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NYDFS Reports Major Cybersecurity Settlement

BY: Consumer Finance Team, James Harvey
Cyber attack

In early March, the New York Department of Financial Services (NYDFS) announced a settlement involving a $1.5M penalty and mandatory remediation in response to a mortgage lender’s alleged failure to report a cyber breach, and other alleged cybersecurity failures. This enforcement action marks the second public enforcement action under 23 NYCRR Part 500 (the “Cybersecurity Regulation”) (see our post on the prior action here).

It is noteworthy that the settlement follows a routine safety and soundness exam by the regulator which included a review of security issues under the Cybersecurity Regulation.  This settlement provides an example of both the alleged failure to have reported a security incident and the potential that any such failure will later be detected by the NYDFS in routine examinations.

The consent order noted two major cybersecurity failings on the part of the licensee, Residential Mortgage Services, Inc. (“Residential Mortgage”), according to the NYDFS:

  • Failure to Adequately Investigate and Respond to a Cybersecurity Event. The consent order recounts a successful phishing attack that resulted in a “cyber intruder” accessing an employee’s email account. Residential Mortgage’s IT staff determined that improper access had occurred and quickly took steps to prevent further unauthorized access. However, the consent order faults Residential Mortgage for failing to conduct any further investigation to determine (1) whether the compromised inbox “contained private consumer data,” (2) “which consumers were impacted,” and then (3) “apply the applicable state notice requirements triggered by the breach.” The consent order notes that, following the NYDFS’s examination and investigation of the Cybersecurity Event, Residential Mortgage did determine that it was obligated to notify individuals under various state laws based on a review of all data elements “that could have been accessed” during the intrusion. According to the consent order, Residential Mortgage subsequently made notifications to individuals as required by those laws.
  • Lack of “Comprehensive Cybersecurity Risk Assessment.” The consent order states that Residential Mortgage “was missing a comprehensive cybersecurity risk assessment.” Such risk assessments are required under the Cybersecurity Regulation to periodically evaluate vulnerabilities and inform operation of the cybersecurity program.

In addition to assessing a $1.5M civil penalty, the settlement provisions require Residential Mortgage to make the following submissions to the NYDFS within 90 days:

  • “a comprehensive written Cybersecurity Incident Response Plan;”
  • a comprehensive risk assessment;
  • “Policies, procedures and controls” relating to monitoring user activity and detecting unauthorized access or use of personal or confidential information; and
  • “Cybersecurity awareness training for all personnel, updated to reflect risks identified by Residential Mortgage in its Cybersecurity Risk Assessment.”

Residential Mortgage also agreed to “fully cooperate” with the NYDFS “regarding all terms of this Consent Order,” and the NYDFS reserved all rights to take further action in the event of noncompliance. The consent order notes Residential Mortgage’s “commendable cooperation” with the investigation and remediation efforts, including “devoting significant financial and other resources to enhance its cybersecurity program.”

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