Banking and Finance Law Daily Senators express concerns over CARES Act programs and oversight
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Friday, April 17, 2020

Senators express concerns over CARES Act programs and oversight

By Nicole D. Prysby, J.D.

Senators Crapo and Warren sent letters to the Treasury Department and Federal Reserve Board that stressed the role of congressional oversight and the need for additional guidance and oversight for lending under the CARES Act.

On April 16, 2020, Sens. Mike Crapo (R-Idaho) and Elizabeth Warren (D-Mass) announced that they each sent letters to the Department of Treasury and Federal Reserve Board, expressing concerns about implementation of funds under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Crapo’s letters focused on highlighting congressional oversight for funds disbursed under the CARES Act and urged the creation of additional guidance on the emergency lending facilities. Warren’s letters expressed concern with the inadequate oversight provisions of the $600 billion loan program to bail out mid-sized businesses and the $850 billion program to bail out large corporations, including provisions in the Paycheck Protection Program (PPP) Loan Facility, Main Street Lending Facilities (MSNLF and MSELF), Primary Market Corporate Credit Facility (PMCCF), Secondary Market Corporate Credit Facility (SMCCF), Term Asset-Backed Securities Loan Facility (TALF), and the Municipal Lending Facility (MLF).

Crapo letters. As Chairman of the Senate Banking Committee, Crapo announced that he sent two letters to the Department of Treasury and Fed on provisions under Title IV the CARES Act, which provides $500 billion in emergency relief in order to stabilize the marketplace. In his first letter, he highlighted oversight activities. Oversight activities within Title IV of the CARES Act include reporting requirements under the Federal Reserve Act, the creation of a Special Inspector General for Pandemic Recovery (SIGPR), and the Congressional Oversight Commission. The Fed and Treasury Secretary are required to provide reports and testimony to Congressional Committees and publish descriptions of certain loan transactions. The Comptroller General is required to conduct a study on the loans, loan guarantees, and other investments. The SIGPR is required to conduct audits and investigations of any loans made by the Treasury Department under the CARES Act and report summaries of the loan data. The Congressional Oversight Commission is required to submit reports to Congress on the impact and effectiveness of loans and the extent to which information made available on transactions under Subtitle IV has contributed to market transparency.

In his second letter, Crapo urged action on several issues with respect to emergency lending facilities announced recently, including the PPP Loan Facility, MSNLF, MSELF, TALF, PMCCF, SMCCF, and MLF. He asked that Treasury and the Fed issue additional guidance on the PPP Loan Facility, such as how to calculate loan forgiveness. For the MLF facility, Crapo urged that several issues be addressed, including providing greater clarity on access to the lending facilities for organizations that do not typically use earnings before interest, taxes, depreciation and amortization multiples. With regard to the PMCCF, SMCCF, and TALF, Crapo stated that additional steps will be needed to stabilize credit markets. The legislator also urged that the terms of the Municipal Lending Facility be updated so that so cities, counties, and tribes in rural states like Idaho can apply.

Warren letters. Warren expressed concern with the inadequate oversight provisions of the $600 billion loan program to bail out mid-sized businesses and the $850 billion program to bail out large corporations. Her first letter stated that the loan program, as implemented, did not create a lending facility that requires businesses to meet the lending conditions intended (such as keeping 90 percent of the workforce employed through September 2020). Rather, the Treasury Department and Federal Reserve used $75 billion to create the Main Street Lending Program with more limited requirements (such as requiring only reasonable efforts to maintain payroll). Warren urged that the Treasury Department and Federal Reserve adopt requirements that any company receiving CARES Act funds maintain at least 95 percent of payrolls, provide a $15 hourly minimum wage, do not use taxpayer funds to enrich corporate executives through executive compensation mechanisms, and meet other strict conditions.

Warren’s second letter focused on oversight of the $850 billion worth of loans to large corporations through the new PMCCF, SMCCF, and TALF. She stated that the Treasury Department and Federal Reserve have failed to implement even basic protections to make sure that the nearly $1 trillion in loans achieves the goals of supporting the economy and safeguarding taxpayer funds. For example, there are no requirements for protection of jobs and workers’ rights and no action to protect workers from layoffs, prevent out sourcing, punish corporate criminals, end stock buy backs, or prevent executives from enriching themselves at workers’ and taxpayers’ expense.

MainStory: TopStory Covid19 FederalReserveSystem FinancialStability Loans OversightInvestigations

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