Agencies Update Guidance on COVID-19 Loan Modifications

The federal banking agencies today updated guidance on working with borrowers affected by the coronavirus pandemic. The revised guidance—which replaces a statement issued on March 22—aligns agency expectations on troubled debt restructuring with the CARES Act and articulates their views on the application of consumer protection regulations. “Financial institutions have broad discretion to implement prudent modification programs consistent with the framework included in this statement,” the agencies said in a newly added line.

In addition to incorporating Section 4013 of the CARES Act, which specifically allowed certain COVID-19-related loan modifications to not be reported as TDRs, the guidance covers accounting for loan modifications made outside of Section 4013 consistent with the previous guidance.

While lenders and services must adhere to consumer protection requirements, in light of the emergency situation, “the agencies will take into account an institution’s good-faith efforts demonstrably designed to support consumers and comply with consumer protection laws.” The guidance added that “the agencies do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to the National Emergency and that the institution made good faith efforts to support borrowers and comply with the consumer protection requirements, as well as responded to any needed corrective action.”