Banking and Finance Law Daily Fed adopts rule change to enhance Paycheck Protection Program effectiveness
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Monday, April 20, 2020

Fed adopts rule change to enhance Paycheck Protection Program effectiveness

By Charles A. Menke, J.D.

The Fed’s action will allow banks to make PPP loans to a broad range of small businesses within their communities.

In an effort to bolster the effectiveness of the Small Business Administration's (SBA) Paycheck Protection Program (PPP), the Federal Reserve Board announced it has adopted an interim final rule that excepts certain PPP loans from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O. Among other things, section 22(h) and Regulation O impose requirements on a bank regarding extensions of credit made to insiders of the bank or its affiliates. The temporary rule change, which takes effect immediately upon its publication in the Federal Register and remains effective while the PPP is active, will allow certain bank directors and shareholders to apply for PPP loans for their small businesses. Comments will be accepted for 45 days following publication in the Federal Register.

The Fed noted that the SBA recently issued an interim final rule addressing eligibility issues for certain business concerns and requirements for certain pledges of PPP loans. The SBA interim final rule, which takes effect April 20, 2020, clarified that PPP lenders can make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits and without favoritism. The Board's change will allow those individuals to apply for PPP loans, consistent with SBA's rules and restrictions. The change only applies to PPP loans.

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