Prosperity NOW: COVID-19 Federal Policy Updates – Protections for Recovery Payments, PPP “Fix” and PPP CDFI Set-Aside

May 29, 2020

Following up on our most recent COVID-19 federal policy update from a few weeks ago, we wanted to share the following three updates on actions congress and the administration are considering or have taken recently to further support impacted individuals, families, and small businesses during this crisis:

  1. Protections for Recovery Payments

Last week, Senators Brown (D-OH), Grassley (R-IA), Wyden (D-OR) and Scott (R-SC) introduced a bill to protect future CARES Act recovery payments from garnishment by private debt collectors. While the CARES Act does not allow for the recovery payments to be reduced for past tax debts or most other government debts, recovery payments are not protected from being garnished by private debt collectors. To address this, the bi-partisan legislation would:

  • Direct the Treasury Department to encode future recovery payments so that banks can identify and protect these payments from being garnished by debt collectors.
  • Allow individuals who receive their payment in another form, such as checks, to request and authorize that their banks or other financial institution protect the payments from being garnished by debt collectors.

To help drum up support for the bill—which may begin to be moved next week when the Senate is back in session—we’ve put together the following action alert: If you can, please take a moment to email/call your Senators and ask them to cosponsor this bill.

  1. Paycheck Protection Program “Fix”

Yesterday, following growing concerns and calls from small businesses and others, the House passed the “Paycheck Protection Flexibility Act” by a vote of 417-1. As its title suggest, the legislation aims to provide current and future PPP loan recipients with greater flexibility in managing and using their loans by (among other things):

  • Extending the application deadline from June 30, 2020 to December 31, 2020
  • Extending the forgiveness period from 8 to 24 weeks
  • Replacing the 75/25% (payroll-to-non-payroll-expenses) rule with a 60/40% rule
  • Increasing loan terms for new PPP loans from 2 to 5 years
  • Increasing the payment deferral period for any portion of the loan that is unforgiven from 6 to 10 months
  • Allowing businesses that receive forgiveness to also receive payroll tax deferment

The bill now goes to the Senate, where it’s unclear if it will be taken up as-in since the Senate has its own PPP “fix” bill that includes similar, though not exact, reforms as the House bill does. The Senate returns from recess next week.

  1. Paycheck Protection Program CDFI Set-Aside

Yesterday, following weeks of outreach by advocates, including the Page 30 Coalition (which Prosperity Now is a founder member of) and others, including Senator Schumer—who has been providing important leadership in this space—the U.S. Treasury Department and the Small Business Administration announced that it would be setting aside $10 billion of PPP funding for Community Development Financial Institutions (CDFIs) to lend. This set-aside applies to the second round of funding Congress provided to the program, meaning that CDFIs have about $6.8 billion available to lend through it since they have already approved about $3.2 billion in PPP Round 2 loans to date.

While not all CDFI’s maybe be providing PPP loans, this development provides much needed capital to organizations that have a long and demonstrated track record of providing financial services—such as affordable credit, long-term capital, counseling to distressed borrowers, and banking services—to underserved communities and households that mainstream financial institutions cannot or will not serve. However, while this set-aside is a much-needed step, more remains to be done as Treasury and SBA did not set-aside PPP funding for Minority Depository Institutions (MDIs).

To find out if a CDFI near you is providing PPP loans, consider taking a look at the Opportunity Finance Network’s CDFI locator tool——which has been has updated with a Paycheck Protection Program search filter.