Business Loan Program Temporary Changes; Paycheck Protection Program-Additional Eligibility Revisions to First Interim Final Rule, 38301-38304 [2020-13942]
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Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Rules and Regulations
the applicant’s or co-applicant’s
ethnicity, race, sex, and age as ‘‘not
applicable’’ if the applicant or coapplicant is not a natural person. For
these reasons, the Bureau will not count
first-lien originations reported in HMDA
data for which both the applicant’s and
co-applicant’s ethnicity, race, sex, and
age all are reported as follows: (1) The
applicant’s ethnicity is reported as ‘‘Not
applicable’’ (HMDA Code 4); (2) the
applicant’s race is reported as ‘‘Not
applicable’’ (HMDA Code 7); (3) the
applicant’s sex is reported as ‘‘Not
applicable’’ (HMDA Code 4); (4) the
applicant’s age is reported as ‘‘Not
applicable’’ (HMDA Code 8888); (5) the
co-applicant’s ethnicity is reported as
‘‘Not applicable’’ (HMDA Code 4) or
‘‘No co-applicant’’ (HMDA Code 5); (6)
the co-applicant’s race is reported as
‘‘Not applicable’’ (HMDA Code 7) or
‘‘No co-applicant’’ (HMDA Code 8); (7)
the co-applicant’s sex is reported as
‘‘Not applicable’’ (HMDA Code 4) or
‘‘No co-applicant’’ (HMDA Code 5); and
(8) the co-applicant’s age is reported as
‘‘Not applicable’’ (HMDA Code 8888) or
‘‘No co-applicant’’ (HMDA Code 9999).
The underserved counties list, using
the HMDA data described above, can be
found on the Bureau’s public website at
https://www.consumerfinance.gov/
policy-compliance/guidance/mortgageresources/rural-and-underservedcounties-list/, where, consistent with
past practice, the list is made available
along with historical lists.
C. Legal Authority
The Bureau is issuing this interpretive
rule based on its authority to interpret
Regulation Z, including under section
1022(b)(1) of the Dodd-Frank Act, which
authorizes guidance as may be
necessary or appropriate to enable the
Bureau to administer and carry out the
purposes and objectives of Federal
consumer financial laws.5
By operation of TILA section 130(f),
no provision of TILA sections 130,
108(b), 108(c), 108(e), or 112 imposing
any liability applies to any act done or
omitted in good faith in conformity with
this interpretive rule, notwithstanding
that after such act or omission has
occurred, the interpretive rule is
amended, rescinded, or determined by
judicial or other authority to be invalid
for any reason.6
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Because this rule is solely
interpretive, it is not subject to the 305 12 U.S.C. 5512(b)(1). The relevant provisions of
Regulation Z form part of Federal consumer
financial law. 12 U.S.C. 5481(12)(O), (14).
6 15 U.S.C. 1640(f).
16:24 Jun 25, 2020
III. Regulatory Requirements
This rule articulates the Bureau’s
interpretation of Regulation Z and TILA.
As an interpretive rule, it is exempt
from the notice-and-comment
rulemaking requirements of the
Administrative Procedure Act.8 Because
no notice of proposed rulemaking is
required, the Regulatory Flexibility Act
does not require an initial or final
regulatory flexibility analysis.9
The Bureau has determined that this
interpretive rule does not impose any
new requirements or revise any existing
recordkeeping, reporting, or disclosure
requirements on covered entities or
members of the public that would be
collections of information requiring
approval by the Office of Management
and Budget under the Paperwork
Reduction Act.10
IV. Congressional Review Act
Pursuant to the Congressional Review
Act,11 the Bureau will submit a report
containing this interpretive rule and
other required information to the United
States Senate, the United States House
of Representatives, and the Comptroller
General of the United States prior to the
rule’s published effective date. The
Office of Information and Regulatory
Affairs has designated this interpretive
rule as not a ‘‘major rule’’ as defined by
5 U.S.C. 804(2).
V. Signing Authority
The Director of the Bureau, having
reviewed and approved this document,
is delegating the authority to
electronically sign this document to
Laura Galban, a Bureau Federal Register
Liaison, for purposes of publication in
the Federal Register.
Dated: June 23, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer
Financial Protection.
[FR Doc. 2020–13801 Filed 6–25–20; 8:45 am]
BILLING CODE 4810–AM–P
II. Effective Date
VerDate Sep<11>2014
day delayed effective date for
substantive rules under section 553(d)
of the Administrative Procedure Act.7
Therefore, this rule is effective on June
26, 2020, the same date that it is
published in the Federal Register.
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75
U.S.C. 553(d).
U.S.C. 553(b).
9 5 U.S.C. 603(a), 604(a).
10 44 U.S.C. 3501 et seq.
11 5 U.S.C. 801 et seq.
85
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket No. SBA–2020–0039]
RIN 3245–AH53
Business Loan Program Temporary
Changes; Paycheck Protection
Program—Additional Eligibility
Revisions to First Interim Final Rule
U.S. Small Business
Administration.
ACTION: Interim final rule.
AGENCY:
On April 2, 2020, the U.S.
Small Business Administration (SBA)
posted on its website an interim final
rule relating to the implementation of
sections 1102 and 1106 of the
Coronavirus Aid, Relief, and Economic
Security Act (CARES Act or the Act)
(published in the Federal Register on
April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled
the ‘‘Paycheck Protection Program,’’ to
the U.S. Small Business
Administration’s (SBA’s) 7(a) Loan
Program. Subsequently, SBA issued a
number of interim final rules
implementing the Paycheck Protection
Program. On June 12, 2020, SBA posted
on its website an interim final rule
revising the interim final rule published
in the Federal Register on April 15,
2020 by changing the eligibility
requirement related to felony
convictions of applicants or owners of
the applicant. This interim final rule
further revises SBA’s interim final rule
published in the Federal Register on
April 15, 2020, by further changing that
eligibility requirement.
DATES:
Effective date: The provisions in this
interim final rule are effective June 24,
2020.
Comment date: Comments must be
received on or before July 27, 2020.
ADDRESSES: You may submit comments,
identified by number SBA–2020–0039,
through the Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
SBA will post all comments on
www.regulations.gov. If you wish to
submit confidential business
information (CBI) as defined in the User
Notice at www.regulations.gov, please
send an email to ppp-ifr@sba.gov.
Highlight the information that you
consider to be CBI and explain why you
believe SBA should hold this
information as confidential. SBA will
review the information and make the
final determination whether it will
publish the information.
SUMMARY:
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A
Call Center Representative at 833–572–
0502, or the local SBA Field Office; the
list of offices can be found at https://
www.sba.gov/tools/local-assistance/
districtoffices.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
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I. Background Information
On March 13, 2020, President Trump
declared the ongoing Coronavirus
Disease 2019 (COVID–19) pandemic of
sufficient severity and magnitude to
warrant an emergency declaration for all
states, territories, and the District of
Columbia. With the COVID–19
emergency, many small businesses
nationwide are experiencing economic
hardship as a direct result of the
Federal, State, and local public health
measures that are being taken to
minimize the public’s exposure to the
virus. These measures, some of which
are government-mandated, have been
implemented nationwide and include
the closures of restaurants, bars, and
gyms. In addition, based on the advice
of public health officials, other
measures, such as keeping a safe
distance from others or even stay-athome orders, have been implemented,
resulting in a dramatic decrease in
economic activity as the public avoids
malls, retail stores, and other
businesses.
On March 27, 2020, the President
signed the Coronavirus Aid, Relief, and
Economic Security Act (the CARES Act
or the Act) (Pub. L. 116–136) to provide
emergency assistance and health care
response for individuals, families, and
businesses affected by the coronavirus
pandemic. The Small Business
Administration (SBA) received funding
and authority through the Act to modify
existing loan programs and establish a
new loan program to assist small
businesses nationwide adversely
impacted by the COVID–19 emergency.
Section 1102 of the Act temporarily
permits SBA to guarantee 100 percent of
7(a) loans under a new program titled
the ‘‘Paycheck Protection Program.’’
Section 1106 of the Act provides for
forgiveness of up to the full principal
amount of qualifying loans guaranteed
under the Paycheck Protection Program.
On April 24, 2020, the President
signed the Paycheck Protection Program
and Health Care Enhancement Act (Pub.
L. 116–139), which provided additional
funding and authority for the PPP. On
June 5, 2020, the President signed the
Paycheck Protection Program Flexibility
Act of 2020 (Flexibility Act) (Pub. L.
116–142), which changed provisions of
the PPP relating to the maturity of PPP
loans, the deferral of PPP loan
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payments, and the forgiveness of PPP
loans.
II. Comments and Immediate Effective
Date
This interim final rule is effective
without advance notice and public
comment because section 1114 of the
CARES Act authorizes SBA to issue
regulations to implement Title I of the
Act without regard to notice
requirements. In addition, SBA has
determined that there is good cause for
dispensing with advance public notice
and comment on the grounds that that
it would be contrary to the public
interest. Specifically, advance public
notice and comment would defeat the
purpose of this interim final rule given
that SBA’s authority to guarantee PPP
loans expires on June 30, 2020. These
same reasons provide good cause for
SBA to dispense with the 30-day
delayed effective date provided in the
Administrative Procedure Act (APA).
Although this interim final rule is
effective on or before date of filing,
comments are solicited from interested
members of the public on all aspects of
the interim final rule, including section
III below. These comments must be
submitted on or before July 27, 2020.
The SBA will consider these comments,
comments received on the interim final
rule posted on SBA’s website April 2,
2020 (the First Interim Final Rule) and
published in the Federal Register on
April 15, 2020, comments received on
the interim final rule posted on SBA’s
website June 12, 2020 and published in
the Federal Register on June 18, 2010,
and the need for making any revisions
as a result of these comments.
III. Paycheck Protection Program—
Additional Eligibility Revisions to First
Interim Final Rule (85 FR 20811)
Overview
The CARES Act was enacted to
provide immediate assistance to
individuals, families, and businesses
affected by the COVID–19 emergency.
Among the provisions contained in the
CARES Act are provisions authorizing
SBA to temporarily guarantee loans
under a new 7(a) loan program titled the
‘‘Paycheck Protection Program.’’ Loans
guaranteed under the Paycheck
Protection Program (PPP) will be 100
percent guaranteed by SBA, and the full
principal amount of the loans may
qualify for loan forgiveness. The
purpose of this interim final rule is to
make further changes to the First
Interim Final Rule, posted on SBA’s
website on April 2, 2020, and published
in the Federal Register on April 15,
2020 (85 FR 20811), as amended by the
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interim final rule posted on SBA’s
website on June 12, 2020 and published
in the Federal Register on June 18, 2020
(85 FR 36717). The First Interim Final
Rule, as amended, should be interpreted
consistent with the frequently asked
questions (FAQs) regarding the PPP that
are posted on SBA’s website 1 and the
other interim final rules issued
regarding the PPP.2
1. Changes to the First Interim Final
Rule
Eligibility Requirements
The First Interim Final Rule provided,
among other things, that a PPP loan will
not be approved if an owner of 20
percent or more of the equity of the
applicant has been convicted of a felony
within the last five years. On June 12,
2020, the First Interim Final Rule was
amended after the Administrator, in
consultation with the Secretary of the
Treasury (the Secretary), determined
that a shorter timeframe for felonies that
do not involve fraud, bribery,
embezzlement, or a false statement in a
loan application or an application for
federal financial assistance is more
consistent with Congressional intent to
provide relief to small businesses and
also promotes the important policies
underlying the First Step Act of 2018
(Pub. L. 115–391).
Upon further consideration, and in
consultation with the Secretary, the
Administrator has determined that two
additional modifications to the First
Interim Final Rule are appropriate to
ensure a consistent approach to
applicants with criminal histories. First,
the First Interim Final Rule provided
that an applicant is ineligible for a PPP
loan if an owner of 20 percent or more
of the equity of the applicant is
presently subject to an indictment,
criminal information, arraignment, or
other means by which formal criminal
charges are brought in any jurisdiction.
The Administrator has determined that
this restriction should be limited to
pending criminal charges for felony
offenses, which aligns with the
Administrator’s prior determination that
only felony convictions (but not
convictions for other types of offenses)
will limit an applicant’s eligibility for
the PPP, subject to the time periods
specified above. Second, the First
Interim Final Rule provided that an
applicant was ineligible for a PPP loan
if an owner of 20 percent or more of the
equity of the applicant is on probation
1 See https://www.sba.gov/document/support-faq-lenders-borrowers.
2 See https://www.sba.gov/funding-programs/
loans/coronavirus-relief-options/paycheckprotection-program.
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or on parole. The Administrator has
determined that this restriction should
be limited to individuals whose
probation or parole commenced within
the time periods specified above—i.e.,
within the last five years for any felony
involving fraud, bribery, embezzlement,
or a false statement in a loan application
or an application for federal financial
assistance, and within the last one year
for other felonies. Applying these time
limitations to the probation and parole
restriction aligns with the
Administrator’s prior determination to
apply the identical time limitations to
felony convictions. Moreover, aligning
the time limitations applicable to these
restrictions is consistent with
Congressional intent to provide relief to
small businesses and also promotes the
important policies underlying the First
Step Act of 2018 (Pub. L. 115–391). This
amendment does not affect the rule
regarding applicants that are presently
suspended, debarred, or proposed for
debarment, which remains effective.
Therefore, Part III.2.b.iii. of the First
Interim Final Rule (85 FR 20811, 20812)
is revised to read as follows:
b. Could I be ineligible even if I meet
the eligibility requirements in (a) above?
You are ineligible for a PPP loan if, for
example:
*
*
*
*
*
iii. An owner of 20 percent or more
of the equity of the applicant is
presently incarcerated or, for any felony,
presently subject to an indictment,
criminal information, arraignment, or
other means by which formal criminal
charges are brought in any jurisdiction;
or has been convicted of, pleaded guilty
or nolo contendere to, or commenced
any form of parole or probation
(including probation before judgment)
for, a felony involving fraud, bribery,
embezzlement, or a false statement in a
loan application or an application for
federal financial assistance within the
last five years or any other felony within
the last year; or
*
*
*
*
*
Under the First Interim Final Rule, as
amended, an applicant is ineligible if an
owner of 20 percent or more of its
equity is presently incarcerated. In
considering this amended Interim Final
Rule the Administrator, in consultation
with the Secretary, has determined that
this restriction on eligibility remains
appropriate because the operations of
small business concerns present a
greater danger of becoming impaired
when their owners are incarcerated. As
a result, they may have greater difficulty
repaying their loans and present a
greater credit risk. Although PPP loans
may be forgiven under section 1106 of
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the CARES Act, PPP loans may only be
forgiven in cases where borrowers can
document that the proceeds were
expended in accordance with the
requirements of section 1106. In
situations where the proceeds have not
been used appropriately, and the loans,
accordingly, cannot be forgiven, the
borrowers’ ability to repay the loans
remains an important consideration. In
addition, ineligibility for businesses
whose owners are currently incarcerated
will help prevent misuse of PPP loan
funds, irrespective of loan forgiveness
considerations.
Under the First Interim Final Rule, as
amended, an applicant is also ineligible
if an owner of 20 percent or more of its
equity is, for any felony, subject to an
indictment, criminal information,
arraignment, or other means by which
formal criminal charges are brought in
any jurisdiction. Individuals charged
with felonies are at risk of
imprisonment, which, as discussed
above, could place the creditworthiness
of their businesses in question.
Therefore, the Administrator, in
consultation with the Secretary, has
determined that this limitation also
remains appropriate to ensure that PPP
funds are not allocated to an applicant
for which a recent felony charge may
impair its ongoing business operations
and therefore its ability to repay a PPP
loan for reasons unrelated to the
COVID–19 pandemic.
Finally, under the First Interim Final
Rule, as amended, an applicant is
ineligible if an owner of 20 percent or
more of its equity has been convicted of,
pleaded guilty or nolo contendere to, or
commenced any form of parole or
probation (including probation before
judgment) for, a felony involving fraud,
bribery, embezzlement, or a false
statement in a loan application or an
application for federal financial
assistance within the last five years or
any other felony within the last year.
The Administrator, in consultation with
the Secretary, has determined that, in
order to ensure program integrity and
safeguard against misuse of PPP funds,
it remains appropriate to require that
applicants whose owners previously
were convicted of or pleaded guilty or
nolo contendere to a felony offense have
avoided a further felony charge
following conviction or incarceration for
a period of at least one year before
obtaining a PPP loan. This interval
provides a reasonable level of assurance
that such applicants do not present
unacceptable risks of re-incarceration
that could, as discussed above,
undermine the ability of their
businesses to repay their PPP loans. The
Administrator, in consultation with the
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38303
Secretary, has determined that a longer
five-year limitation is appropriate for
felonies involving fraud, bribery,
embezzlement, or a false statement in a
loan application or an application for
federal financial assistance because
such felonies are most relevant to the
applicant’s business integrity and
responsibility, and may indicate a
greater risk of potential misuse of PPP
loan funds.
Each of the ineligible applicant
categories described above has been
formulated to reduce the risk of default
and fraud in the PPP and to ensure that
PPP loan funds are provided for small
businesses that will be able to support
jobs, consistent with Congressional
intent in the CARES Act. These
measures are particularly necessary in
light of the structure of the PPP, in
which lenders are subject to relatively
few underwriting obligations before
issuing loans that are 100 percent
guaranteed by SBA and that may be
subject to full forgiveness based on
documentation provided by the
borrower. While neither lenders nor
SBA are conducting typical analysis of
the characteristics of PPP applicants, the
measures described above are intended
to mitigate the risk of default, fraud, or
misuse of PPP loan funds intended to
benefit small business employees and at
the same time balance that need with
the need to assist in the rehabilitation of
felons, who are working to become
responsible and productive members of
society.
2. Additional Information
SBA may provide further guidance, if
needed, through SBA notices which will
be posted on SBA’s website at
www.sba.gov. Questions on the
Paycheck Protection Program may be
directed to the Lender Relations
Specialist in the local SBA Field Office.
The local SBA Field Office may be
found at https://www.sba.gov/tools/
local-assistance/districtoffices.
Compliance With Executive Orders
12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C.
Ch. 35), and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
Executive Orders 12866, 13563, and
13771
This interim final rule is
economically significant for the
purposes of Executive Orders 12866 and
13563, and is considered a major rule
under the Congressional Review Act.
SBA, however, is proceeding under the
emergency provision at Executive Order
12866 Section 6(a)(3)(D) based on the
need to move expeditiously to mitigate
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the current economic conditions arising
from the COVID–19 emergency. This
rule’s designation under Executive
Order 13771 will be informed by public
comment.
This rule is necessary to implement
Sections 1102 and 1106 of the CARES
Act and the Flexibility Act in order to
provide economic relief to small
businesses nationwide adversely
impacted under the COVID–19
Emergency Declaration. We anticipate
that this rule will result in substantial
benefits to small businesses, their
employees, and the communities they
serve. However, we lack data to estimate
the effects of this rule.
Executive Order 12988
SBA has drafted this rule, to the
extent practicable, in accordance with
the standards set forth in section 3(a)
and 3(b)(2) of Executive Order 12988, to
minimize litigation, eliminate
ambiguity, and reduce burden. The rule
has no preemptive effect but does have
a limited retroactive effect consistent
with section 3(d) of the Flexibility Act.
Executive Order 13132
SBA has determined that this rule
will not have substantial direct effects
on the States, on the relationship
between the National Government and
the States, or on the distribution of
power and responsibilities among the
various layers of government. Therefore,
SBA has determined that this rule has
no federalism implications warranting
preparation of a federalism assessment.
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Paperwork Reduction Act, 44 U.S.C.
Chapter 35
SBA has determined that this rule
will require modification to the existing
PPP information collection that is
approved under OMB Control Number
3245–0407 as an emergency request
until October 31, 2020. As discussed
above, this rule amends the PPP
eligibility requirements regarding
certain criminal activity. As a result of
these amendments, conforming changes
will be made to Questions 5 and 6 of
Form 2483, Borrower Application Form,
and Section H of Form 2484, Lender
Application Form. SBA will submit the
revisions to these forms to the Office of
Management and Budget for approval.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule, or a final rule
pursuant to section 553(b) of the APA or
another law, the agency must prepare a
regulatory flexibility analysis that meets
the requirements of the RFA and
publish such analysis in the Federal
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Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to
describe the impact of a rulemaking on
small entities by providing a regulatory
impact analysis. Such analysis must
address the consideration of regulatory
options that would lessen the economic
effect of the rule on small entities. The
RFA defines a ‘‘small entity’’ as (1) a
proprietary firm meeting the size
standards of the Small Business
Administration (SBA); (2) a nonprofit
organization that is not dominant in its
field; or (3) a small government
jurisdiction with a population of less
than 50,000. 5 U.S.C. 601(3)–(6). Except
for such small government jurisdictions,
neither State nor local governments are
‘‘small entities.’’ Similarly, for purposes
of the RFA, individual persons are not
small entities.
The requirement to conduct a
regulatory impact analysis does not
apply if the head of the agency ‘‘certifies
that the rule will not, if promulgated,
have a significant economic impact on
a substantial number of small entities.’’
5 U.S.C. 605(b). The agency must,
however, publish the certification in the
Federal Register at the time of
publication of the rule, ‘‘along with a
statement providing the factual basis for
such certification.’’ If the agency head
has not waived the requirements for a
regulatory flexibility analysis in
accordance with the RFA’s waiver
provision, and no other RFA exception
applies, the agency must prepare the
regulatory flexibility analysis and
publish it in the Federal Register at the
time of promulgation or, if the rule is
promulgated in response to an
emergency that makes timely
compliance impracticable, within 180
days of publication of the final rule. 5
U.S.C. 604(a), 608(b).
Rules that are exempt from notice and
comment are also exempt from the RFA
requirements, including conducting a
regulatory flexibility analysis, when
among other things the agency for good
cause finds that notice and public
procedure are impracticable,
unnecessary, or contrary to the public
interest. Small Business
Administration’s Office of Advocacy
guide: How to Comply with the
Regulatory Flexibility Act, Ch.1. p.9.
Accordingly, SBA is not required to
conduct a regulatory flexibility analysis.
Authority: 15 U.S.C. 636(a)(36);
Coronavirus Aid, Relief, and Economic
Security Act, Pub. L. 116–136, Section 1114.
Jovita Carranza,
Administrator.
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket No. SBA–2020–0038]
RIN 3245–AH52
DEPARTMENT OF THE TREASURY
RIN 1505–AC70
Business Loan Program Temporary
Changes; Paycheck Protection
Program—Revisions to Loan
Forgiveness and Loan Review
Procedures Interim Final Rules
U.S. Small Business
Administration; Department of the
Treasury.
ACTION: Interim final rule.
AGENCY:
On April 2, 2020, the U.S.
Small Business Administration (SBA)
posted on its website an interim final
rule relating to the implementation of
sections 1102 and 1106 of the
Coronavirus Aid, Relief, and Economic
Security Act (CARES Act or the Act)
(published in the Federal Register on
April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled
the ‘‘Paycheck Protection Program,’’ to
the SBA’s 7(a) Loan Program.
Subsequently, SBA and Treasury issued
additional interim final rules
implementing the Paycheck Protection
Program. On June 5, 2020, the Paycheck
Protection Program Flexibility Act of
2020 (Flexibility Act) was signed into
law, amending the CARES Act. This
interim final rule revises interim final
rules posted on SBA’s and the
Department of the Treasury’s websites
on May 22, 2020 (published on June 1,
2020, in the Federal Register), by
changing key provisions to conform to
the Flexibility Act. Several of these
amendments are retroactive to the date
of enactment of the CARES Act, as
required by section 3(d) of the
Flexibility Act.
DATES:
Effective Date: This interim final rule
is effective March 27, 2020, except for
the provision relating to the maturity
date of PPP loans, which is effective
June 5, 2020, and the provision relating
to the cap on the amount of loan
forgiveness for owner-employees and
self-employed individuals, which is
effective on June 24, 2020.
Comment Date: Comments must be
received on or before July 27, 2020.
ADDRESSES: You may submit comments,
identified by number SBA–2020–0038,
through the Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
SUMMARY:
E:\FR\FM\26JNR1.SGM
26JNR1
]]>Agencies
[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Rules and Regulations]
[Pages 38301-38304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13942]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket No. SBA-2020-0039]
RIN 3245-AH53
Business Loan Program Temporary Changes; Paycheck Protection
Program--Additional Eligibility Revisions to First Interim Final Rule
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
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SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA)
posted on its website an interim final rule relating to the
implementation of sections 1102 and 1106 of the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act or the Act) (published in
the Federal Register on April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled the ``Paycheck Protection
Program,'' to the U.S. Small Business Administration's (SBA's) 7(a)
Loan Program. Subsequently, SBA issued a number of interim final rules
implementing the Paycheck Protection Program. On June 12, 2020, SBA
posted on its website an interim final rule revising the interim final
rule published in the Federal Register on April 15, 2020 by changing
the eligibility requirement related to felony convictions of applicants
or owners of the applicant. This interim final rule further revises
SBA's interim final rule published in the Federal Register on April 15,
2020, by further changing that eligibility requirement.
DATES:
Effective date: The provisions in this interim final rule are
effective June 24, 2020.
Comment date: Comments must be received on or before July 27, 2020.
ADDRESSES: You may submit comments, identified by number SBA-2020-0039,
through the Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please send an email to [email protected].
Highlight the information that you consider to be CBI and explain why
you believe SBA should hold this information as confidential. SBA will
review the information and make the final determination whether it will
publish the information.
[[Page 38302]]
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-
572-0502, or the local SBA Field Office; the list of offices can be
found at https://www.sba.gov/tools/local-assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude
to warrant an emergency declaration for all states, territories, and
the District of Columbia. With the COVID-19 emergency, many small
businesses nationwide are experiencing economic hardship as a direct
result of the Federal, State, and local public health measures that are
being taken to minimize the public's exposure to the virus. These
measures, some of which are government-mandated, have been implemented
nationwide and include the closures of restaurants, bars, and gyms. In
addition, based on the advice of public health officials, other
measures, such as keeping a safe distance from others or even stay-at-
home orders, have been implemented, resulting in a dramatic decrease in
economic activity as the public avoids malls, retail stores, and other
businesses.
On March 27, 2020, the President signed the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act or the Act) (Pub. L.
116-136) to provide emergency assistance and health care response for
individuals, families, and businesses affected by the coronavirus
pandemic. The Small Business Administration (SBA) received funding and
authority through the Act to modify existing loan programs and
establish a new loan program to assist small businesses nationwide
adversely impacted by the COVID-19 emergency.
Section 1102 of the Act temporarily permits SBA to guarantee 100
percent of 7(a) loans under a new program titled the ``Paycheck
Protection Program.'' Section 1106 of the Act provides for forgiveness
of up to the full principal amount of qualifying loans guaranteed under
the Paycheck Protection Program.
On April 24, 2020, the President signed the Paycheck Protection
Program and Health Care Enhancement Act (Pub. L. 116-139), which
provided additional funding and authority for the PPP. On June 5, 2020,
the President signed the Paycheck Protection Program Flexibility Act of
2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of
the PPP relating to the maturity of PPP loans, the deferral of PPP loan
payments, and the forgiveness of PPP loans.
II. Comments and Immediate Effective Date
This interim final rule is effective without advance notice and
public comment because section 1114 of the CARES Act authorizes SBA to
issue regulations to implement Title I of the Act without regard to
notice requirements. In addition, SBA has determined that there is good
cause for dispensing with advance public notice and comment on the
grounds that that it would be contrary to the public interest.
Specifically, advance public notice and comment would defeat the
purpose of this interim final rule given that SBA's authority to
guarantee PPP loans expires on June 30, 2020. These same reasons
provide good cause for SBA to dispense with the 30-day delayed
effective date provided in the Administrative Procedure Act (APA).
Although this interim final rule is effective on or before date of
filing, comments are solicited from interested members of the public on
all aspects of the interim final rule, including section III below.
These comments must be submitted on or before July 27, 2020. The SBA
will consider these comments, comments received on the interim final
rule posted on SBA's website April 2, 2020 (the First Interim Final
Rule) and published in the Federal Register on April 15, 2020, comments
received on the interim final rule posted on SBA's website June 12,
2020 and published in the Federal Register on June 18, 2010, and the
need for making any revisions as a result of these comments.
III. Paycheck Protection Program--Additional Eligibility Revisions to
First Interim Final Rule (85 FR 20811)
Overview
The CARES Act was enacted to provide immediate assistance to
individuals, families, and businesses affected by the COVID-19
emergency. Among the provisions contained in the CARES Act are
provisions authorizing SBA to temporarily guarantee loans under a new
7(a) loan program titled the ``Paycheck Protection Program.'' Loans
guaranteed under the Paycheck Protection Program (PPP) will be 100
percent guaranteed by SBA, and the full principal amount of the loans
may qualify for loan forgiveness. The purpose of this interim final
rule is to make further changes to the First Interim Final Rule, posted
on SBA's website on April 2, 2020, and published in the Federal
Register on April 15, 2020 (85 FR 20811), as amended by the interim
final rule posted on SBA's website on June 12, 2020 and published in
the Federal Register on June 18, 2020 (85 FR 36717). The First Interim
Final Rule, as amended, should be interpreted consistent with the
frequently asked questions (FAQs) regarding the PPP that are posted on
SBA's website \1\ and the other interim final rules issued regarding
the PPP.\2\
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\1\ See https://www.sba.gov/document/support--faq-lenders-borrowers.
\2\ See https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
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1. Changes to the First Interim Final Rule
Eligibility Requirements
The First Interim Final Rule provided, among other things, that a
PPP loan will not be approved if an owner of 20 percent or more of the
equity of the applicant has been convicted of a felony within the last
five years. On June 12, 2020, the First Interim Final Rule was amended
after the Administrator, in consultation with the Secretary of the
Treasury (the Secretary), determined that a shorter timeframe for
felonies that do not involve fraud, bribery, embezzlement, or a false
statement in a loan application or an application for federal financial
assistance is more consistent with Congressional intent to provide
relief to small businesses and also promotes the important policies
underlying the First Step Act of 2018 (Pub. L. 115-391).
Upon further consideration, and in consultation with the Secretary,
the Administrator has determined that two additional modifications to
the First Interim Final Rule are appropriate to ensure a consistent
approach to applicants with criminal histories. First, the First
Interim Final Rule provided that an applicant is ineligible for a PPP
loan if an owner of 20 percent or more of the equity of the applicant
is presently subject to an indictment, criminal information,
arraignment, or other means by which formal criminal charges are
brought in any jurisdiction. The Administrator has determined that this
restriction should be limited to pending criminal charges for felony
offenses, which aligns with the Administrator's prior determination
that only felony convictions (but not convictions for other types of
offenses) will limit an applicant's eligibility for the PPP, subject to
the time periods specified above. Second, the First Interim Final Rule
provided that an applicant was ineligible for a PPP loan if an owner of
20 percent or more of the equity of the applicant is on probation
[[Page 38303]]
or on parole. The Administrator has determined that this restriction
should be limited to individuals whose probation or parole commenced
within the time periods specified above--i.e., within the last five
years for any felony involving fraud, bribery, embezzlement, or a false
statement in a loan application or an application for federal financial
assistance, and within the last one year for other felonies. Applying
these time limitations to the probation and parole restriction aligns
with the Administrator's prior determination to apply the identical
time limitations to felony convictions. Moreover, aligning the time
limitations applicable to these restrictions is consistent with
Congressional intent to provide relief to small businesses and also
promotes the important policies underlying the First Step Act of 2018
(Pub. L. 115-391). This amendment does not affect the rule regarding
applicants that are presently suspended, debarred, or proposed for
debarment, which remains effective. Therefore, Part III.2.b.iii. of the
First Interim Final Rule (85 FR 20811, 20812) is revised to read as
follows:
b. Could I be ineligible even if I meet the eligibility
requirements in (a) above?
You are ineligible for a PPP loan if, for example:
* * * * *
iii. An owner of 20 percent or more of the equity of the applicant
is presently incarcerated or, for any felony, presently subject to an
indictment, criminal information, arraignment, or other means by which
formal criminal charges are brought in any jurisdiction; or has been
convicted of, pleaded guilty or nolo contendere to, or commenced any
form of parole or probation (including probation before judgment) for,
a felony involving fraud, bribery, embezzlement, or a false statement
in a loan application or an application for federal financial
assistance within the last five years or any other felony within the
last year; or
* * * * *
Under the First Interim Final Rule, as amended, an applicant is
ineligible if an owner of 20 percent or more of its equity is presently
incarcerated. In considering this amended Interim Final Rule the
Administrator, in consultation with the Secretary, has determined that
this restriction on eligibility remains appropriate because the
operations of small business concerns present a greater danger of
becoming impaired when their owners are incarcerated. As a result, they
may have greater difficulty repaying their loans and present a greater
credit risk. Although PPP loans may be forgiven under section 1106 of
the CARES Act, PPP loans may only be forgiven in cases where borrowers
can document that the proceeds were expended in accordance with the
requirements of section 1106. In situations where the proceeds have not
been used appropriately, and the loans, accordingly, cannot be
forgiven, the borrowers' ability to repay the loans remains an
important consideration. In addition, ineligibility for businesses
whose owners are currently incarcerated will help prevent misuse of PPP
loan funds, irrespective of loan forgiveness considerations.
Under the First Interim Final Rule, as amended, an applicant is
also ineligible if an owner of 20 percent or more of its equity is, for
any felony, subject to an indictment, criminal information,
arraignment, or other means by which formal criminal charges are
brought in any jurisdiction. Individuals charged with felonies are at
risk of imprisonment, which, as discussed above, could place the
creditworthiness of their businesses in question. Therefore, the
Administrator, in consultation with the Secretary, has determined that
this limitation also remains appropriate to ensure that PPP funds are
not allocated to an applicant for which a recent felony charge may
impair its ongoing business operations and therefore its ability to
repay a PPP loan for reasons unrelated to the COVID-19 pandemic.
Finally, under the First Interim Final Rule, as amended, an
applicant is ineligible if an owner of 20 percent or more of its equity
has been convicted of, pleaded guilty or nolo contendere to, or
commenced any form of parole or probation (including probation before
judgment) for, a felony involving fraud, bribery, embezzlement, or a
false statement in a loan application or an application for federal
financial assistance within the last five years or any other felony
within the last year. The Administrator, in consultation with the
Secretary, has determined that, in order to ensure program integrity
and safeguard against misuse of PPP funds, it remains appropriate to
require that applicants whose owners previously were convicted of or
pleaded guilty or nolo contendere to a felony offense have avoided a
further felony charge following conviction or incarceration for a
period of at least one year before obtaining a PPP loan. This interval
provides a reasonable level of assurance that such applicants do not
present unacceptable risks of re-incarceration that could, as discussed
above, undermine the ability of their businesses to repay their PPP
loans. The Administrator, in consultation with the Secretary, has
determined that a longer five-year limitation is appropriate for
felonies involving fraud, bribery, embezzlement, or a false statement
in a loan application or an application for federal financial
assistance because such felonies are most relevant to the applicant's
business integrity and responsibility, and may indicate a greater risk
of potential misuse of PPP loan funds.
Each of the ineligible applicant categories described above has
been formulated to reduce the risk of default and fraud in the PPP and
to ensure that PPP loan funds are provided for small businesses that
will be able to support jobs, consistent with Congressional intent in
the CARES Act. These measures are particularly necessary in light of
the structure of the PPP, in which lenders are subject to relatively
few underwriting obligations before issuing loans that are 100 percent
guaranteed by SBA and that may be subject to full forgiveness based on
documentation provided by the borrower. While neither lenders nor SBA
are conducting typical analysis of the characteristics of PPP
applicants, the measures described above are intended to mitigate the
risk of default, fraud, or misuse of PPP loan funds intended to benefit
small business employees and at the same time balance that need with
the need to assist in the rehabilitation of felons, who are working to
become responsible and productive members of society.
2. Additional Information
SBA may provide further guidance, if needed, through SBA notices
which will be posted on SBA's website at www.sba.gov. Questions on the
Paycheck Protection Program may be directed to the Lender Relations
Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the
purposes of Executive Orders 12866 and 13563, and is considered a major
rule under the Congressional Review Act. SBA, however, is proceeding
under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate
[[Page 38304]]
the current economic conditions arising from the COVID-19 emergency.
This rule's designation under Executive Order 13771 will be informed by
public comment.
This rule is necessary to implement Sections 1102 and 1106 of the
CARES Act and the Flexibility Act in order to provide economic relief
to small businesses nationwide adversely impacted under the COVID-19
Emergency Declaration. We anticipate that this rule will result in
substantial benefits to small businesses, their employees, and the
communities they serve. However, we lack data to estimate the effects
of this rule.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance
with the standards set forth in section 3(a) and 3(b)(2) of Executive
Order 12988, to minimize litigation, eliminate ambiguity, and reduce
burden. The rule has no preemptive effect but does have a limited
retroactive effect consistent with section 3(d) of the Flexibility Act.
Executive Order 13132
SBA has determined that this rule will not have substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various layers of government. Therefore, SBA
has determined that this rule has no federalism implications warranting
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will require modification to the
existing PPP information collection that is approved under OMB Control
Number 3245-0407 as an emergency request until October 31, 2020. As
discussed above, this rule amends the PPP eligibility requirements
regarding certain criminal activity. As a result of these amendments,
conforming changes will be made to Questions 5 and 6 of Form 2483,
Borrower Application Form, and Section H of Form 2484, Lender
Application Form. SBA will submit the revisions to these forms to the
Office of Management and Budget for approval.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to section
553(b) of the APA or another law, the agency must prepare a regulatory
flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to describe the impact of a
rulemaking on small entities by providing a regulatory impact analysis.
Such analysis must address the consideration of regulatory options that
would lessen the economic effect of the rule on small entities. The RFA
defines a ``small entity'' as (1) a proprietary firm meeting the size
standards of the Small Business Administration (SBA); (2) a nonprofit
organization that is not dominant in its field; or (3) a small
government jurisdiction with a population of less than 50,000. 5 U.S.C.
601(3)-(6). Except for such small government jurisdictions, neither
State nor local governments are ``small entities.'' Similarly, for
purposes of the RFA, individual persons are not small entities.
The requirement to conduct a regulatory impact analysis does not
apply if the head of the agency ``certifies that the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish
the certification in the Federal Register at the time of publication of
the rule, ``along with a statement providing the factual basis for such
certification.'' If the agency head has not waived the requirements for
a regulatory flexibility analysis in accordance with the RFA's waiver
provision, and no other RFA exception applies, the agency must prepare
the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable,
within 180 days of publication of the final rule. 5 U.S.C. 604(a),
608(b).
Rules that are exempt from notice and comment are also exempt from
the RFA requirements, including conducting a regulatory flexibility
analysis, when among other things the agency for good cause finds that
notice and public procedure are impracticable, unnecessary, or contrary
to the public interest. Small Business Administration's Office of
Advocacy guide: How to Comply with the Regulatory Flexibility Act,
Ch.1. p.9. Accordingly, SBA is not required to conduct a regulatory
flexibility analysis.
Authority: 15 U.S.C. 636(a)(36); Coronavirus Aid, Relief, and
Economic Security Act, Pub. L. 116-136, Section 1114.
Jovita Carranza,
Administrator.
[FR Doc. 2020-13942 Filed 6-24-20; 4:15 pm]
BILLING CODE 8026-03-P
