Over the last couple weeks, we have been digging into the regulatory compliance issues that may affect you during this COVID-19 pandemic. We know you are working extra hard to serve your customers during this time and we want to serve you by sharing what we’ve learned. Check out the clips below from our recent COVID-19 related webinars and forum.
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How do you report those borrowers who are experiencing troubles related to this disaster? The rules are relatively simple and straight forward. If you look at 2A on the screen there, if your borrower is current, so in other words, I come in and I say, “Look, I’m current on my loans but I can’t go in and I’m not going to work anymore,” or something along those lines, and I recognize I’m going to need some help and you provide me maybe a deferral of some sort, if I was current when I came in and spoke to you, then you will continue to report me current. Even if I’m not making payments, you continue to report me current during the course of that forbearance or deferral or whatever the workout agreement is.
Refinance, Modifications & Renewals
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Let’s talk about the big picture for today. Today’s agenda is one hour. We’re going to try to split up those three terms that get used; refinance, modification, and renewal, and explain in the weeds what each is or maybe is not, what can and can’t you do, trying answer those questions.
When are we supposed to provide you disclosures?
When don’t we have to provide you with disclosures? Regulatory requirements that are triggered, we’ll spend a good amount of time there. Giving you a heads up on things to be aware of if you do this versus that, and then the regulatory guidance that comes along with some of the things that the regulatory agencies have put out there to help us as we go through these types of transactions.
At the very top, we’ve got this overview. There’s two sentences there underneath the Roman Numeral I. Really, it introduces us to this topic that’s these three terms; refinance, modification and renewal. Let’s start this way.
Refinance, Modification, & Renewal
The confusion that really comes with these is lenders, maybe within the same organization, same building, same office, whatever, they refer to these as being all the same or maybe two out of the three are the same. They don’t mean the same thing. They’re not synonyms. Each one is its own thing, and what we’re going to do today is break that down so that we don’t cause some of that confusion. Because if you think it’s this and it’s that, it could have implications and consequences as it relates to compliance, and that’s some of the things that we’re going to break down today.
Breaking Down the Differences
What it comes down to is two common questions that really come with these terms, and we’ve made them bold in italics for you there. That’s really what Dave and I are going to try to address as we go through this program is, what can or can’t you do? And then depending on what I do, does it trigger new disclosures, and then what are those disclosures? That’s what we’re going to try to break down as we go through today’s program.
What Are You Trying To Do?
The question to you, and I don’t necessarily want you to answer now, it’s going to be the Roman Numeral II. What are you really trying to do here? Are you trying to do a refinance? Are you trying to do a modification only? Are you doing something that you may think is a renewal? Are you using that term? And I’m going to stop short there.
What are you trying to do? And in most organizations, you’re probably using all three of those terms. It’s just we’re not necessarily using them the right way and being on the same page with everybody involved. Compliance has a very different take on those three words, and it’s because we’re very technical than does your lending department, and they probably think differently about what those three terms trigger or don’t trigger along the way.
CARES Act SBA Payroll Protection Program Loans & Regulatory Compliance
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The act and the rule put out some language about Bank Secrecy Act, the anti-money laundering programs and how they intersect. And basically, rule number one has been follow your program, follow your program, follow your program. And then they use some wording that wasn’t real clear to most of us that do what I do, what Dave does, what entities like ours do in compliance. I’m like, “Wait a minute, they’re using this word, but what about that word?” Because they kept using the word reverify, the act, the interim final rule. Even FinCEN’s guidance that came out, that stuff that you have on page 19, seems to only refer to reverify. Well, remember, it’s a two part process. Certify, then verify. And you can really look at what FinCEN put out and compare it back to the guidance and they use some of the same wording, and so they got people that are technical gurus like us to say, “Wait a minute, they’re only talking about this. What about that?”
Breaking Down the Ruling
Well, I’ve got a team mate, Deb Irving, she has emailed FinCEN, I don’t know, seven different times in the last three days, trying to be very specific with the question to get them to confirm one way or another, exactly what they mean. They won’t quote anything to us other than what you see on page 19. Now, I do have one update. The email we got back a half hour before this program started, now they’re quoting the newest piece of guidance, which created a whole other can of worms that we’re going to go into, which is the treasury FAQ, the updated version of them that came out just yesterday, and it’s FAQ number 18 if you’re not familiar with it, I’m going to have Diane Dean give us a link here in just a little bit so that you have direct access to that, but that opened up another can of worms that we’re going to walk through.
Understanding the Bottom of Page 19
So here’s the deal. You’ve got some space in the bottom of page 19 and if that’s not enough, find yourself a trusty yellow notebook or some other scratch piece of paper, but I’m going to give you where we stand on this right now and it could change after the program’s done, but this is where things are at. First off, as it relates to beneficial ownership requirements and your bank and this PPP loan program, rule number one is this, you have to follow your program, follow what your written procedures say you’re supposed to do. Now in light of that, let’s stop and pause for a moment. If I’m supposed to follow my program, that just means we’re going to do everything all the time as it relates to beneficial owners.
Then why do I care about the guides? Well, I think the guidance is important.
I think the spirit, the intent when the guidance was put out originally by the act itself, and then the interim rule, and then the guidance that’s been flubbed through this thing, the idea here was to fast track these loans. Remember, these are businesses that are in need business that we want the doors to stay open and we don’t want to lose because of this pandemic. And so I think the idea all along has been to fast track these loans and not have an issue, or not create an extra hurdle, when they’re existing customers that you know, provided you believe you know that. So with that understanding, rule number one says follow your program. If you’re going to try to follow the guidance that’s been put out that we’re going to go through here, your program very likely needs an adjustment and these programs are all approved by bank boards or subcommittees of boards.
So What Guidance Do You Follow?
So you may have to call a special immediate board meeting to make a small adjustment to your program that says, “In the event that it’s a PPP loan, here’s how we’re going to carry out beneficial owner for existing customers,” because that’s what we’re working towards here. In talking to our team, the only way you’re going to be able to follow this guidance is if you make an adjustment to your program, which has to be approved by a board or a committee that is created of board members. In order to do this, now, I think you can do that pretty easily. You probably have rules for how your board meetings need to run. You probably can get that done, but that’s something you’ll want to look at doing sooner rather than later.
COVID-19, Compliance & You
David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.