Title IV Provisions of the CARES Act (P.L. 116-136)

Summary

Economic conditions have deteriorated rapidly in the past few weeks, as the Coronavirus Disease 2019 (COVID-19) pandemic has caused many businesses and public institutions to limit or close their operations, increasing financial hardship for many Americans due to layoffs or time off of work due to illness. COVID-19’s effect on the airline industry has been one of many areas of interest for Congress.

On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law as P.L. 116-136. The act contains a number of provisions aimed broadly at stabilizing the economy and helping affected households and businesses. Specifically, Title IV of the CARES Act grants funds to industries affected by the virus and new authorities to the regulators and agencies responsible for those industries, waives requirements for industries to meet certain regulatory requirements, and provides added oversight and consumer protections, each on a temporary basis. These provisions can generally be classified into a few categories, presented below.

Financial Assistance for Industry. Title IV, Subtitle A temporarily provides Treasury with up to $500 billion (through the Exchange Stabilization Fund) to make loans, loan guarantees, or investments to assist businesses, states, and municipalities affected by COVID-19—such assistance has been referred to by some as “bailouts.” Treasury can make loans and loan guarantees directly to companies in three industries:

up to $25 billion to industries related to passenger air travel;

up to $4 billion to cargo air carriers; and

up to $17 billion to businesses critical to national security.

Various restrictions on executive compensation, stock buybacks and dividends, conflicts of interest, and loan forgiveness apply to this assistance. Borrowers must provide financial protection to provide Treasury with potential financial upside (e.g., warrants). The remainder (at least $454 billion) is available to support facilities established by the Federal Reserve (Fed) to provide liquidity to the financial system by supporting lending to businesses, states, and municipalities. These funds might be used to cover future losses on Fed emergency facilities created in response to COVID-19, for example. Treasury and the Fed have broad discretion to determine the terms of the assistance, subject to statutory restrictions. Oversight is provided through reporting requirements and the creation of a Special Inspector General and a Congressional Oversight Commission. Subtitle A also allows the Federal Deposit Insurance Corporation and National Credit Union Administration to temporarily insure certain deposits above the deposit insurance limit and temporarily suspend a prohibition on using the Exchange Stabilization Fund to insure money market funds (a type of mutual fund similar to a bank account).

Title IV, Subtitle B provides up to $32 billion to continue payment of employee wages, salaries, and benefits at airline-related industries. The title also addresses domestic air service, including essential air service, aviation excise taxes, and collective bargaining.

Consumer Protection. For consumers affected by COVID-19, Title IV would preserve the current status of credit reports for consumers who modify or defer loan payments, allow residential mortgage borrowers to enter forbearance, and protect renters from evictions.

Regulatory Relief. Title IV also provides regulatory relief for depository institutions, such as banks. For example, it temporarily reduces capital requirements for smaller banks using the Community Bank Leverage Ratio, and it temporarily suspends certain regulatory requirements involving the treatment of losses.