The CARES Act: Summary for financial services

Recent legislative and regulatory actions in response to the COVID-19 pandemic have resulted in an increase in loan modification requests—such as deferrals and forbearances—placing pressure on banks to evaluate and service these requests in a timely manner. With the initial wave of modifications expiring, banks may now be facing a second wave of requests while operating under significant pressure. However, banks can view this second wave as an opportunity to collect critical data to inform risk management decisioning and address certain operational and data challenges posed by a continuance of these payment holidays.

Under the CARES Act, lenders are prevented from reporting deferred payments as late resulting in credit data that in many cases does not accurately reflect the level of risk. In response, many lenders have proactively increased the stringency of underwriting requirements and have begun to re-examine supporting models. Given the potential for additional Congressional action on the horizon and the likely protracted duration of the economic recession, banks should remain mindful of the longer-term implications of government support, especially as the temporary relief across sectors are set to expire.

Our latest article provides insights to help banks maintain effective risk management and compliance programs to manage these potential downstream impacts.

Helping banks navigate the credit implications of the current environment

The credit implications of the CARES Act will continue to place significant strain on financial institutions. But we can help you respond to this increased demand. Learn more about our programs and offerings across technology enablement, process redesign, and risk sensing.

Financial technology (fintech) solutions are rapidly changing the payments industry and more consumers are making the switch to fintech versus traditional payment products/services. The Small Business Administration’s (SBA) Paycheck Protection Program (PPP) launched under the CARES Act presented an opportunity for fintech payments companies to assist small businesses in securing guaranteed loans from the SBA (at 1% interest), which help cover eligible employee payroll and other qualified expense obligations. Some fintech payments companies are seeking and receiving approval from the SBA to offer loans in support of the PPP. As such, these fintech companies should enhance internal processes and controls to effectively manage the risks associated with PPP participation. These fintech companies have used their core competencies of innovation, rapid deployment, and technological prowess to quickly respond to the needs of the community against the backdrop of COVID-19.

Learn more about the considerations for fintech payments companies.

The CARES Act seeks to address many of the housing-related challenges facing individual homeowners and renters resulting from the growing economic slowdown. As a result of COVID-19, many individuals may face hardships in paying their mortgage loans and rents. Financial institutions are beginning to prepare themselves for these financial challenges by granting forbearances and readying for the potential influx of loan modifications and—worst case scenario—foreclosures that may be coming in the future.

The CARES Act provides relief for many of these economic effects by providing temporary foreclosure, eviction protection, and forbearance relief for single-family and multi-family property owners and renters.

Learn more about the compliance and operational impacts in our latest article.

Addressing gaps to build resiliency

As many individuals face financial challenges in the wake of COVID-19, mortgage lenders may experience capacity constraints with forbearance, eviction, loan modification, and foreclosure volume on the rise. But we can help. Learn more about our programs and offerings across mortgage processing, stress testing, and application automation.

Shortly after Congress signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, the US Department of the Treasury, Small Business Administration (SBA), and Financial Crimes Enforcement Network (FinCEN) released additional guidance on the SBA’s Paycheck Protection Program (PPP) to provide some clarity on unforeseen challenges.

The PPP also received additional funding on April 24, 2020. With an additional $310 billion dollars of funding allocated—nearly doubling the size of the program—more lenders participating in the program will be impacted. With respect to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) programs, these lenders (banks and non-bank alike) should consider how the PPP loan program intersects with AML program requirements. In particular, institutions should consider how a PPP loan might impact their AML programs’ obligations with respect to collecting, identifying, certifying, and risk assessing their customers’ information, especially in the absence of additional guidance.

Read our latest article to learn more about the AML considerations for the PPP

Resolving complex AML matters

As organizations begin to consider how the PPP could intersect with AML program requirements, learn how Deloitte can help you reduce your risks related to money laundering and improve your ability to meet regulatory expectations for sound programs and controls.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (the Act) includes a range of provisions that will likely impact the investment management industry in various ways. As the industry’s leaders navigate from responding to recovering, a deeper understanding of the Act may help investment managers emerge from the crisis even stronger. First, fund managers with sizeable assets in 401(k) and individual retirement accounts (IRAs) may be affected by certain provisions more so than fund managers with less exposure to retail investors. Second, general partners at venture and private equity firms may be particularly interested in whether the Act’s liquidity provisions may be applied to a fund’s portfolio companies.

Read our latest article to learn more about how the Act may assist investment managers in their recovery and set the stage to thrive in the future.

In the present economic environment, there are signs of considerable stress in the credit markets. If individuals are delinquent on payments, their credit reports could be adversely impacted, hurting their ability to borrow in the future. At the same time, at the corporate level, executives have sought hundreds of billions of dollars in emergency funding as demand shock has forced them to tap credit lines to pay their bills. Given the ongoing crisis, many individuals and companies in a variety of industries are seeking to address their economic uncertainty, including by tapping into private and government support, placing considerable pressure on lenders and other financial institutions to provide much-needed liquidity.

In recent weeks, the Federal Reserve Bank (FRB), Treasury, and Congress have coordinated on policy responses, including the CARES Act, to directly support the flow of credit to households and businesses to help stabilize the economy. While early signs suggest that markets have grown more stable as a result of this emergency action, these programs also create longer-term credit implications for consumers, small businesses, and corporations, as well as for financial firms and their operations.

Download our new article to learn more about the support the government is providing and the operational considerations financial institutions should prepare for.

Helping banks navigate the credit implications of the current environment

The credit implications of the CARES Act will continue to place significant strain on financial institutions. But we can help you respond to this increased demand. Learn more about our programs and offerings across technology enablement, process redesign, and risk sensing.

Coronavirus Aid, Relief, and Economic Security (CARES) Act includes a $349 billion appropriation for a significant expansion of guaranteed lending under Section 7(a) of the Small Business Act, through a new Paycheck Protection Program (PPP). The PPP, administered by the Small Business Administration (SBA) with the support of the US Treasury Department, will provide short-term relief to millions of America’s small businesses to ensure they can sustain operations and keep their workers employed as the economy recovers.

Much of that relief will be in the form of an emergency loan program directed to companies and non-profits with 500 or fewer employees and that meet SBA’s definition of an eligible small business. The government will forgive the loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, benefits, rent, mortgage interest, or utilities. Note that the amount of loan forgiveness is reduced if there is a reduction in the number of employees or greater than 25% of the loan amount used for items other than employee wages.

On April 2, 2020, the SBA published its Interim Final Rule, effective immediately, in order for small businesses to immediately apply for the loan with a full understanding of loan terms and conditions. Treasury and the SBA issued an Interim Final Rule on April 2, 2020 and have continued to provide additional guidance on certain aspects of the program as it takes shape. The Interim Final Rule differs with the CARES Act in several ways, including:

The application period is scheduled to remain open until June 30, 2020, or until funds made available for this purpose are exhausted. Given the significant demand for loans, Congressional leaders have discussed additional funding for the program, and the US Treasury is expected to request at least $250 billion more from Congress this week.

Learn more about the PPP, the SBA’s guidance, and what questions firms should be considering now and into the future, by downloading our full report.

Helping banks expand loan processing capabilities

While banks are eager to help small businesses weather the COVID-19 crisis, mobilizing to support the PPP loan program will not be easy. But we can help. Learn more about our programs and offerings across technology enablement, analytics, and program management.