The Pennsylvania Association of Community Bankers joined with the Independent Community Bankers of America and state banking associations, representing over 50,000 community bank locations across the nation, to urge Congress to include a series of recommendations in the next legislative package to create relief for American small businesses impacted by COVID-19 and the millions of people they employ.
The recommendations were developed in consultation with community bankers from across the country representing rural, suburban and urban markets.
Simplified Forms and Procedures for Paycheck Protection Program Loan Forgiveness
The community banking groups actively support S. 4117, introduced by Senator Kevin Cramer, which would create a presumption of compliance and forgiveness for PPP loans with an original balance of $150,000 or less based on the borrower’s certification that the funds were used in accordance with the terms of the program. Protections against fraud and misrepresentation would still apply.
Congress should also create a straightforward, easy-to-apply approach to loan forgiveness, which should include an online PPP loan forgiveness calculator provided or certified by Treasury and the Small Business Administration (SBA). The Calculate PPP Forgiveness Act (H.R. 7413/S. 4171) would provide for such a calculator.
SBA Purchase of Residual PPP Loans at Par
After the forgiveness amount of a PPP loan has been determined, the SBA should purchase the remaining loan at par from originating institutions. Preserve Expense Deduction for PPP Borrowers Allow PPP borrowers that also obtain loan forgiveness to deduct payroll and other business expenses, as provided for by the Small Business Expense Protection Act of 2020 (S. 3612/H.R. 6821).
Bank Capital and Accounting Relief
Enact bank capital and accounting relief measures to support borrowers and lenders facing historically challenging circumstances. Banks’ strong capitalization at the beginning of the crisis means that capital and accounting can be implemented without compromising safety and soundness. Our recommendations include:
- Extension of Troubled Debt Restructuring (TDR) provisions of the CARES Act through Dec. 31, 2021, and suspension of impairments of COVID-19-impacted assets for a period of two years. COVID-19-related loan losses should be amortized over a seven- or 12-year period, depending on the type of collateral backing the loan. PPP lending should have no impact on a community bank’s risk-based capital and leverage ratios.
- Suspension of FASB’s Current Expected Credit Losses (CECL) implementation until 2025.
- Make the 8% Community Bank Leverage Ratio (CBLR) permanent for institutions of $10 billion or less in assets.
Create a liability safe harbor for businesses from COVID-19-related lawsuits. Community banks and small businesses have strong incentives to ensure the safety of their employees and customers. Fear of opportunistic class actions or other suits will inhibit the restoration of economic activity and potentially transfer wealth from employers to trial lawyers.
Support Agricultural Lending
Allow interest on loans secured by agricultural real estate or primary residences in rural communities to be tax-exempt as provided for in the Enhancing Credit Opportunities in Rural America (ECORA Act, H.R. 1872/S. 1641).
Expand Employee Retention Tax Credit
We support the Jobs Credit Act of 2020 (H.R. 6776), which would expand the Employee Retention Tax Credit (ERTC) created by the CARES Act. We further recommend that the ERTC be available to businesses that have been deemed essential, such as banks that have closed their lobbies to the public.
Industrial Loan Company Moratorium
We urge Congress to enact a moratorium of at least three years on the FDIC’s approval of deposit insurance applications for ILCs. A three-year moratorium was included in the Dodd-Frank Act as an appropriate response to a highly uncertain economic environment.
We urge Congress to extend the government-sponsored enterprises’ qualified mortgage patch to January 2022 to help avoid additional disruption to the housing market. We support aid to state and local Housing Finance Agencies for helping borrowers with mortgage payments, forbearance and loan modifications. The Federal Reserve should establish a liquidity facility for all mortgage servicers.
Support for Local Regions
Raise current bank-qualified municipal bond annual issuance limit to $50 million from $10 million to expedite low-cost funding for local projects.
Financial Assistance to the Farm Sector
Provide additional direct financial assistance to farmers, ranchers and others involved in the food sector.
Enhance USDA Guaranteed Lending Programs
Increase funding and loan limits for USDA direct and guaranteed loan programs. Allow the Farm Services Agency (FSA) to reimburse borrowers for guaranteed loan fees through 2021. Temporarily suspend term limits on FSA direct operating loans through 2021.
Pennsylvania Association of Community Bankers