Coronavirus Information and Resources
In response to the ongoing COVID-19 Pandemic, CLLA wants to be sure you have the resources to stay current and informed during these unprecedented times Please access the following information by clicking on the link.
The League office in Rolling Meadows is closed but staff is continuing to work remotely. You may experience a delay in response, please be patient with us.
PENDING LEGISLATION REGARDING DEBT COLLECTION
WE NEED OUR MEMBERS TO ACT NOW!
CLLA members, like all other Americans, are facing this time of crisis with solidarity, resolve, and an effort of togetherness and we wholeheartedly agree and support recent consumer relief actions, including the moratoriums on evictions and foreclosures and the protection of the Coronavirus Aid, Relief, and Economic Security Act’s government payments from garnishment. However, legislative actions including a wholesale prohibition of debt collection, such as those included in the Small Business and Consumer Debt Collection Emergency Relief Act (the “Act”)1, will actually damage small businesses by cutting off their ability to require customers to pay for their goods and services, and does not accomplish the goals for which it was created.
While the CLLA understands the Act is well-intentioned, it remains that any policy creating a blanket prohibition of all debt collection and judgment enforcement, with no distinction between who can collect from whom, or for what reason, will hurt the very people the law is intended to protect. For example, small businesses, including sole proprietorships and “mom and pop shops,” would be prohibited from enforcing debts owed to them at a time when they most need the funds to survive, even if the judgment is against a larger company, or against a business that is operating fine or even thriving during the pandemic. Implementing a widespread ban on collections and judgment enforcement will not achieve the goals of protecting consumers in this economic crisis and the Act will unfortunately harm many consumers and small business owners since they will be prohibited from recovering money that is legally due them. READ MORE
The Bill will impair and effectively rewrite previously negotiated credit terms and contracts between businesses, by suspending legitimate accounts receivable and collection inquiries and eliminating existing federal and state laws that provide relief and certainty to businesses and business transactions. The commerce of our country is built upon credit. Industry and commerce thrive because banks and other businesses extend credit to enable transactions and business growth. When one business loses its normal operating capacity, the resulting loss of production, revenue and lag in receipt and payment of receivables, sets off a chain of events that affects the production, payment of receivables and receipt of revenue for other businesses. In such instances, businesses may attempt to manage and collect receivables on their own or hire attorneys or collection agencies to resolve issues associated with outstanding receivables. Such efforts are critical to the foundation and continuation of credit-based transactions and business relationships. Very simply, the Bill will disrupt the normal operations of businesses by halting all collection efforts, garnishments, evictions and foreclosures against individuals and small businesses during a state of emergency declaration. Any legislation that disrupts business operations at this time should not be considered by Congress because of the hardships that businesses all over the country are currently encountering. Download PDF to read more
HERE WE GO AGAIN.
ADDITIONAL GUIDANCE FROM THE SBA REGARDING THE PPP PROGRAM CLARIFIES THE CERTIFICATION REQUIREMENT FOR LOANS UNDER TWO MILLION AND CLARIFIES WHAT IS INCLUDED IN PAYROLL
After the last guidance from the SBA, several questions remained regarding the length to which the SBA would review the certifications made by borrowers obtaining a PPP loan. New guidance states that as long as the loan is under two million dollars, it will not be questioned as meeting the certification requirement that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” See question 46 https://www.sba.gov/sites/default/files/2020-05/Paycheck-Protection-Program-Frequently-Asked-Questions_05%2013%2020.pdf.
Further Guidance provided by the SBA states that the amount of forgiveness results from the 8 week period beginning from the date the lender makes the first disbursement of the PPP loan to the borrower. Q.20. The amount of forgiveness includes payroll costs. Question 16 in the new guidance states that payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld such as the employee’s share of FICA and income taxes required to be withheld from salary. Payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. Q 16.
In addition, the new guidance clarifies what can be added to the $100,000 limit on annual salaries. Under the PPP programs, salary amounts over $100,000 should not be included in the loan. The new guidance states that this exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
- Employer contributions to defined benefit or defined contribution retirement plans;
- Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
- Payment of state and local taxes assessed on compensation of employees. Q.7.
The guidance has many other provisions that may be applicable to your firm. Each firm should review the attached guidance carefully to ensure compliance and documenting the loans to ultimately receive forgiveness.
Theodore J. Hamilton
Attorney at Law
Wetherington Hamilton
813-225-1918 ext 114.
813-225-2531 fax.
www.whhlaw.com
A Message from Tim Wan
It is time to act! Congress is about to pass this, so please reach out to your local Congresspeople, RIGHT NOW!
The CARES ACT 2.0, on page 1037, Section 110402, includes a blanket moratorium on debt collection that will DESTROY small businesses!
See the link below on how you can act!
Commercial Law League of America – CLLA
April 6 ·
Dear CLLA Member,
Americans are facing this time of crisis with solidarity, resolve, and an effort of togetherness.
While we wholeheartedly agree and support recent legislative consumer relief actions, there is legislation, such as Senate Bill S.3565, which provides for a blanket prohibition of debt collections, fraught with unintended consequences. For a breakdown of the reasoning, please visit this link to CLLA’s letter to the White House: https://lnkd.in/d8W-PpX
Here’s how you can help!
- You can download either of these form letters: one for CLLA members and their employees (https://lnkd.in/d7UxW6z), and another for credit grantors and small business owners (https://lnkd.in/dZJDt5G).
2. Place your letterhead on top, and then send it to your local congress people.
3. You can use this easy link: https://lnkd.in/eudKQfX
4. Share this post or email this to anyone you know that you think would be willing to help!
Be smart out there, and I hope to see you soon.
Timothy Wan
CLLA President
ACA International v. Massachusetts Attorney General
On May 6, 2020, the federal court in Massachusetts enjoined the enforcement of an emergency regulation issued by the Massachusetts Attorney General that banned consumer debt collectors from initiating calls to debtors and from initiating lawsuits to collect a debt. After the emergency regulation was issued, ACA International sued the Attorney General in federal court arguing that the regulation was overly broad and unconstitutional. The court agreed finding that the regulation violated the First Amendment right of commercial speech and the right to petition the courts for redress. The Court found that the interest in protecting a debtor did not outweigh the “threat of extinction faced by smaller collection agencies who have been effectively put out of business.” The Court’s greater concern was the harm the ban will cause essential businesses that are operating during the Covid-19 pandemic, recognizing that a “capitalist society has a vested interest in the efficient functioning of the credit market which depends in no small degree on the ability to collect debts.” The full order is available for download below.
These are unprecedented times and the entire credit industry, both commercial and consumer, has been impacted not only by the shelter in place orders and the inability of debtors to pay their debts, but by the actions of overzealous regulators at the state and federal level. While the Commercial Law League of America recognizes the financial impact this pandemic has caused, it stands opposed to any effort to issue new laws and regulations that impact the efficient functioning of the credit market, including the ability to collect debts. CLLA members are in the best position to work with debtors to get through this crisis and can do so without the need for legislation that unreasonably impacts the ability of its members to run their businesses.
New SBA Guidance Makes a Paycheck Protection Program Loan Risky for Many Businesses
April 29, 2020
When President Trump signed the Paycheck Protection Program into law as part of the CARES Act on March 27, 2020, many businesses felt relief that their cash flow might not be affected by the Coronavirus shutdown. The program allowed for 2.5 times monthly expenses to be borrowed to cover things like payroll and rent. Further, an important part of the Legislation was a section that did not require a review of other sources of funds. The other sources of funds review is usually standard in most SBA loan applications. However, enter the regulators. Since the passage of the first CARES Act, the SBA regulators have provided “guidance” as to many questions posted by Lenders and Borrowers. These pronouncements, although not law, are used to interpret the provisions of the Act. Some of these guidance responses almost seem to contradict the original language of the Act.
However, this guidance will likely be used to obtain loan forgiveness. More importantly, the new “guidance” also may give many pause in taking the funds since a false statement on the application can subject the owner to criminal charges under Federal Law.
The April 23 revision to the FAQ at Question 31, creates risk for all those applying for PPP loans. A PPP borrower must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Borrower.” Thus, although the Act states that other sources of funds shall not be considered, the regulators have interpreted this statement to mean that a review of a “borrowers ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business” shall occur. The response from the SBA specifically states as follows: “Although the CARES act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary.” The guidance states specifically that “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”
This guidance creates so much ambiguity that many should reconsider whether applying for a PPP loan is worth it. A review of other sources of liquidity definitely includes review of available cash in the business. It will also include other sources of funds available for borrowing at a reasonable rate. The note also cites to Section 3(h) of the Small Business Act – This section specifically requires a review of other sources of funds. It includes a review of other lending sources available from other sources, the industry in which the applicant operates, and whether the business has been in operation under 2 years 15 U.S.C. 531 et Seq Section 3(h).
As a result, PPP applicants may want to reconsider taking funds if they have the following in place:
- Sufficient cash reserves
- Continuing receipts during Covid 19.
- Access to conventional financing
- All other sources of funds.
The risks of taking these funds may well exceed the benefits. If the presidency changes or even if it does not, you will see many in Congress on a witch hunt to enforce these rules after all of the dust has settled. If you have taken funds from the PPP you have until May 7, 2020 to return the funds without penalty if you are concerned. In the end, just make sure that you can support your belief that you will run out of funds from all sources due to COVID 19 before your cash flow starts again. This certification is much different than the original intent of the Bill, but it is the present guidance. The Moral of the story: be careful when taking money from the government. You do not want to be part of a congressional investigation.
Theodore J. Hamilton
Attorney at Law
