July 1, 2020
The Honorable Jovita Carranza
U.S. Small Business Administration
409 3rd Street SW
Washington, DC 20416
Re: Docket No. SBA–2020–0033 Business Loan Program Temporary Changes; Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (RIN 3245-AH47)
Dear Administrator Carranza,
The National Association of State Credit Union Supervisors (NASCUS) submits the following comments in response to the U.S. Small Business Administration’s (SBA’s) request for comments on Business Loan Program Temporary Changes; Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (RIN 3245-AH47), one of the Interim Final Rules (IFR) implementing the Paycheck Protection Program (PPP). The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to provide emergency assistance to individuals and entities affected by the COVID-19 pandemic. Section 1102 of the CARES Act authorized the SBA to establish a new loan program to assist small businesses nationwide known as the PPP and to be administered under the SBA’s Section 7(a) loan program with the loans fully guaranteed and eligible for full forgiveness if established criteria are met.
NASCUS appreciates the sheer scale of the undertaking by SBA to stand up and administer a loan program as complex, and consequential, as the PPP. Thru May 30, 2020, the program had processed nearly 4.5 million loans, for an aggregate amount of over $500 billion, and included 5,454 participating lenders.
Credit unions and their regulators have worked diligently to serve the public throughout the crisis and to implement the PPP. We hope as SBA progresses to finalization of the rules that will govern the administration of the PPP it will keep in mind the turbulent nature of the roll-out of the program with near constant regulatory and statutory changes being promulgated throughout the first three months of implementation. Financial institutions already face a growing specter of litigation related to uncertainty in PPP rules. It is incumbent on the SBA to provide clear, unambiguous rules as well as good faith safe-harbor protections for lenders that stepped up to administer the loan process under the PPP.
The proposed process by which PPP loans will be reviewed by the lender, and, in some cases, by the SBA, promise to be labor intensive. We are concerned that many financial institutions will be strained by the review process at a time when normal operations remain disrupted by the pandemic and the challenges from an extended economic downturn persist.
Furthermore, SBA’s IFRs continue to present inconsistencies with respect to a lender’s obligations to “confirm” the borrower’s information. On the one hand, SBA notes that lenders are not required to verify borrower’s submissions and may rely on those submissions. But mere paragraphs earlier, § 2(a) recites a litany of lines on the form lenders must confirm for accuracy of information. Even if this is intended to require mere confirmation that borrower added lines correctly, it seems ripe for confusion for both borrowers and lenders.
In addition, placing the onus on the lender to evaluate the eligibility of the borrower for forgiveness and to communicate to the borrower the determination that forgiveness is being denied imparts upon the lender the perception that the lender’s criteria resulted in the denial when in fact these are all SBA’s thresholds. Particularly for credit unions where the borrowers have a member relationship with the credit union, this poses a potentially serious reputation risk.
NASCUS is also concerned with the claw back provisions of § 3(c). There are many technical requirements established by the various IFRs issued related to the PPP. It would appear, and experience with other 7(a) lending programs would seem to confirm, that even technical violations of SBA rules might result in the termination of a guarantee and claw back of fees. In the case of PPP, lenders would have already expended considerable resources processing the loans and administering the program. To claw back the fees or invalidate a guarantee because of a technical violation seems excessive, particularly considering the scarcity of current guidance and the promise of future guidance (which may run contrary to current practices). We are also concerned that credit unions with limited SBA loan servicing experience may find themselves servicing unforgiven and unguaranteed loans.
We recommend SBA streamline and simplify the lender review process and establish a good faith safe harbor for lenders. A broad category of PPP loans should be automatically forgiven or carry the presumption of forgiveness barring SBA review and identification of problems. This would ease burden on lenders as well as borrowers and serve the spirit of the program to assist small businesses rather then encumber them with a complicated forgiveness process and a strained relationship with their lender.
NASCUS appreciates the opportunity to submit comments on the SBA’s Interim Final Rules implementing the PPP. As noted above, this effort to provide essential economic assistance to millions of small businesses and American workers is critically important to mitigate the financial impact of the COVID-19 pandemic. NASCUS, state credit union regulators, and the state credit union system remain committed to working with the SBA to ensure the successful administration of the PPP in a safe, sound, and effective manner. It is incumbent on the SBA to provide clear guidelines that allow borrowers and lenders to understand their responsibilities and obligations under the PPP. We are available at your convenience to discuss our recommendations further at your convenience.
– signature redacted for electronic publication –
Executive Vice President & General Counsel
 NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise over 2,100 credit unions.
 85 Fed. Reg. 105 at 33010 (June 1, 2020).
 Pub. L. 116–136.
 SBA Paycheck Protection Program Report, May 30, 2020, available at https://www.sba.gov/sites/default/files/2020-06/PPP_Report_200530-508.pdf.
 As noted in our comments submitted on May 15 in response to Rin 3245-AH34, there has already been extensive litigation regarding the ambiguity related to agent fees.
 Many credit union lenders worked to provide PPP loans to micro businesses and small businesses from underserved communities. These borrowers may have often relied on their credit union for assistance with the application process and will likely seek assistance in completing the forgiveness application, further straining the credit union’s capacity.
 85 Fed. Reg. 105 at 33013 (June 1, 2020).