The new Presidential administration is facing a tidal wave of crises not seen since perhaps the Great Depression. Although banking reform is not high on the list of initial priorities, commercial lenders are likely to face some impacts, including increased environmental and collateral due diligence regulations over the next few years.
Here are five areas to keep an eye on as the Biden administration finds its footing in 2021:
Tightened PFAS rules: The Biden-Harris administration has made environmental protection a major priority of its first term. The administration is already making good on this promise with a slew of announcements and executive actions designed to combat climate change and protect vulnerable groups from environmental contamination.
President Biden has nominated Michael Regan, the former head of North Carolina’s Department of Environmental Quality, to lead the Environmental Protection Agency (EPA). Biden has also identified nearly 50 Trump-era EPA rules for review, many of which were regulatory relief measures implemented to counteract Obama-era environmental protections.
One particular concern pertains to the category of chemicals known as per- and polyfluoroalkyl substances, or “PFAS.” These so-called “forever chemicals” affect the drinking water of an estimated 200 million Americans, and have been found to increase the severity of COVID-19 symptoms, among other concerning effects. Biden is seeking Congressional action to designate PFAS as a “hazardous substance” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).
A higher-profile SBA: The Small Business Administration has long operated under the radar. That all changed in 2020, as it was given responsibility for the distribution of billions in Paycheck Protection Program (PPP) funds to small businesses suffering from coronavirus-related closures and revenue losses. With the recent passage of another round of PPP funding and a looming forgiveness tsunami, the SBA will continue to be in the spotlight throughout 2021.
In addition, the Biden administration has signaled with its nomination of Isabel Guzman as Administrator that the SBA will be heavily focused on increasing lending to businesses located in underserved and minority communities.
Aggressive foreclosure rules: One of the President’s first acts was to extend the moratorium on foreclosure filings for another six months, to assist property owners that suffered a loss of income due to the coronavirus crisis. Once the extended reprieve expires, we can expect foreclosure volume to pick up significantly later in the year. Also keep a sharp eye out for more aggressive foreclosure requirements coming down the pike, including more robust appraisal requirements at time of foreclosure.
A reinvigorated CFPB: The Consumer Financial Protection Bureau, established through the Dodd-Frank Act following the last financial crisis, lost much of its bite during the Trump years. But under a Democratic administration, we can expect more aggressive rules aimed at addressing unfair practices in areas like payday lending and student loans. Keep in mind, however, that the current Director is a Trump appointee and has focused the Bureau’s priorities on consumer education over regulatory activity. Her term does not expire until 2023, so don’t expect a drastic shift in the near term.
New Phase I ESA standard: Although Phase I environmental site assessment guidelines are developed and published by ASTM International, an industry standards body, the EPA ultimately has the authority under CERCLA to approve any updates to the guidelines prior to release. The current rule, ASTM E1527-13 has been in effect since 2013 and must be finalized by December 31, 2021. Lenders hope the latest version of the standard will consider new property types and emerging technology in the commercial real estate sector, while also balancing the increasing costs of due diligence for lenders and property owners with the rising risk of new contaminants like PFAS.
The only constant is change, and with a new administration at the helm, it’s best to prepare now for an onslaught of new regulatory guidance out of Washington in the coming years.
Need help managing regulatory changes that will affect your commercial lending risk management program? Contact the experts at ORMS, LLC for objective, experienced advice on everything from environmental due diligence to commercial appraisals. Visit us today at http://www.orms.com/.