Alston & Bird Consumer Finance Blog

#NYDFS

New York Financial Regulator Requires COVID-19 Risk Assessment, Operational Planning

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Last week the New York Department of Financial Services (the “Department”) issued letters to all its licensed financial institutions. Based on these letters (available here and here), all Department licensees must assess and plan for the financial risk of COVID-19 and, separately, develop operational plans for managing their response to the virus. The Department requires written responses “as soon as possible” but within 30 days in any case. As a result, impacted businesses should be actively preparing responses to the Department’s detailed request, if they have not already.

Citing the “potentially significant effects an outbreak of COVID-19 could have on your institutions,” the Department “requires that each regulated institution submit a response to DFS describing the institution’s plan of preparedness to manage the risk of disruption to its services and operations.” The Department’s letter regarding such operational preparedness indicates the topics that the Department expects to see reflected within such plans, including:

  • Impact Minimization Measures – Preventative measures to minimize operational impact on customers and business partners;
  • Scaled Strategies to Outbreak Stages – Documented strategies addressing the impact in stages, so the organizations approach may be scaled in accordance with the effects of the stage of an outbreak (with approximate deployment timeframes);
  • Facilities, Resources and Testing Assessments – Assessment of all facilities (including alternative or back-up sites), systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for long periods (perhaps sick) or are working off-site, including an assessment and testing as to whether large scale off-site working arrangements can be activated and maintained to ensure operational continuity;
  • Cyber and Fraud Are Contemplated in the Assessments – Any assessment should include an assessment of potential increased cyber-attacks and fraud;
  • Employee Health Considerations – An assessment of employee protection strategies, critical to sustaining the entire workforce during the outbreak, including employee awareness and steps employees can take to reduce the likelihood of contracting COVID-19;
  • Service Provider Assessments – Of the preparedness of critical outside-party service providers and suppliers (at a minimum, this anticipates contacting these providers and touching base as to their capabilities);
  • Communications Plans– Development of a communication plan to effectively communicate with customers, counterparties and the public and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;
  • Testing, Governance and Oversight of the Overall COVID-19 Plan

In addition to operational planning, a separate letter issued by the Department requires institutions to additionally provide a plan “regarding managing the potential financial risk arising from COVID-19.” Such financial risk management plans must assess credit exposure to counterparties impacted by COVID-19 (potentially including stress testing or sensitivity analysis of loan portfolios); assess the valuation of assets impacted by COVID-19; assess overall financial impacts on earnings, profits, capital and liquidity; assess the credit risk ratings of the customers, counterparties and business sectors impacted by COVID-19; and assess “reasonable and prudent steps to assist those adversely impacted by COVID-19.”

The Department has issued a separate letter for institutions engaged in virtual currency activity, and requires operational and financial planning for these businesses as well. Finally, the Department issued a fourth letter on March 10 encouraging banks, credit unions and lenders to “consider all reasonable and prudent steps to assist businesses that have been adversely impacted by COVID-19,” including waiving fees, easing credit terms, and offering payment accommodations.

If you have any questions regarding the development of this alert or crafting responses to the NYDFS, please contact Jim Harvey, Nanci Weissgold, Amy Mushahwar, or Michael Young.

NYDFS Extends Transition Period for Part 419 Compliance by Additional 90 Days

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On March 13, 2020, the New York Department of Financial Services (“NYDFS”) adopted, on an emergency basis, amendments (the “Emergency Adoption”) to the final mortgage servicer business conduct rules found in Part 419 of the Superintendent’s Regulations (the “Final Rules”), to extend the transition period for compliance with the Final Rules by an additional 90 days.  Prior to the Emergency Adoption, the transition period was set to expire on March 17, 2020.

As we previously reported, the NYDFS adopted the Final Rules on December 18, 2019.  The Final Rules made numerous revisions to the prior version of Part 419 that had been adopted, and readopted, on an emergency basis.  To facilitate the mortgage industry’s transition to the new rules, the Final Rules added Section 419.14 to provide a 90-day transition period for mortgage servicers to comply with the Final Rules.  However, the NYDFS indicated that “the transition period stated in Part 419.14 ha[d] proven to be insufficient.”

In issuing the Emergency Adoption, the NYDFS acknowledged the “volume and complexity of the changes required by the [Final Rules], especially computer programming required to address the new reporting, notice and disclosure requirements for the home equity line of credit {‘HELOC’) product, [which] is creating the biggest issue for servicers” as the HELOC product had previously been exempt from Part 419.  The NYDFS also cited, as additional reasons supporting the Emergency Adoption, the additional time needed by regulated institutions for purposes of revising procedures, training compliance staff, and providing information to consumers, as well as the business continuity and pandemic planning around the Coronavirus, which is diverting the limited resources of smaller financial institutions.

Mortgage servicers now have an additional 90-days to transition to the new requirements under the Final Rules.

New York Proposes Licensing Consumer Debt Collectors

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A&B ABstract:  On January 21, 2020, New York Governor Andrew Cuomo proposed a measure to license consumer debt collectors as part of his budget bill. If enacted, the measure would require any person acting as a “consumer debt collector” in New York to obtain a license from the New York Banking Superintendent.

Effective October 1, 2020, the measure would require any person acting as a consumer debt collector either directly or indirectly in the State of New York to obtain a license.

Who is a Consumer Debt Collector?

The proposed bill defines a “consumer debt collector” as “any person who engages in a business, a principal purpose of which is the collection of consumer debts or of debt buying, or who regularly collects or attempts to collect, directly or indirectly, consumer debts owed or due to another person.” The definition also includes any creditor that “in the process of collecting its own consumer debts, and uses [sic] any name other than its own, which would reasonably indicate that a third person is collecting or attempting to collect a consumer debt.” The measure would set a one-year license period, with an expiration date of September 1 each year.

Exemptions

Although the definition of “consumer debt collector” is broad, the proposed bill does carve out exemptions for a variety of entities. Notably, loan servicers are exempt from licensing if they are servicing loans or accounts that are not delinquent. Additionally, the measure exempts from licensure a national bank and any subsidiary or affiliate of a national bank if the entity is not primarily engaged in the business of purchasing and collecting upon delinquent debt, other than debt secured by real property. However, unlike many other states (such as Illinois and Washington), New York would not exempt attorneys from licensure.

License Requirements

The proposed bill would require that consumer debt collectors file and maintain a $25,000 surety bond in connection with the application for, and renewal and maintenance of, a consumer debt collector license. Further, expiration of a debt collector’s bond without a replacement being filed with the New York Department of Financial Services would cause automatic expiration of a license.

Practice Restrictions

The proposed bill also includes substantive restrictions on communications with consumer debtors. Significantly, the measure would prohibit a consumer debt collector from contacting a consumer debtor outside the hours of 8 a.m. to 8 p.m. local time for the consumer debtor. This prohibition deviates from a similar provision in the Fair Debt Collections Practices Act (“FDCPA”). The FDCPA prohibits debt collectors from contacting consumers outside of the hours of 8 a.m. to 9 p.m. local time for the consumer.

Takeaways

If enacted, the proposed bill would expand the scope of licensing for debt collectors in New York, which are currently licensed only by individual municipalities. Further, in its current form, the measure would require attorneys to be licensed to collect on delinquent debt. We will continue to monitor this measure, which has a high likelihood of passage given its inclusion in Governor Cuomo’s budget bill.

NYDFS Issues Final Mortgage Loan Servicer Business Conduct Rules (Part 419)

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The New York Department of Financial Services (“NYDFS”) has issued final mortgage servicer business conduct rules found in Part 419 of the Superintendent’s Regulations.  Our January 24 client advisory provides a full analysis of the changes, which include:

  • New provisions governing affiliated business arrangements;
  • Expanded restrictions on servicing fees (including property valuation fees);
  • A broader servicer duty of fair dealing;
  • Expanded protections available to delinquent borrowers and borrowers seeking loss mitigation assistance; and
  • Detailed third party vendor management requirements.

Although the rules took effect on December 18, the NYDFS added Section 419.14 to provide a 90-day transition period for servicers who were compliant with the previous version of the rules as of the effective date.

New York Proposes Guidance for Regulated Virtual Currency Licensees

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A&B ABstract

Since the New York Department of Financial Services (“NYDFS”) finalized regulations for virtual currency firms in 2015, several regulated virtual currency licensees (“Licensees”) have sought permission to issue new virtual currencies (i.e., coins) in addition to those included in their initial license applications. On December 11, 2019, NYDFS issued Proposed Guidance in response to these requests, and will accept comments until January 27, 2020.

Proposed Model Framework

The Proposed Guidance discusses a proposed model framework for a coin-listing or adoption policy (“Policy”) and a procedure for obtaining NYDFS approval of a Policy.  Specifically, the Proposed Guidance would require each Policy to address, at a minimum, the Licensee’s governance, risk, and monitoring of its coins.

Governance:

The board of directors of the Licensee, or any equivalent governing body, must:

  • Approve the Policy;
  • Independently make decisions to approve or disapprove a new coin;
  • Consider and address any and all conflicts of interest in connection with any review and/or decision-making process for a new coin;
  • Maintain specific minutes for meetings during which a new coin is addressed; and
  • Keep specific records of the application of the Policy to each new coin.
Risk:

The Licensee must conduct and document a full risk assessment of any new coins in a way that is entirely free of conflicts of interest. It must consider operational risks, risks associated with any technology or systems enhancements, cybersecurity risks, risks related to code defects, and legal and regulatory risks. A Licensee also must ensure that an independent audit of all associated risks is conducted.

Monitoring:

A Licensee must maintain policies and procedures to monitor adherence to the Policy.  At a minimum, such policies and procedures must include:

  • Periodic re-evaluation of the coin;
  • Adoption, documentation, and implementation of control measures to manage risks; and
  • A process for de-listing the coin.

Proposed Procedures

A Licensee may submit its Policy to the NYDFS for formal approval.  After receiving approval, the Licensee will be able to self-certify to NYDFS that its proposed adoption or listing of new coins complies with its NYDFS-approved Policy. After self-certification, a Licensee need only provide prior written notice to the NYDFS of its intent to offer and use the new coins. A Licensee with an approved Policy would not be required to obtain the approval of the NYDFS for a new coin, unlike a Licensee that does not maintain an approved Policy.

Significantly, all Licensees, irrespective of whether they maintain a Policy approved by the NYDFS, must inform the NYDFS of all coins used or offered in connection with their business activities no later than at the time of their next quarterly filing.

Comment Deadline

Interested parties should submit their comments to innovation@dfs.ny.gov by January 27, 2020, with the subject line “Proposed Coin Listing Policy Framework.” All such comments may be subject to public inspection.

Takeaway

NYDFS Superintendent Linda Lacewell has indicated that she wants New York to remain at the “jurisdiction of choice” for innovation, and these Proposed Guidelines are indicative of the state’s continued efforts to keep that standing. To that end, we can expect to see the NYDFS provide further regulatory clarity and efficiency for emerging financial services technologies and take steps to ensure that its regulation reflects the industry’s fast-paced, evolving market.