Alston & Bird Consumer Finance Blog

#NYDFS

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.

NY DFS unveils Consumer Protection Task Force, adds Former CFPB Deputy Director

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A&B ABstract:

Less than one month into the new year, New York’s Department of Financial Services (DFS) has taken strong measures to make good on its proclamation that  “2020 must be the year of the consumer” by: (1) unveiling a 12-member Consumer Protection Task Force to help implement an extensive consumer protection agenda; and (2) adding former CFPB Deputy Director Leandra English as a special policy advisor to the Superintendent.

The Consumer Protection Task Force

On January 9, Superintendent Lacewell announced the roll-out of a 12-member Consumer Protection Task Force to “further DFS’ mission to protect consumer as the federal government rolls back important consumer protections.”  In his annual State of the State, Governor Cuomo expressed his belief that with the current Administration’s “rolling back of consumer protections and regulations, Americans are more exposed to predatory and abusive practices than at any time since the 2008 financial crisis.”  The DFS press release noted that one of the task force’s immediate focuses will be to help bring to fruition “the extensive consumer protections proposals included in Governor Cuomo’s 2020 State of the State agenda” which includes such initiatives as: (1) licensing and regulating debt collection companies; (2) the codification of a Federal Trade Commission rule banning confessions of judgment; (3) strengthening the state’s consumer protection laws to protect against unfair, deceptive, and abusive practices; (4) cracking down on elder financial abuse; and (5) increasing access to affordable banking services.

According to the DFS, task force members will “provide formal input on the [DFS’] consumer engagement, policy development and research” in order to “ensure that consumer’s always come first as the [DFS] develops policies and regulates the financial services industry.”  The 12-member committee consists of: (1) Chuck Bell, Programs Director for the advocacy division of Consumer Reports; (2) Elisabeth Benjamin, Esq., Vice President of Health Initiatives at the Community Service Society; (3) Carolyn Coffee, Esq., Director of Litigation for Economic Justice at Mobilization for Justice; (4) Beth Finkel, State Director for the New York State Office of the AARP; (5) Jay Inwald, Esq., Director of Foreclosure Prevention at Legal Services NYC; (6) Paul Kantwill, Esq., Distinguished Professor in Residence and Executive Director, Rule of Law Program at Loyola University Chicago School of Law; (7) Neha Karambelkar, Esq., Staff Attorney at Western New York Law Center; (8) Kristen Keefe, Esq., Senior Staff Attorney with the Consumer Finance and Housing Unit at Empire Justice Center; (9) Peter Kochenburger, Esq., Executive Director of the Insurance LLM Program and Deputy Director of the Insurance Law Center at the University of Connecticut Law School; (10) Sarah Ludwig, Esq., Co-Director of New Economy Project; (11) Frankie Miranda, Executive Director at the Hispanic Federation; and (12) Cy Richardson, Senior Vice President at the National Urban League.

Superintendent Lacewell noted that, as the federal government, in her words, “dismantles consumer protections across the board, New York has intensified its commitment” to “further solidify New York’s reputation as the consumer protection capital of America.” Lacewell added that, “[w]ith the federal government stepping down and refusing to enforce critical consumer protection law, we must make 2020 the Year of the Consumer.”

NY DFS Adds Former CFPB Deputy Director Leandra English

On January 14, 2020 the DFS announced that former CFPB Deputy Director Leandra English would be joining the DFS as a special policy advisor reporting directly to Linda Lacewell.  According to the press release, Ms. English will “help develop policy initiatives and manage DFS’ consumer protection agenda” and her appointment “strengthens the mission of the [DFS] to protect and empower New York consumers as Washington continues to roll back on consumer protections.”  Ms. English is well known for leaving the CFPB after having been appointed acting director by departing director Richard Cordray only to see the President’s administration issue a dual appointment, naming Mick Mulvaney as acting director.  The ensuing legal dispute reached the U.S. Court of Appeals for the D.C. Circuit before Ms. English ultimately resigned.

Ms. English’s most recent work was as Director of Financial Services Advocacy for the Consumer Federation of America (CFA), a “national nonprofit organization dedicated to advancing the consumer interest through research, advocacy, and education.”  One of Ms. English’s initiatives in that role was to support the Forced Arbitration Injustice Repeal Act (H.R. 1423), known as the “FAIR” Act, which would eliminate compulsory arbitration in consumer contracts and was passed by the House of Representatives in the Fall by a 225-186 vote.  Upon the bills passage, Ms. English commented that, “Americans deserve their day in court, but when companies force consumers into signing away their rights, the chances of a fair outcome diminish drastically. We thank the House for taking this important step in eliminating these clauses from contracts for products consumers use every day including credit cards and checking accounts. We now need the Senate to act to protect consumers.”

Takeaway

As the DFS continues its push to strengthen protections for New York consumers in 2020, it will be interesting to watch how such initiatives impact the DFS’ investigative and enforcement priorities.  Moreover, as New York is a bellwether state, it will be interesting to see whether other states follow suit.