CARES ACT OVERVIEW AND SUMMARY FOR CREDIT UNIONS

As you know, President Trump on Friday afternoon signed into law the “Coronavirus Aid, Relief, and Economic Security Act of 2020,” also known as the CARES Act. The bill passed both houses of Congress last week with overwhelming bipartisan support.

The final bill was hundreds of pages long, has a price tag of over $2 trillion and is one of the most far reaching pieces of legislation enacted by Congress in your or my lifetime.

While its purpose is to help the nation work through the current coronavirus pandemic and its resulting economic devastation, many of the actions it implements for the federal government will almost certainly still be in place for years to come.

Likewise, and perhaps even more importantly, the CARES Act has established a precedent of the type of approach the federal government will work from as a model for any future economic disruption of this magnitude.

There is no doubt but that the CARES Act is a piece of legislation that every credit union should read carefully and analyze fully as to potential opportunities and challenges within it.

There are certainly plenty of both.

Let’s begin with a link to the CARES Act itself. We provide that link below and encourage you to keep this link handy (as well as transferring it to your key staff in the various areas of impact within your credit union).

https://www.congress.gov/bill/116th-congress/senate-bill/3548/text

With you now having access to the CARES Act as a whole, we would like to provide you with the benefit of our initial review and commentary on the most important provisions for credit unions.

We are not going to focus on those areas primarily dealing with hospitals, medical care, specific industry grants/loans (airlines, cruise, etc).  We are going to try to be thorough, but still we plan to focus on credit union provisions – both direct and indirect.

Understand that this is very complex legislation and that we might miss something that emerges through subsequent guidance and application as more or less pertinent for credit unions; however, we have spent a great deal of time over the past few days trying to identify the areas where you should focus as a credit union leader.

Hopefully, this information – coupled with what you receive from your trade associations, CPA firms, legal counsel and other advisory sources – will better enable you to make both strategic and tactical decisions in the weeks and months to come.

Let’s look at the CARES Act from a credit union perspective, recognizing that more guidance will be released in the days ahead by the Administration as to how these new programs will be implemented.

HOUSING RELATED ISSUES

The CARES Act is heavy on forbearance and debt restructuring. Foreclosure and collection mechanisms are dramatically impacted.

Here are some highlights:

* Mortgage Forbearance – Borrowers of government-backed mortgages ((Fannie Mae, Freddie Mac, HUD, VA and USDA) can request up to 360-day payment forbearance without proof of hardship. No additional fees, interest, or penalties can be assessed for the period of the forbearance.

In addition, other than for abandoned or vacant property, there may be no foreclosure actions for 60 days beginning on March 18, 2020.

* Owners of multifamily properties who were current on their mortgage payments as of February 1, 2020, and have federally insured, assisted, or supplemented loan (Fannie Mae, Freddie Mac, FHA or any loans backed or assisted by any branch of the federal government, including LIHTC) may request forbearance for 30 days due to financial hardship, with extensions of up to a total of 90 days. Borrowers, who are owners of multifamily properties, receiving the forbearance may not evict or charge late fees to tenants for the duration of the forbearance period.

* Moratorium on eviction filings, or fees or penalties for tenants for nonpayment of rent for 120 days on properties insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, covered by the Violence Against Women Act of 1994.

* $1.25 billion for Section 8 voucher rental assistance for seniors, the disabled, and low-income working families, who will experience loss of income from the coronavirus.

* $5b for Community Development Block Grants to help your communities and states address COVID-19.

* $1 billion for project-based rental assistance to make up for reduced tenant payments as a result of coronavirus.

* $50m for Section 202 Housing for the Elderly to maintain housing stability and services for low-income seniors.

* $15 million for Section 811 Housing for Persons with Disabilities to make up for reduced tenant payments as a result of coronavirus

CREDIT REPORTING

Credit unions are considered a furnisher of credit reporting data. The CARES Act has implemented some new reporting requirements that your collections team need to be aware of.

This is an area where there could be some credit union liability that extends beyond the coronavirus period when a credit score is adversely impacted from something that took place during the pandemic period but was not handled in accordance with these provisions.

* If furnishers provide an accommodation and the member makes their payment or if no payment is required, then the furnisher must report the member as current.

* If the member was delinquent before the accommodation, but brings account current, then the furnisher must report the member as current.

* Furnishers may maintain status of written off accounts.

* These provisions apply from January 30, 2020 to 120 days after enactment of this bill or the end of the national emergency.

STUDENT LOANS

Whereas the federal government took over the student loan program over ten years ago, many credit unions are in the private direct student loan business.

These requirements apply to federal student loans, not to private direct student loans. However, there could be a spillover effect of expectation from the borrowers of direct student loans.

Credit unions need to be aware of how these provisions are being applied to federal student loans and be mindful of the need to accommodate, where appropriate, private direct student loan borrowers in some manner.

* Suspends all payment due on federal student loans for 6 months.

* Interest shall not accrue on these during this forbearance.

* For the purpose of loan forgiveness, loans will be deemed paid during the forbearance.

* Prohibits negative credit reporting or involuntary debt collection during forbearance period.

SBA LOANS

From discussions with our credit union clients who are approved SBA lenders, this is the area of the CURES Act in which they see the greatest opportunity.

We encourage you to have your business lenders, and particularly your SBA experts, to study these provisions carefully. The fee income potential could be significant for the credit union and the reputation benefit could be incredibly positive for your commercial members if you are able to help them come through with support under some of these provisions.

The CARES Act dramatically increased the role of the Small Business Administration (SBA) in efforts to assist U.S. businesses impacted by the COVID-19 crisis.

The two main vehicles for these relief efforts are the SBA 7(b)(2) loans – Economic Injury Disaster Loans – and the SBA 7(a) loan program. Both loans are available to businesses with 500 or fewer employees that have been negatively impacted by the crisis.

Among the most interesting opportunities for small businesses are through the Emergency Economic Injury Disaster Loan (EIDL) grants.

* Businesses with 500 employees or fewer, including sole proprietors, independent contractors, and cooperatives are eligible for Economic Injury Disaster Loans (EIDL) during the covered period of January 31st to December 31, 2020 in response to COVID-19.

* The business must show hardship due to the Coronavirus.

* The Economic Injury Disaster Loans are available for up to $2 million dollars for businesses.

* During the covered period, SBA can determine loan eligibility based solely on the applicant’s credit score or use of an alternative appropriate method for determining an applicant’s ability to repay.

* The SBA must waive any personal guarantee on loan advances or loans under $200,000.

* Legislation provides $10 billion in funding to provide an emergency advance of up to $10,000, which is forgivable debt, to small businesses within 3 days of the business applying for the Economic Injury Disaster Loan (EIDL).

* Economic Injury Disaster Loans may be used for the following:

• Paid sick leave to employees impacted by COVID-19
• Payroll
• Rent and mortgage payments
• Debt obligations due to loss revenues
• Increased costs due to supply chain disruptions.

There is also a great deal of credit union interest in the SBA 7(a) Payroll Protection Program (Section. 1102 & 1106).

These provisions can potentially benefit some smaller to moderate sized credit unions, as well as many of the commercial members of all credit unions.

* Businesses with 500 employees or fewer, including sole proprietors and independent contractors, are eligible for SBA 7(a) loans in response to COVID-19 covering expenses for the period of February 15, 2020 through June 30, 2020. The CARES Act appropriates $349 billion to cover these loans.

It is very important to look at the potential of this provision for both credit unions and their commercial members in that the loan amount will be 250% of the average salary expenditures/month for the year prior to the loan, up to $10 million. For businesses not open yet in that period, the SBA will look at earlier receipts from 2020.

* 7(a) loans can be used for:

• Payroll, including for independent contractors and employees who work on commission;
• Rent and mortgage interest;
• Utilities.

* A key factor that makes this so attractive is that all or a portion of these loans will be forgivable for businesses that maintain at least 75% of the average payroll levels as in the previous year; forgivable amounts phase out as employers payroll levels drop below that.

* The bill also increases the SBA “Express Loan” limit from $350 thousand to $1 million.

PAYCHECK PROTECTION PROGRAM

Under CARES, the Small Business Administration (SBA) is also authorized to create a loan guarantee program, the Paycheck Protection Program or PPP, for small businesses, non-profit organizations, veterans organizations, tribal businesses, independent contractors, and the self-employed to help such entities who have been impacted by COVID-19 meet their payroll needs, cover utilities, and pay employee salaries, sick leave, health insurance and paid leave expenses.

Insured depository institutions (IDIs) and insured credit unions may participate to the extent that participation does not impact the safety and soundness of the institution, as determined by the Treasury Secretary in consultation with the appropriate federal banking agencies and the NCUA Board. With respect to their particular risk-based capital requirements, federal financial regulators would give a zero-risk weight to loans made under the PPP.

SBA can make loans directly to recipients or delegate that authority to approved lenders. The interest rate on a covered loan under the PPP cannot exceed 4 percent. The PPP requires participating lenders to provide complete payment deferral relief for not less than 6 months.

SBA is authorized to provide loan forgiveness to participants and make payment to the lender equal to the forgiven amount. Lenders receive 5 percent of the outstanding balance of each loan from the SBA as a processing fee. The current loan limit of $350,000 under SBA’s Express Loan Program, is raised to $1 million under the PPP.

PPP builds on SBA’s existing loan guarantee program for small businesses. SBA is required to issue guidance for the PPP within 30 days of enactment of the CARES Act. Treasury, in consultation with the SBA and the Farm Credit Administration, must establish criteria for the participation of IDIs and insured credit unions to provide PPP loans until the COVID-19 national emergency declaration is terminated.

With regard to SBA loans more generally, Section 1112(d)(1) of the CARES Act requires the SBA Administrator to communicate and coordinate with the FDIC, the OCC, and with State bank regulators to encourage those entities to not require lenders to increase their reserves as a result of receiving payments from the SBA to cover the principal, interest, and any associated fees that are owed on a covered loan. The NCUA is not included here.

The SBA must issue regulations on the PPP within 15 days of enactment of the CARES Act.

TEMPORARY DEBT RESTRUCTURING

The CARES Act permits financial institutions, including credit unions, to suspend the requirements under generally accepted accounting principles (GAAP) for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as troubled debt restructurings. Financial institutions may also suspend any determination of a loan modified as a result of the effects of the COVID-19 pandemic as being a troubled debt restructuring, including impairment for accounting purposes.

Any such suspension shall be applicable for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019.

Any such suspension shall not apply to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic.

The applicable period referred to above begins on March 1, 2020 and ends either 60 days after the date on which the public health emergency declared by the Secretary of Health and Human Services on January 31, 2020 terminates or December 31, 2020, whichever is earlier.

The CARES Act requires the NCUA, and the federal banking agencies, to defer to the determination of the financial institution to make a suspension under this section. However, financial institutions should continue to maintain records of the volume of loans involved and the NCUA may collect data about such loans for supervisory purposes.

This is one of the key areas where the NCUA leadership pronouncements about examiner flexibility and supervisory reasonableness will be determined when the rubber meets the road.

Credit unions seem to have clear authority for greater latitude in TDRs under this provision. Hopefully, NCUA remembers its reasonableness guidance a year or two from now when the coronavirus era is over and many of the restructured loans are under examiner scrutiny.

Just today Chairman Hood sent out a Letter to Credit Unions about the supervisory approach NCUA is planning to take on coronavirus related matters. His words are reassuring and provide a strong statement on reasonableness that credit unions are going to need to be able to count on.

And it is commendable that he sent this guidance to his own NCUA staff before sending it to the credit unions they regulate and supervise. He is obviously trying to accomplish the hardest thing for a NCUA Chairman who tries to impact the entirety of the agency he chairs – and that is, getting the message through to all of the layers of a federal bureaucracy.

Our suggestion is that you save a copy of the guidance provided in the Letter to Credit Union from today that can be accessed through the link below in the event your examiner doesn’t remember it in 2021 or 2022.

https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/offsite-examination-and-supervision-approach

It might come in handy if the rubber never meets the road post-national emergency and examiners begin to write up reasonable TDRs a year or two from now.

CECL POSTPONEMENT

One of the bright spots of the CARES Act was the provision that credit unions and banks, as federally insured institutions, shall not be required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016-13 (“Measurement of Credit Losses on Financial Instruments”), including the CECL methodology for estimating allowances for credit losses, for another year. This couples with a recent delay issued by the Federal Accounting Standards Board (FASB) that seems to indicate that CECL could be even further delayed as both FASB and Congress have now recognized some challenges it brings in a time of national emergency – of which this will not be the last.

INFRASTRUCTURE AND RURAL BROADBAND

* Expands broadband by providing $100 million for the reconnect pilot program, which provides grants, overseen by the Department of Agriculture, to fund construction and upgrade costs of broadband networks in rural areas. This will promote economic growth and increase opportunities for home sales. Studies have concluded that in communities where there is access to high speed internet, property values are 6 percent higher.

* Provides $20,000,000,000 for ”Transit Infrastructure Grants”. Of this, $4,000,000,000 shall be available for formula grants for rural areas and $16,000,000,000 shall be available for urbanized area formula grants.

TAX HIGHLIGHTS AND CASH PAYMENTS FORTHCOMING

While credit unions themselves do not pay corporate income taxes, there are several provisions of the CARES Act that you should be aware of as a credit union leader.

First, your members are impacted by these provisions and will want to know that their credit unions are aware of them as well – particularly on issues such as the cash payments that will be coming to thousands of your members and the IRA early withdrawal changes that some may take advantage of.

Secondly, your credit union is an employer that is very much covered by these provisions, including the payroll tax delays and the retention tax credit against payroll taxes. There could be thousands of dollars per employee of benefit to your credit union if you study these provisions and are able to take advantage of them.

Also, you and your employees are all individual taxpayers yourselves. There are provisions, such as the 100% deductibility in 2020 on charitable contributions and the tax credits available, that are definitely worth studying.

Here are some of the CURES Act highlights on taxes, cash payments and other important issues of which you should be aware.

We’ll start with the biggie from your members’ perspective.

Your members and employees, as well as most Americans, with incomes below the thresholds cited below for the tax credit will receive cash payments from the federal government in the amount of $1,200 per adult plus $500 for each child under the age of 17.

These payments should be sent out, by ACH and/or check, starting in April. Credit unions should begin immediately to prepare for this influx of deposits, the large number of ACH transmissions, the lines at your drive-thru to deposit checks and the transactional increase that the arrival of these checks will bring.

* Likewise, your members with retirement accounts, including IRAs, can take early withdrawals of up to $100,000 from those accounts without having to pay the 10% early-withdrawal penalty.

Those who withdraw such funds can recontribute them to the plan over three years or can keep the money and pay the tax on the withdrawals over a three-year period.

* Your members aged 70 1/2 or older do not have to worry about taking required minimum distributions from retirement plans in 2020, or to pay the taxes on those distributions.

* You, your employees and your members who make donations of up to $300 in charitable contributions in 2020 can deduct them whether they itemize or not.

Here comes the second biggie, but this one from a credit union perspective. But it also can be a great source of benefit to your commercial members if you can become knowledgeable and be able to guide them through the process for the following provision:

* If a business (or your credit union) has 100 or fewer employees, you can claim a refundable employee retention tax credit against payroll taxes of up to $5,000 per employee under certain circumstances. Larger employers also can claim the credit, but with more restrictions.

* Employers and self-employed individuals (including your credit union) can delay the payment of the employer-portion of the FICA (Social Security) payroll taxes or one-half the SECA (self-employment taxes) until after 2020 – one half is due at the end of 2021 and the other half at the end of 2022.

 

This goes even further for your commercial members who have corporate income tax concerns by providing that businesses with losses can carry back net operating losses to prior taxable years and get refunds of earlier taxes paid.

* Tax credits (the checks to taxpayers) are provided for individuals in the amount of $1,200 for single returns and $2,400 for joint returns, plus $500 for each child (under age 17 and qualifying for the child credit).

* Credits are reduced by 5% of the excess of adjusted gross income (AGI) over these thresholds:

• $75,000 for a single return;
• $150,000 for a joint return; and
• $112,500 for a head of household return.

The credits would be fully phased out for income higher than the following amounts:

• $99,000 for a single person with no qualifying child.
• $198,000 for a couple filing a joint return with no qualifying children.
• $218,000 for a couple filing a joint return with two qualifying children.
• $146,500 for a single parent with one qualifying child.

In all cases, the level of income before the phaseout is complete increases by $10,000 per child.

For limitation purposes, AGI is based on the 2019 tax return, if filed.

If not, then AGI on the 2018 return would be the limit.

* There is no income floor or phase-in – all whose income does not exceed the thresholds will receive the same amount. Non-tax filers generally need not file a tax return to claim a rebate.

* The credits are not available to anyone who can be claimed as a dependent on another’s return.

* If a tax return has not yet been filed for 2019, the 2018 tax return will be the point of reference. If no tax return was filed for either year, rebates can still be sent based on information on Social Security benefit statements.

* The IRS will send out the payments electronically if any tax refund was sent in such a manner for the 2018 or 2019 tax return – also there will be a notice by mail to the last known address that the payment has been made electronically. If not, a paper check will be sent.

* Also, the act calls for a public awareness campaign to inform people about the rebates. So, if there was any question as to whether your members might not be aware of their eligibility (which is unlikely to begin with), the public relations efforts through the media will make sure that the checks come in and the members claim them.

* No credit allowed if correct ID numbers (Social Security numbers) were not on tax returns, except in cases of spouses of active military personnel.

* IRS and Social Security Administration are appropriated extra funds to carry out the rebates.

As referenced above about the loosening of retirement plan withdrawal limitations, there are also special tax considerations that have been put in place for withdrawals from retirement funds.

* The 10% extra tax on early withdrawals from IRAs and qualified retirement plans shall not apply to distributions of up to $100,000 related to coronavirus.

These are distributions made in 2020 to an individual diagnosed with COVID-19 or whose spouse or dependent is diagnosed with COVID-19 or for an individual who experiences adverse financial consequences as a result of being quarantined, furloughed, or laid off due to such virus or is unable to work due to lack of child care or closing or reduced hours of his or her own business.

* Such amounts can be repaid to the retirement plan over a three-year period.

* If not repaid, the regular tax on the distribution can be paid over a three-year period.

* Certain coronavirus-related loans up to $100,000 from defined contribution plans are not treated as distributions and the repayment of such loans is extended.

In addition, as it relates to IRAs, SEPs and other qualified retirement plans, there was a temporary waiver of required minimum distributions.

* The required minimum distribution (which requires people who turned age 70 ½ in 2019 to include a portion of their IRA or other defined contribution retirement account in their income) is waived for 2020.

The CARES Act also impacts, in a positive way, the deductibility for charitable contributions. This could benefit you and your employees, as well as your members.

Obviously and appropriately, these provisions are designed to promote more charitable giving at a time when more and more Americans will need the benefits that come from faith-based, civic and community outreach programs for those with special needs.

* For 2020, charitable contributions of up to $300 are deductible for those who do not itemize deductions on their annual 1040 tax filing.

* These contributions for a non-itemizing taxpayer must be cash contributions to charities (but not to private foundations or donor advised funds).

* The 60% of AGI limit for cash contributions is increased to 100% for charitable donations made in 2020. For corporations, the 10% of taxable income limitation is increased to 25%. And, for donations of food inventory, the limitation increases from 15% to 25%.

* Payments by employers on student loans of employees are not subject to tax in 2020, up to $5,250 per employee. This cap also includes other educational assistance paid by the employer.

* Eligible employers (including certain tax-exempt organizations such as credit unions) can receive a refundable tax credit against payroll taxes for 50% of wages paid to certain employees during the COVID-19 crisis.

• Wages subject to the credit for any employee cannot exceed $10,000, including health benefits.
• The credit cannot exceed the employer’s amount of Social Security (OASDI) taxes paid by the employer, reduced by any credits allowed for paid sick leave and paid FMLA leave (enacted in earlier coronavirus legislation).
• Eligible employers are those carrying on a trade or business and that suffer a full or partial suspension of operations due to orders from a government authority to limit commerce, travel, or group meetings due to COVID-19; or that suffer a decline in quarterly gross receipts of more than 50%, measured against the same period in the prior year.

For employers with 100 or fewer full-time employees, all employee wages are eligible for the credit, regardless of whether an employee is furloughed or has hours reduced.

For employers with more than 100 full-time employees, wages eligible for the credit are those paid to employees when they are not working due to COVID19-related circumstances.

The credit is not available to employers receiving Small Business Interruption Loans, and the credit is provided for wages paid or incurred from March 13 through December 31, 2020.

* Employers and self-employed individuals are allowed to defer payment of the employer share of the Social Security taxes of employees (this is one-half of the self-employment taxes of a self-employed individual) that arise between the effective date of the act and the end of 2020.

The deferred tax can be paid over the following two years, with half required to be paid by December 31, 2021, and the other half due by December 31, 2022. And employers who take advantage of SBA 7(a) loans designated for payroll are not eligible.

There are also some significant modifications for net operating losses for your commercial members that you need to be mindful of and your team servicing your commercial accounts need to bone up on.

The CARES Act has the following provisions for corporations that you need to know to assist your commercial account and loan members:

* Allows businesses to carry back net operating losses from 2018, 2019 or 2020 against profitable years, up to five years, and get immediate refunds.

The current taxable income limitation is also temporarily removed to allow a net operating loss to fully offset income.

* Retroactively modifies limitation on loss provision passed in TCJA for individuals and pass through businesses so they can utilize excess business losses and access cash flow through net operating loss carry backs.

* The corporate alternative minimum tax (AMT) was repealed by the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The CAREs Act accelerates the ability of companies to recover those AMT credits.

* Temporarily increases the amount of interest expense that businesses are allowed to deduct by increasing the 30% limitation to 50% of taxable income for 2019 and 2020.

There are also some special rules that apply to partnerships. These will provide relief for larger businesses (including commercial real estate firms) with interest expense (firms with average annual gross receipts of $25 million are generally exempt from the interest deduction limitation rules).

SOME TECHNICAL CORRECTIONS TO EXISTING LAW

* Technical fix for Qualified Improvement Property – allows businesses to write off immediately the costs associated with improving internal improvements to certain real estate (including restaurants and retail stores), instead of having to depreciate them over the 39-year life of the building.

This corrects an error in the Tax Cuts and Jobs Act and allows companies to file for refunds with an amended tax return for 2018 and access cash and also encourages them to continue to invest in internal improvements to buildings.

* Self-employed individuals, independent contractors, and other individuals who are unable to work as a direct result of COVID-19 public health emergency, and would not qualify for regular unemployment benefits under state law may be eligible to receive “Pandemic Unemployment Assistance.”

This excludes individuals who have an ability to tele-work with pay or individuals who are receiving sick leave or other paid leave benefits.

* The unemployment assistance is available to individuals who are unemployed, partially unemployed, or unable to work for the weeks impacted as a result of COVID-19 between Jan. 27- December 31, 2020.

* These benefits will be administered by the states, in accordance with this new Federal law.

* There is a maximum of 39 weeks of assistance, where the amount is equal to what is authorized under the state unemployment compensation law, plus an additional $600 per week for up to four months.

There are also some provisions that credit unions need to be aware of as it relates to employee leave as specified in the CARES Act.

* Amends the Family and Medical Leave Act (FMLA) expansion in the FFCRA to ensure that no employer is required to pay more than $200 per day and $10,000 in the aggregate for each employee.

* Expands the FMLA leave in FFCRA to include as eligible employees, those that were employed for 30 days but were laid off by that employer after March 1, 2020, had worked for the employer for not less than 30 of the last 60 calendar days, and was rehired by the employer.

* Amends the emergency paid sick leave provisions in the FFCRA to ensure that no employer is required to pay more than either $511/day and $5,110 in the aggregate for direct COVID-19 impact or $200/day and $2,000 in the aggregate for care of others related COVID-19 impact.

There were also several other provisions with direct NCUA or credit union application that were included in the CARES Act.

DEPOSIT INSURANCE AND THE CENTRAL LIQUIDITY FACILITY

There was a provision in the CARES Act that opens temporarily access to NCUA’s Central Liquidity Facility (CLF) for corporate credit unions and, at the NCUA Board’s discretion, temporarily raising the insurance threshold for federally insured credit union accounts. These amendments sunset on December 31, 2020.

First, the CARES Act removes the reference to “primarily serving natural persons” under the FCUA’s definition of “liquidity needs” so as to permit temporary access for corporate credit unions.

Secondly, the FCUA’s CLF membership provision is amended to provide greater flexibility to corporate credit unions serving as agent members with respect to the amount they need to subscribe to the capital stock of the CLF.

Third, the CARES Act amends the FCUA provision regarding member applications for extensions of credit by removing the reference to the Board disapproving applications that are filed with the intent to expand credit union portfolios.

Instead, before approving an application the Board must first obtain evidence from the applicant that the applicant has made reasonable efforts to first use primary sources of liquidity of the applicant, including balance sheet and market funding sources, to address the liquidity needs of the applicant.

Fourth, the CARES Act increases the Board’s borrowing authority on behalf of the CLF temporarily through December 31, 2020.

And, lastly, the CARES Act permits the NCUA Board, in coordination with the FDIC, to increase by an unlimited amount, or such lower amount as the Board approves, the share insurance coverage provided by the National Credit Union Share Insurance Fund on any non-interest bearing transaction account in any federally insured credit union without exception.

All credit unions should be watching for what action the NCUA Board takes in regard to this authority. It should be consistent with FDIC’s actions in the same regard.

SOME FINAL OBSERVATIONS ON THE CONGRESSIONAL APPROVAL OF THE CARES ACT

Observation number one. This bill became a Christmas tree with all types of ornaments added if there was any hook whatsoever for economic stimulus, small business assistance, unemployment compensation or any government expenditure that could be classified as related in any way to the coronavirus pandemic.

It was a prime opportunity for any pro-small business amendment to be added to the bill if there was any political support for it at all.

That being said, the fact that the credit union trade associations were not able to get an increase in the member business loan cap included in this bill – despite what we know to be their vigorous efforts to do so – is a clear sign that MBL cap relief is not coming from Congress.

If MBL cap relief could not get onto the Christmas tree when “anything to help small business” was the invitation to get a spot on the tree, this shows quite decisively that there is no appetite whatsoever in Congress for helping credit unions increase or remove the member business lending cap.

The only way to get relief from the MBL cap now clearly is going to be regulatory and, largely, through the low-income designation for credit unions. The CARES Act has put to bed any real hope for a MBL cap reprieve from Congress. Sad, but it lets credit unions know where they stand on this issue.

Other than that, credit unions fared quite well in the CARES Act. There are some real opportunities in this legislation that comes from a very challenging time for credit unions.

NCUA TO HOST WEBINAR TOMORROW ON COVID-19 RESPONSE – WORTH PARTICIPATING

We have seen some excellent webinars and call-in opportunities from CUNA, NAFCU and state associations for credit unions dealing with the issue of the day.

In particular, we call your attention to NCUA’s webinar scheduled for 2 pm EDT tomorrow – Tuesday, March 31, 2020.

A link to the press release, including the registration notice, is provided below. We believe it is always valuable to hear from the regulator and/or insurer in times like these. Their approach will undoubtedly impact your approach in meeting your member needs and continuing the financial strength of your credit union in the weeks and months to come.

https://www.ncua.gov/newsroom/press-release/2020/ncua-hosts-march-31-webinar-covid-19-response

Well, that’s it for today.

We recognize that this is a longer Client Update than usual. But the issues in this legislation are complex. (And this analysis is still, I remind you, several hundred pages shorter than the Act itself.)

So, hopefully, this synopsis and analysis will give you a good starting point for your strategic and tactical decision-making over the days and weeks to come.

We extend our assistance to you as you battle through this challenging time. If we can be of support to you or your credit union in any way, please do not hesitate to let us know.

In the meantime, we will continue to communicate with you through regular Client Updates such as this in which we provide you something most analysts will not and cannot provide – a unique credit union industry perspective.

Thank you for the opportunity to partner with you.

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Until next time.