Consumer Finance Litigation

On April 7, 2020, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with state financial regulators (hereinafter the "agencies") issued a revised interagency statement regarding loan modifications and reporting for borrowers affected by COVID-19. The revised statement clarifies the relationship between the March 22, 2020 interagency statement and section 4013 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

Specifically, the Revised Statement provides several considerations for accounting and reporting loan modifications under section 4013 of the CARES Act. Eligible section 4013 loan modifications are:

(1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020 (applicable period).

Revised Statement, p. 2, available here. The Revised Statement explains that financial institutions are not required to apply ASC Subtopic 310-40 to eligible section 4013 loans for the term of the loan modification or report such loans as TDRs (troubled debt restructurings) in regulatory reports. However, the Revised Statement advises "financial institutions should maintain records of the volume of section 4013 loans." Id. pp. 2–3.

The Revised Statement also explains that, under the CARES Act, financial institutions may account for eligible loan modifications under section 4013 or in accordance with ASC Subtopic 310-40. If the modification is not eligible or the institution chooses not to account for the modification under section 4013, the Revised Statement states "the financial institution should evaluate whether the modified loan is a TDR." Id. p. 2. Modifications that are not eligible and/or are not treated as section 4013 loans "do not automatically result in TDRs." Id. p. 3.

Pursuant to ASC Subtopic 310-40, "a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider." Id. The Financial Accounting Standards Board has confirmed that "short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40." Id. Such modifications include payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant for borrowers who are less than 30 days past due at the implementation of the modification program. See id.

The Revised Statement further provides that "financial institutions may presume that borrowers are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required" provided the loan modification program "is in response to the National Emergency; [t]he borrower was current on payments at the time the modification program is implemented; and [t]he modification is short-term (e.g., six months)." The Revised Statement points out that modifications and deferral programs related to COVID-19 that are mandated by the government would not be in the scope of ASC subtopic 310-40.