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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations
restrictions original IFR.7 The exception was intended to facilitate lending by banks to a broad range of small businesses within their communities, consistent with applicable law and safe and sound banking practices. The exception applied only to PPP loans made by June 30, 2020, the original date on which the PPP was set to expire. The Board extended the exception after Congress extended the PPP.8
The Board received a dozen comments in response to the IFRs it issued in April and July from one trade association, several small businesses, and several individuals. Most of the comments expressed support for the Boards relief, indicating that it would bolster the effectiveness of the PPP in providing support to small businesses.
Several raised issues related to the terms and administration of the PPP. One commenter asserted that no bank executives should receive loans from their banks in excess of $15,000 because executives could take advantage of their banks to the detriment of depositors.
In response to comments about the terms and administration of the PPP, the Board notes that the SBA is the agency responsible for setting forth the requirements and administering the program. Any comments concerning those matters are properly addressed to the SBA. Regarding one commenters suggestion that no executive should be able to borrow more than $15,000 from its banks because executives could exert undue influence and cause harm to a bank, the Board notes that PPP loans have standardized terms and are fully guaranteed as to principal and interest by the U.S. government. Accordingly, a bank may not amend the terms of a PPP
loan to be unduly favorable to an executive and the bank is unlikely to suffer a loss because of the loan guarantee. The Board also notes that the relief only extends to insiders who would not be prohibited from receiving a PPP loan by the SBAs lending restrictions, which currently prohibit an officer from receiving a PPP loan from his or her bank.9
The Board is issuing this interim final rule to extend the exception to PPP
loans made through March 31, 2021, and to PPP second draw loans.

II. The Interim Final Rule Section 22h authorizes the Board to adopt, by regulation, exceptions to the definition of extension of credit in section 22h for transactions that pose minimal risk. 10 Therefore, the Board may except PPP loans and PPP second draw loans from the restrictions in section 22h and the corresponding provisions of Regulation O upon a determination that such loans pose minimal risk.
The Board determined in the original IFR that PPP loans pose minimal risk.11
Among other things, this determination relieved member banks from ensuring that PPP loans made to certain insiders complied with the qualitative, quantitative, and procedural requirements set forth in section 22h and Regulation O. The Appropriations Act did not change any of the features of PPP loans on which the Board relied in the original IFR to determine that PPP
loans pose minimal risk. Moreover, under the Appropriations Act, PPP
second draw loans have the same features as PPP loans, except that fewer borrowers are eligible for PPP second draw loans as for PPP loans.12
Accordingly, for the same reasons cited in the original IFR, the Board has determined that PPP loans and PPP
second draw loans appear to pose minimal risk to bank safety and soundness.13
SBA lending restrictions continue to apply to certain PPP loans and PPP
second draw loans that also would be subject to section 22h and the corresponding provisions of Regulation O.14 Excepting loans that would be prohibited by the SBA lending restrictions from the requirements of section 22h and the corresponding provisions in Regulation O would not achieve any meaningful regulatory purpose. Excepting these loans from one regime and not the other also may create confusion because some lenders may mistakenly interpret an exception under one regime to extend to both regimes.
Accordingly, the exception continues to apply only for insiders that would not be prohibited from receiving a PPP loan 10 12

U.S.C. 375b9Dii.
FR 22346.
12 For example, only borrowers who already have received a PPP loan may obtain a PPP second draw loan. PPP Second draw loans also are only available to employers with 300 or fewer employees.
Consolidated Appropriations Act, 2021, H.R. 133, 116th Cong. section 311.
13 85 FR 22345, 22346 Apr. 22, 2020; 85 FR
43119, 4311920 July 16, 2020.
14 Business Loan Program Temporary Changes;
Paycheck Protection Program as Amended by the Economic Aid Act, 86 FR 3712 Jan. 6, 2021.

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11 85

7 Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 85 FR
22345 Apr. 22, 2020.
8 Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 85 FR
43119 July 16, 2020.
9 13 CFR 120.110 prohibiting an Associate of a lender from receiving a loan made by the lender pursuant to section 7a of the Small Business Act;
13 CFR 120.10 defining Associate of a Lender to include an officer.

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or PPP second draw loan by the SBA
lending restrictions.
This interim final rule does not except a PPP loan or PPP second draw loan from other restrictions that may apply to the loan, including section 22g of the Federal Reserve Act or section 215.5 of Regulation O.15 This determination also does not affect application of SBA
lending restrictions to a PPP loan or PPP
second draw loan. The SBA has stated that favoritism by a PPP lender in processing time or prioritization of a directors or equity holders PPP
application is prohibited. 16 The Board will administer the interim final rule accordingly.
Question 1: Are there any additional terms or conditions that should apply to the exception? Why?
Question 2: Based on the experience with the PPP program, what, if any, terms or conditions for PPP second draw loans would make it unreasonable for such loans to be exempted from the requirements of section 22h?
III. Administrative Law Matters A. Administrative Procedure Act The Board is issuing the interim final rule without prior notice and the opportunity for public comment and the delayed effective date ordinarily prescribed by the Administrative Procedure Act APA.17 Pursuant to section 553bB of the APA, general notice and the opportunity for public comment are not required with respect to a rulemaking when an agency for good cause finds and incorporates the finding and a brief statement of reasons therefor in the rules issued that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. 18
The Board believes that the public interest is best served by implementing the interim final rule immediately in light of the short timeframe for execution of the renewed PPP mandated by the Appropriations Act. Accordingly, the Board finds that there is good cause consistent with the public interest to issue the rule without advance notice and comment.19
The APA also requires a 30-day delayed effective date, except for 1
substantive rules which grant or recognize an exemption or relieve a restriction; 2 interpretative rules and statements of policy; or 3 as otherwise provided by the agency for good 15 12

U.S.C. 375a; 12 CFR 215.5.
at 1415.
17 5 U.S.C. 553.
18 5 U.S.C. 553bB.
19 5 U.S.C. 553bB; 553d3.
16 Id.

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