (“HPAS”), the Agriculture Priorities and Allocations System (“APAS”), the Energy Priorities and Allocations System (“EPAS”), and the Transportation Priorities and Allocations System (“TPAS”).
Two aspects of the EMPAS in particular seem to potentially give insight into FEMA’s future planned use of the DPA authorities.
First, the decision to publish a separate set of regulations in the EMPAS, rather than use other FPAS regulations, may indicate that FEMA intends to exercise its coronavirus-specific authority over an extended period of time, or may expect this authority to eventually be extended to more general emergency preparedness activities. After all, FEMA already possesses subdelegated authority to use both DPAS and APAS, and DPAS in particular is quite broad in terms of coverage. FEMA also expressly noted that it intends for the regulations to cover more than the agency’s COVID-19 response to ensure that the regulations can immediately be used in the event that its DPA authority is increased in the future. In any event, the new regulations should enhance predictability, and appear to be patterned closely after the other sets of FPAS regulations — which was to be expected, given that each set of already-established regulations are similar.
Second, in comparison to other FPAS regulations (such as DPAS or HPAS), FEMA has included several new references to “rated orders placed by FEMA or a Delegate Agency to facilitate sales to third parties.” This may be intended to reference to contracts placed in support of hospitals or other health entities, or it might be a more general reference to the overarching distributor-style role FEMA and the executive branch has seemed to play during the COVID-19 crisis with respect to PPE, ventilators, and potential treatments. This could also potentially be viewed as FEMA setting up the possibility of issuing a type of hybrid rated order/allocation action. Taking this approach could potentially allow FEMA to relieve certain restrictions that generally apply to allocation actions, including equitable distribution and rationing restrictions, and FEMA appears to intend to disclaim any liability associated with the third-party transactions that it facilitates.
FEMA indicated that it plans to issue additional guidance in the future on which agencies and programs will be eligible to use the new authorities created by the EMPAS.
The Week Ahead in the European Parliament – Friday, May 15, 2020
Summary
Due to Ascension Day, next week will be brief in the European Parliament. A limited number of Members of the European Parliament (“MEPs”) will gather in Brussels for committee meetings. Several interesting debates and hearings are scheduled to take place.
On Monday, Internal Market Commissioner Breton will appear in front of the Parliament’s Committee on the Internal Market and Consumer Protection (“IMCO”) to exchange views with MEPs on a EU-level coordination for lifting national coronavirus containment measures. Commissioner Breton has emerged as one of the Commission’s public faces fighting the pandemic. He frequently visits the Parliament to debate policy with MEPs and is involved in many of the high level dossiers. On April 15, 2020, the European Commission and Council of the EU published a joint roadmap with a path towards common lifting of containment measures. The roadmap recommends a gradual or phased approach and replace general measures with targeted measures for vulnerable groups. The roadmap also urged EU Member States to open internal borders and avoid obstructing the functioning of the EU internal market. Previously, Commissioner Breton has also been active with initiatives to facilitate contact tracing of COVID-19 and has called on big tech companies to assist with data analytics.
On the same day, the Committee on Economic and Monetary Affairs (“ECON”) will debate targeted draft amendments to the Capital Requirement Regulation (“CRR”). The measures concern, inter alia, adapting the timeline of the application of international accounting standards and the leverage ratio buffer. Also, the draft amendments seek to have public guarantees treated more favourably during the crisis, and to change the methodology for excluding particular exposures from the leverage ratio. The amendments were part of the “Banking Package” that the European Commission announced on April 28, 2020, to facilitate bank lending to mitigate the economic impact of the COVID-19 pandemic. ECON will vote on the amendments on Wednesday. The plenary session of the Parliament and the Council of the EU will then have to adopt the proposal as well. The proposal is available here.
Also on Monday, MEPs of the Committee on Public Health and Food Safety (“ENVI”) will be briefed by Professor Guido Rasi, Executive Director of the European Medicines Agency (“EMA”) on EMA’s activities in response to COVID-19. In particular, Professor Rasi will touch on the agency’s objective of expediting the development and approval of safe and effective treatments and vaccines to COVID-19. In addition, he will explain how EMA is supporting the availability of medicines in the EU.
Meetings and Agenda
Monday, May 18, 2020
Committee on the Environment, Public Health and Food Safety
09:30 – 10:30
- Exchange of views with Guido RASI, Executive Director of European Medicines Agency (EMA), on EMA activities on COVID-19 and prospects for the future
Committee on the Internal Market and Consumer Protection
14:00 – 16:00
Debates
- Exchange of views with Thierry BRETON, Commissioner for Internal Market, on the EU Exit Strategy
Committee on Fisheries
14:30 – 18:30
- Multiannual management plan for bluefin tuna in the eastern Atlantic and the Mediterranean, amending Regulations (EU) No 2017/2107, (EU) No 2019/[NAFO], (EU) No 1936/2001, and repealing Regulation (EU) No 2016/1627 (COD) – Consideration of draft report
- Rapporteur: Giuseppe FERRANDINO (S&D, IT)
- The sustainable Fisheries Partnership Agreement and its Implementing Protocol (2020-2026) between the European Union and the Republic of Seychelles (NLE) – Consideration of draft recommendation (consent) (to be confirmed)
- Rapporteur: Caroline ROOSE (Verts/ALE, FR)
Committee on Civil Liberties, Justice and Home Affairs
10:00 – 16:00
Votes (10:05-10:45)
- Situation in the Schengen area following the Covid-19 outbreak – adoption of questions for oral answer to the Commission and Council
Debates
- EASO operational support to Member States in the context of the Covid-19 pandemic, notably in Greece – presentation by Nina GREGORI, Executive Director of EASO (10.45-12.00)
- Europol’s work in combatting Covid-19 pandemic-induced criminal behaviour = presentation by Catherine DE BOLLE, Executive Director, Europol (14.00 – 15.30)
Committee on Economic and Monetary Affairs
17:00 – 18:45
Debates
- Amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic
- Recommendations on the negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland
- Rapporteur: Silva Pereira Pedro (S&D, ES)
Tuesday, May 19, 2020
Committee on Foreign Affairs
09:00 – 18:30
Vote
- European Parliament recommendation to the Council, the Commission and the Vice-President of the Commission / High Representative of the Union for Foreign Affairs and Security Policy on the Eastern Partnership, in the run-up to the June 2020 Summit (2019/2209(INI)), Rapporteur: Petras Auštrevičius (Renew, LT) (9.00 – 11.00) (Announcement of the result of the votes at 16.30).
Debates
- Annual implementing report on the EU association agreement with Georgia (2019/2200(INI) (9.30 – 11.00)
- Rapporteur: Sven MIKSER (S&D, ET)
- Exchange of views with Olivér Várhelyi, Commissioner for Neighbourhood and Enlargement, on the Eastern Partnership policy, on COVID-19 related EU support in the Neighbourhood, and Turkey, and on the future external financing instruments (16.30 – 18.30)
Committee on Industry, Research and Energy
16:00
Remote vote open until 16.30
- An EU legal framework to halt and reverse EU-driven global deforestation (INL) – Vote on draft opinion by Delara BURKHARDT (S&D, DE)
- Rapporteur: Mauri PEKKARINEN (Renew, FI)
- The European Forest Strategy – The Way Forward (INI) Vote on a draft opinion by Petri SARVAMAA (EPP, FI)
- Rapporteur: Mauri PEKKARINEN (Renew, FI)
- The EU’s role in protecting and restoring the world’s forests (INI) – Vote on a draft opinion by Stanislav POLČÁK (EPP, CZ)
- Rapporteur: Mauri PEKKARINEN (Renew, FI)
Results of the vote will be communicated to Members in writing and the final votes will take place during the next ITRE committee meeting of 28 May 2020.
- Exchange of views with Kadri SIMSON, Commissioner for Energy, on energy-related aspects of European recovery after COVID-19 (14.30-16.00)
Committee on Petitions
10:00 – 12:00
- Petition by a Spanish citizen on the management of cancelled flights and trips by airline carriers and travel agencies during the COVID-19 outbreak
- Petition by an Italian citizen on the exemption of VAT for goods and services donated in the fight against and management of the pandemic (in the presence of the petitioner by remote connection)
- Petition by a Luxemburgish citizen on defending the rights of people with intellectual disabilities and their families in times of COVID-19 emergency (in the presence of the petitioner by remote connection)
Wednesday, May 20, 2020
Committee on the Internal Market and Consumer Protection
13:45 – 18:45
Debates
- Exchange of views with Paolo GENTILONI, Commissioner for Economy – on the EU response to the COVID-19 outbreak
Committee on Agriculture and Rural Development
15:00 – 18:30
- B.D.
Committee on Economic and Monetary Affairs
13:00 – 14:00
Votes
- Amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic
Thursday, May 21, 2020
- No meetings of note
Friday, May 22, 2020
- No meetings of note
The PPP Economic Necessity Certification: SBA Provides Additional Guidance
On May 13, 2020, the Small Business Administration (“SBA”) released two FAQs, numbers 46 and 47, regarding two safe harbors from an SBA inquiry into a borrower’s statutorily required certification of economic necessity for a loan under the Paycheck Protection Program (“PPP”). FAQ 46 states that the SBA will deem any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million to have made the required certification in good faith. FAQ 47 relates to an existing safe harbor for PPP loans repaid by a specific date; the FAQ extends the deadline from May 14, 2020, to Monday, May 18, 2020. Accompanying the FAQs was an interim final rule that memorialized an earlier FAQ (number 43) that had set the repayment deadline of May 14.
The net effect of the FAQs is that a borrower that, with its affiliates, has PPP loans of more than $2 million must decide whether to repay the loan by May 18, or to undergo SBA’s review of the good-faith basis for the certification of economic necessity when the borrower’s loan forgiveness application is filed. The SBA has outlined the nature of its review in only general terms. Borrowers with PPP loans of $2 million or less are generally safe from such a review.
The safe harbors relate to the requirement in Section 1102(a) of the CARES Act that an applicant for a PPP loan certify “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing obligations” of the applicant. This certification has been the basis for criticism by, among others, the Secretary of the Treasury that successful applicants for large amounts of PPP loans may have had access to liquidity elsewhere and thus would have lacked a good-faith basis for the economic necessity certification. On April 23, 2020, in FAQ 31, the SBA addressed whether businesses owned by large companies with adequate sources of liquidity qualified for PPP loans and created a safe harbor from SBA inquiry for all companies that repaid their PPP loans by May 7, 2020. On April 28, 2020, in FAQ 37, the SBA extended this standard to businesses owned by private companies with adequate sources of liquidity. On April 29, 2020, in FAQ 39, the SBA announced that it would review all PPP loans of more than $2 million upon submission of loan forgiveness applications. On May 5, 2020, in FAQ 43, the SBA extended the repayment deadline from May 7 to May 14, observing that it intended to provide additional guidance before then on how it would review the good-faith basis for the economic necessity certification.
With FAQ 46, a borrower and its affiliates with PPP loans of less than $2 million in total will be deemed to make their certifications in good faith, but still may be subject to audit for other eligibility issues and could face investigations from other agencies for certifications that are clearly not plausible. A borrower and its affiliates that collectively have more than $2 million in PPP loans are outside this safe harbor and must decide whether to take advantage of the first safe harbor by repaying the PPP loans by May 18 or to prepare for SBA review when a PPP loan forgiveness application is filed. Such a borrower should be prepared to show “an adequate basis for the economic necessity certification, based on … individual circumstances in light of the language of the certification and SBA guidance.” A source of such guidance is FAQ 31, which advises that, in order to make a good-faith certification, a borrower must take into account its current business activity and its ability to access other sources of liquidity sufficient to support its ongoing operations in a manner that is not significantly detrimental to the business. FAQ 31 goes on to observe that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification and should be prepared to demonstrate the basis for the certification to the SBA.
Borrowers of larger loans that decide to proceed will not face further enforcement action or criminal referrals from the SBA if the SBA disagrees with the borrower’s position on the certification during an audit, provided that the borrower repays the loan after the SBA makes this determination. However, as with respect to the safe harbor for affiliate groups with loans collectively valued at less than $2 million, the SBA’s position will not necessarily govern investigations or enforcement actions from other agencies like DOJ, qui tam plaintiffs under the False Claims Act, or congressional inquiries.
For additional analysis on considerations for whether to return a PPP loan, see our colleagues’ post here.
House Leaders Push Ahead with Proposal for Virtual Oversight
Last month, we highlighted congressional efforts to ensure that Congress is able to continue conducting the business of the American people during the ongoing COVID-19 crisis. After weeks of halting progress, those efforts took an important step forward this morning with the release of a proposed resolution that would temporarily modify the House rules to enable remote action both on the House floor and in House committees. The proposed resolution, which is expected to be considered by the House Rules Committee tomorrow morning, would have immediate implications for new and ongoing oversight investigations in the House.
As we explored in our previous post, current House and Senate rules require committee meetings to be open to the public and impose in-person quorum requirements for formal committee action. These rules have complicated efforts to conduct oversight virtually, with initial efforts to conduct so-called “paper hearings” scuttled after the Senate Rules Committee advised that such procedures did not qualify as official hearings under the Senate rules.
In April, House Democrats put forward a proposal that would have amended the House rules to loosen these requirements for in-person participation in official committee action and provide a path forward for oversight investigations—both old and new. The original Democratic proposal would have authorized the Speaker to permit Members to cast floor votes by proxy upon receiving a formal notification from the House Sergeant-at-Arms that a “pandemic emergency is in effect.” In addition to enabling remote floor action, the resolution would have provided new authorities for House committees to conduct official business virtually during any period in which proxy voting is permitted.
In response to GOP opposition, Speaker Pelosi abruptly paused consideration of the Democratic proposal soon after its release and formed a task force to study the issue and come forward with consensus recommendations. The resolution introduced today is the byproduct of those discussions.
Overall, the new resolution narrows the scope of the original proposal in certain respects. Under the new proposal, the Speaker would be authorized to permit proxy voting only upon a formal notification from the House Sergeant-at-Arms that a “a public health emergency due to a novel coronavirus is in effect.” Likewise, whereas an order permitting proxy voting would have automatically expired after 60 days under the original resolution, that period is now reduced to 45 days. On the other hand, the new resolution would go further by designing a process to permit actual remote voting (i.e., as opposed to voting by proxy). Remote voting would be permitted upon certification by the Committee on Administration that “operable and secure technology exists” to enable such voting, among other prerequisites.
Beyond these broader changes, however, the new rules governing remote committee hearings are largely unchanged. Specifically, the resolution would allow House committees to “conduct proceedings remotely” and provides that such proceedings are “considered as official proceedings for all purposes in the House.” Committees conducting hearings would be required to ensure that Members are able to participate virtually “to the greatest extent practicable,” with those Members counted for the purpose of establishing a quorum. The resolution also includes language harmonizing any temporary virtual procedures with existing committee rules. Most notably, committee chairs would be authorized to “issue subpoenas for return at a hearing or deposition to be conducted remotely.” Likewise, the resolution would allow for witnesses to be placed under oath remotely and provides that witnesses may be accompanied by legal counsel when offering testimony.
The resolution does not designate a particular technology that committees must use to take testimony virtually, but the Rules Committee has advised that the Committee on Administration must approve the technology chosen. Further, the Committee on House Administration is tasked with studying the feasibility of differing technologies, to assess the security and usability of any technologies used for remote committee proceedings. Finally, the resolution specifically provides for the technical challenges that will surely arise as Congress adapts to unfamiliar virtual solutions, allowing Committee chairs to “declare a recess subject to the call of the chair at any time to address technical difficulties with respect to such proceedings.”
While these proposed procedures are designed to allow the House to continue to operate in the immediate future, House Rules Committee Chairman James McGovern has emphasized that these are temporary solutions. Whether Senate leaders will follow their House colleagues in embracing virtual committee action remains uncertain. As before, Covington’s congressional investigations team continues to monitor these developments closely and advise clients on the impacts of any procedural changes on ongoing and future congressional oversight inquiries.
