The Consumer Bankers Association (CBA) wrote to federal regulators, asking them to consider Paycheck Protection Program (PPP) loans as positive considerations under the Community Reinvestment Act (CRA).
The letter urges regulators to have examiners have the loans qualify as community development loans without extensive reviews or additional documentation.
“Many institutions have already greatly reallocated resources and innumerable staff to participate in the PPP program,” CBA President and CEO Richard Hunt wrote to the heads of the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency. “Requiring further verification on these loans will only inundate banks with unnecessary regulatory burden, rather than applying those resources to further serve communities during this trying time. Banks need an efficient process to qualify PPP program loans for positive CRA consideration so they can move on to addressing the developing needs of their communities.”
The letter began by noting the “impressive work” banks performed during the pandemic by their involvement in PPP. Over the course of weeks, CBA banks funded hundreds of billions of dollars to businesses nationwide.
“Banks moved team members from every aspect of their institution who worked around the clock to set up the program in rapid fashion,” the letter stated. “After the program was established, even more was required of banks, as they processed tens of thousands of loans in a few days. Without banks’ response to this program, tens of thousands of small business across the country would have faced financial ruin, and many Americans would have lost their jobs.”
The letter states that the rapid launch of PPP has created grey areas around the treatment of loans, including how they are considered under CRA.
“In practice, the vast majority of these loans will meet CRA standards and carry a community development purpose,” the letter stated. “To best serve communities, CRA examiners should provide positive CRA consideration for these loans in the most streamlined and efficient manner possible.”
The letter stated that guidance and conversations with regulators found that banks must work with examiners to prove there was a community development purpose for each loan to qualify under CRA – creating an obstacle in the process for banks.
“First and foremost, the primary purpose of PPP loans is job retention. This alone should qualify the loans as community development responsive to an emergency nationwide disaster, without further documentation or verification, as loans made under the program inherently meet the purpose of community development,” the letter stated. “At a minimum, we believe the agencies should presume that any PPP loan greater than $1 million to a business in a low- to moderate-income geography or a distressed or underserved nonmetropolitan middle-income census tract has a positive CRA impact.”
The letter added that because regulators have granted favorable treatment to activities which revitalize or stabilize a designated disaster area (DDA) for activities related to disaster recovery that attract new or retain existing businesses or residents, PPP should qualify as well, because the Federal Emergency Management Agency (FEMA) issued major disaster declarations for all 50 states, the District of Columbia, and certain U.S. territories.
“Accordingly, PPP loans should qualify under this standard, as activities responsive to the needs small businesses affected by COVID-19 within the DDAs declared by FEMA, as long as they are consistent with safe and sound banking practices,” the letter stated.
Many banks did not have a Small Business Administration (SBA) lending program, yet created one for PPP to help businesses, and even those which did have SBA programs pushed through more loans in a few weeks than they had in decades prior.
“The PPP is unique from existing SBA loan programs and required innovative practices to launch quickly to best meet the needs of businesses and their communities,” the letter stated.