By Rose Oswald Poels
In an interim final rule published in the Federal Register this past Friday, August 23, SBA announced it has lengthened the required records retention for lenders that made loans under the Paycheck Protection Program (PPP) to ten years from the date of final disposition of each individual PPP loan. The interim final rule was issued without advance notice or public comment. The rule is effective August 22, 2024.
SBA stated that the interim final rule was necessary to harmonize PPP lender records retention requirements with subsequent legislation extending the statute of limitations for criminal charges and civil enforcement actions for alleged PPP borrower fraud to ten years after the offense. In particular, the Bank Fraud Enforcement Harmonization Act was signed into law in August 2022 which amended section 7(a) of the Small Business Act to provide, for both First Draw PPP Loans and Second Draw PPP Loans, that notwithstanding any other provision of law, any criminal charge or civil enforcement action alleging that a borrower engaged in fraud with respect to a PPP loan guaranteed by SBA shall be filed not later than 10 years after the offense was committed.
SBA further provided that the majority of lenders that participated in PPP are federally-regulated lenders having participated under existing SBA Form 750 (Loan Guaranty Agreement (Deferred Participation)) or by signing Form 3506 (CARES Act Section 1102 Lender Agreement). Under the Consolidated Forgiveness and Loan Review Interim Final Rule, federally-regulated lenders that participated in the PPP Program are currently required to retain their PPP loan records in accordance with the records retention requirements imposed by their federal financial institution regulator. SBA has determined that there do not appear to be any consistent or specific time requirements imposed by federal financial institution regulators that are applicable to PPP records retention as a whole. Instead, federally-regulated PPP lenders may implement and follow general internal records retention policies that are acceptable to their regulators. SBA believes it is likely that many of these general internal records retention policies allow for periodic destruction of certain records after a loan is paid in full, which for PPP would include payment in full through forgiveness or otherwise. SBA has extended the record retention period to allow law enforcement to continue to investigate fraud cases.
The interim final rule applies to all PPP lender loan records. This includes PPP loan applications that were withdrawn, approved, denied, or cancelled, and all other PPP lender loan records for PPP loans with an outstanding balance, PPP loans that have been forgiven, and PPP loans that are in repayment or have been paid in full by the borrower as of the effective date of the interim rule. To the extent that a federally-regulated PPP lender destroyed any PPP loan records before the effective date of the interim final rule in accordance with a general internal records retention policy that was acceptable to the PPP lender’s federal regulator, SBA will not enforce compliance by that federally-regulated PPP lender with respect to the PPP loan records that were destroyed before the effective date of this rule.
The extended records retention requirements apply equally to federally-regulated lenders (including lenders that executed an SBA Form 3506) and SBA Supervised Lenders (including lenders that executed an SBA Form 3507).
