I am the General Counsel for
a bank. I have read your Checklist and Workbook on business continuity and the
pandemic response. Thank you for providing this service! My question relates to
the SBA Paycheck Protection Program and the implications involving the Equal
Credit Opportunity Act. I have three questions.
1) If we receive an SBA Paycheck Protection Program (PPP) loan
application and submit it to the SBA, is the application deemed “completed” before
we have received a loan number from the SBA or a response about the
availability of funds, thereby requiring us to provide a notice of action taken
within 30 days?
2) If we receive a PPP loan application and deny the credit
request without ever submitting the PPP loan to the SBA, do we need to provide
a Regulation B adverse action notification?
3) If we gather sufficient data from the PPP loan
applicant for a credit decision, but we have not received a loan number from
the SBA or a response about the availability of funds, can we deny the
application based on incompleteness?
ANSWER
Thank you for your question. We expect to publish Update
# 7 to the Checklist and Workbook next week.
The Checklist discusses the PPP, which is a program made available by
the SBA. The SBA is responsible for providing guidance and information about
the requirements for the program. For more information about the PPP, I
encourage you to visit the SBA website HERE.
The Equal
Credit Opportunity Act (ECOA) can be daunting in its nuances. And never more so
where its requirements apply to the SBA Paycheck Protection Program (PPP). As
you probably know, each of the questions you pose could get its own FAQ here.
But, given the urgency caused by the pandemic, I am going to provide a brief –
but hopefully cogent – answer to all three questions. My responses are meant to
be specific to the Paycheck Protection Program.
Question 1: If we receive an SBA Paycheck Protection Program (PPP) loan
application and submit it to the SBA, is the application deemed “completed” before
we have received a loan number from the SBA or a response about the
availability of funds, thereby requiring us to provide a notice of action taken
within 30 days?
Answer: No.
First, let’s note that the 30-day requirement applies
to an applicant that is a business that had gross revenues of $1 million or
less in its preceding fiscal year. If an applicant is a business that had gross
revenues in excess of $1 million in its preceding fiscal year, you must notify
the applicant of the action taken within a reasonable period of time. [12 CFR
1002.9(a)(3)(ii)] For such businesses, notification within 30 days counts as “reasonable”
in all instances. [Comment 9(a)(3)-5] Moreover, this clarification regarding
what constitutes a completed PPP application under Regulation B generally
applies to all applicants, regardless of gross revenue.
Under the Equal Credit Opportunity Act (ECOA) and its
implementing Regulation B, creditors are required to notify an applicant of
action taken within 30 days after receiving a “completed application”
concerning the creditor's approval of, counteroffer to, or adverse action on
the application. [12 CFR 1002.9(a)(1)]
A PPP application that you submitted to the SBA for
loan processing is not a “completed application” under Regulation B until you
(as the creditor) receive a loan number from the SBA or a response about the
availability of funds.
Under Regulation B, an application is completed when
“a creditor has received all the information that the creditor regularly
obtains and considers in evaluating applications for the amount and type of
credit requested …” [12 CFR 1002.2(f); comment 9(a)(1)-1] This information
includes, but is not limited to, “any approvals or reports by governmental
agencies or other persons that are necessary to guarantee, insure, or provide
security for the credit or collateral.” [12 CFR 1002.2(f)]
Under the PPP requirements, you (as the creditor) have
delegated authority to approve a loan but the SBA must issue a loan number for
a PPP loan to be guaranteed by the SBA.[*]
Therefore, where the creditor has submitted to the SBA
a PPP loan application, the 30-day timeline to notify the applicant of the
action taken on a completed application under Regulation B does not begin until
a creditor has received a loan number from the SBA or a response about the
availability of funds. You must act with reasonable diligence to collect
information needed to complete an application. [See 12 CFR 1002.2(f); comment
2(f)-6]
Question 2: If we receive a PPP loan application and refuse
to grant credit without ever submitting the PPP loan to the SBA, do we need to
provide a Regulation B adverse action notification?
Answer: Yes.
By the term “refus(es) to grant credit,” you may be
referring to 12 CFR 1002.2(c)(1)(i). To be clear, under Regulation B a creditor
must provide an adverse action notification within 30 days after taking adverse
action on a PPP application. If an application is missing information but
provides sufficient data for a credit decision, you (as the creditor) may
evaluate the application, make the credit decision, and notify the applicant
accordingly. [Comment 9(a)(1)-4] If the credit is denied, the applicant must be
given the specific reasons for the credit denial (or notice of the right to
receive the reasons). [Idem]
Question 3: If we gather sufficient data from the PPP loan
applicant for a credit decision, but we have not received a loan number from
the SBA or a response about the availability of funds, can we deny the
application based on incompleteness?
Answer: No.
Perhaps this seems like a controversial question, but
it really isn’t, because under Regulation B an application may be denied for
incompleteness only if an application is incomplete regarding information that
the applicant can provide and the creditor lacks sufficient data for a credit
decision. [Comment 9(a)(1)-3]
Alternatively, if an application is incomplete
regarding matters that an applicant can complete, a creditor has the option of
providing a notice of incompleteness under section 1002.9(c)(1)(ii).
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
[*] See PPP
Interim Final Rule, 85 FR 20811 (April 15, 2020) (SBA is authorized to
guarantee loans made under the PPP), available at https://www.sba.gov/sites/default/files/2020-04/PPP%20Interim%20Final%20Rule_0.pdf;
SBA PPP Loans Frequently Asked Questions, at Question 21 and n.6 (April 29,
2020) (notes that a lender may issue a PPP loan if it completes the process of
submitting a loan through the E-Tran system and receives a loan number),
available at https://www.sba.gov/sites/default/files/2020-04/Paycheck-Protection-Program-Frequently-Asked-Questions_04%2029%2020_2.pdf.
