New York’s Department of Financial Services Issues Regulation for Financial Institutions to Provide Relief to Consumers Suffering Financial Hardship Resulting from COVID-19 Pandemic

Wayne StreibichDiana M. Eng, Andrea M. RobertsScott D. Samlin

On March 21, 2020, in response to the COVID-19 pandemic, Governor Cuomo issued Executive Order 202.9, directing institutions regulated by New York’s Department of Financial Services (“NY DFS”) to provide financial relief to New York consumers experiencing financial hardship as a result of the pandemic. As a result, on March 24, 2020, NY DFS enacted Part 119 of Title 3 of the Official Compilation of Codes, Rules and Regulations of the State of New York (“NYCRR”) establishing standards and procedures that a “Regulated Institution” must follow in its review of requests for relief pursuant to Executive Order 202.9. Importantly, Section 119.2 defines a “Regulated Institution” as “any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.” (Emphasis added).

Highlights of the NY DFS Regulation1

Section 119.3 directs the Regulated Institution to do the following for any individual who can demonstrate financial hardship as a result of the COVID-19 pandemic:

  • In connection with a residential mortgage of a property located in NY: (i) make applications for forbearance of any payment due widely available to any individual who resides in NY and (ii) grant such forbearance for a period of 90 days (subject to the safety and soundness requirements of the Regulated Institution). This provision does not apply to, and does not affect mortgage loans “made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.”
  • With respect to banking organizations: (1) eliminate fees charged for the use of ATMs that are owned or operated by the regulated banking organization; (2) eliminate any overdraft fees; and (3) eliminate any credit card late payment fees. (Regulated Institutions are not limited to these three requirements and may take additional actions if they so desire.)

Within ten (10) business days of the implementation of this regulation, i.e., by April 7, 2020, the Regulated Institution shall e-mail, publish on their website, mass mail, or otherwise broadly communicate to its customers how to apply for relief. The criteria, developed by the Regulated Institution, “shall be clear, easy to understand, and reasonably tailored to the requirements of the [R]egulated [I]nstitution to assess whether it will provide, consistent with the goals of Executive Order 202.9 and this regulation, applicable state and federal law, and the principles of safe and sound business practices, COVID-19 relief.” 3 NYCRR § 119.3(d)(1).

In addition, Section 119.3(e) outlines the requirements for processing applications for relief, as follows:

  • The Regulated Institution must process and respond to the request for relief no later than ten (10) business days after receiving all the information it needs to process the application;
  • The Regulated Institution must process the application for relief expeditiously; the Regulated Institution is responsible for developing and implementing the procedures to do so; and
  • Decisions on the application for relief shall be made in writing and provide the consumers the next steps if they are approved or denied the request.

Finally, Section 119.39(4) modifies Section 39 of the New York Banking Law concerning unsafe and unsound business practices. Under the modified section, it is an “unsafe and unsound business practice” if any Regulated Institution does not “grant a forbearance of any payment due on a residential mortgage for a period of ninety (90) days to any individual who has applied for such forbearance and demonstrated a financial hardship as a result of the COVID-19 pandemic as described herein.” NY DFS will consider, among other things, the adequacy of the process established by the Regulated Institution, the thoroughness of the review of the application, and the payment history, creditworthiness and financial resources of the borrower, in assessing whether a regulated institution has engaged in an unsafe or unsound practice. Regulated Institutions must also maintain copies of all files related to implementation of Part 119 for seven (7) years from March 24, 2020 (date of implementation of the regulation) and must make such files available for inspection at the NY DFS’ next examination of the Regulated Institution.

The standards and procedures set forth in Part 119 shall be in effect for ninety (90) days. After the expiration of the 90-day period, NY DFS will renew this emergency regulation, if necessary.

Conclusion

Regulated Institutions must implement processes and procedures to comply with Part 119 by April 7, 2020, including immediately setting up procedures to review applications for relief and taking the necessary steps to notify its customers of how to apply for such relief. Thus, Regulated Institutions should determine which of its loans, if any, are subject to this regulation and accept and review its customers for forbearance relief as described in the regulation.

Mr. Streibich would like to thank Diana M. Eng, Andrea M. Roberts, and Scott D. Samlin for their assistance in developing this alert.


1 This Alert provides the highlights of the regulation, which does not apply to any commercial mortgage or any other loans not described in the regulation. Please visit the NY DFS website for the complete regulation: dfs.ny.gov/system/files/documents/2020/03/re_new_pt119_nycrr3_text.pdf.

CFPB Proposes Regulations to Clarify, Modernize, and Implement the Fair Debt Collection Practices Act

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Nicole R. Topper, Scott E. Wortman, and Paul Messina Jr.

Financial institutions and debt collectors should take note of, and provide comments on, the CFPB’s recent Notice of Proposed Rulemaking, which attempts to provide consumers with “clear protections against harassment by debt collectors and straightforward options to address or dispute debts.”      

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) released its long-awaited Notice of Proposed Rulemaking (“NPRM”), aiming to clarify and modernize the Fair Debt Collections Practices Act (“FDCPA”). The over 500-page NPRM marks the CFPB’s latest half-decade long effort to issue the first set of substantive rules interpreting the FDCPA since its passage in 1977.

Background

Seeking to curb abuses in the debt collection industry, Congress enacted the FDCPA in 1977. However, with the passage of time and the creation of new technologies, ambiguities and uncertainties in the industry developed. Without any federal agency delegated authority to write substantive rules interpreting the FDCPA, the courts were left with the sole burden of doing so. That changed in 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) delegating authority to the CFPB.

Citing the ongoing and abundance of consumer complaints, as well as the need to adapt the FDCPA for modern technologies, the CFPB called for public input on potential new regulations in 2013, and again in 2016, releasing an outline of proposals under consideration. This week’s NPRM incorporates many of those ideas with some adjustments. The NPRM will be open for 90 days for public comment following its publication in the Federal Register.

Please click here for the full client alert. 

U.S. Supreme Court Holds Foreclosure Firms Conducting Nonjudicial Foreclosures Are Not Debt Collectors Under the FDCPA

By: Wayne Streibich, Diana M. Eng, Cheryl S. Chang, Jonathan M. Robbin, and Namrata Loomba

The United States Supreme Court holds businesses conducting nonjudicial foreclosures are not “debt collectors” under the FDCPA, but lenders and foreclosure firms should take note that the Court specifically chose to leave open the question of whether businesses that conduct judicial foreclosures are “debt collectors” under the statute. 

On March 20, 2019, in Obduskey v. McCarthy, the Supreme Court of the United States issued an opinion holding businesses conducting nonjudicial foreclosures are not “debt collectors” under the Fair Debt Collection Practices Act (“FDCPA”). The Supreme Court limited its decision to nonjudicial foreclosures.1 The Justices ruled 9-0 in the case, with Justice Breyer writing the opinion and Justice Sotomayor concurring.

Please click here for the full client alert. 

Third Circuit Broadens Definition of “Debt Collector” under FDCPA to Include Entities That Acquire Debt but Outsource Collection of That Debt

By: Jonathan M. Robbin, Diana M. Eng, and Maria K. Vigilante

In Barbato v. Greystone Alliance, LLC et al., a recent precedential decision, the Third Circuit Court of Appeals held an entity whose business is the purchasing of defaulted debts for the purpose of collecting on them falls squarely within the “principal purpose” definition of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(a), even where the entity does not collect the debt and a third party is retained to do so. No. 18-1042, __ F.3d __ (3d Cir. 2019).

Specifically, Barbato expanded the Supreme Court’s holding in Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017) and rejected the defendant’s argument that Henson renders it a creditor rather than a debt collector because “its principal purpose is the acquisition—not the collection” of debt. Thus, the Barbato court held that where an entity meets the “principal purpose” definition, it cannot avoid the FDCPA’s requirements by retaining a third party to collect the debt.

Please click here for the full client alert. 

Ninth Circuit Holds That Fannie Mae Is Not a Consumer Reporting Agency under FCRA

By: Wayne StreibichCheryl S. Chang, Diana M. Eng, and Christine Lee

On January 9, 2019, a divided Ninth Circuit panel ruled that the Federal National Mortgage Association, or Fannie Mae, was not a “consumer reporting agency” within the meaning of the Fair Credit Reporting Act (“FCRA”). In Zabriskie v. Federal National Mortgage Association, the Ninth Circuit reversed the Arizona District Court’s holding that Fannie Mae acts as a consumer reporting agency when it licenses its proprietary software, Desktop Underwriter (“DU”), to lenders and that it is therefore subject to the FCRA. Zabriskie v. Fed. Nat’l Mortgage Ass’n, Nos. 17-15807, 17-16000, 2019 WL 137931 (9th Cir. Jan. 9, 2019).

The FCRA defines a “consumer reporting agency” as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of preparing or furnishing consumer reports.” 15 U.S.C. § 1681a(f). In reaching its conclusion, the Ninth Circuit specifically examined whether Fannie Mae’s licensing of its DU software constituted: (1) regularly engaging in the practice of assembling or evaluating consumer credit information and (2) for the purpose of preparing or furnishing consumer reports.

Please click here for the full client alert.

Southern District of New York Holds the CFPB Is Unconstitutionally Structured

By: Louise Bowes Marencik, Diana M. Eng, and Jonathan K. Moore

On June 21, 2018, the United States District Court for the Southern District of New York (“Southern District”) held that Title X of the Dodd Frank Act, which established the Consumer Financial Protection Bureau (“CFPB”) as an “independent bureau” within the Federal Reserve System, is unconstitutional.

In Consumer Financial Protection Bureau v. RD Legal Funding, LLC, et al., the CFPB and The People of the State of New York, by Eric T. Schneiderman, Attorney General for the State of New York (collectively, “Plaintiffs”) alleged that the defendant entities violated the Consumer Financial Protection Act (“CFPA”) by offering cash advances to consumers awaiting payouts on settlement agreements or judgments entered in their favor, which Plaintiffs argued were actually usurious loans prohibited by state law. 2018 U.S. Dist. LEXIS 104132 (S.D.N.Y. June 21, 2018). The consumers at issue were class members in the National Football League Concussion Litigation class action, and individuals eligible for compensation from the September 11th Victim Compensation Fund of 2001. Continue reading

Second Circuit Confirms Interest Disclaimer Not Required on Collection Notices Not Accruing Interest

By: Edward W. Chang, Jonathan M. Robbin, Scott E. Wortman, Diana M. Eng, and Hilary F. Korman

In a win for the collection industry, the Second Circuit Court of Appeals confirmed an “interest disclaimer” is only necessary on collection notices if the debt is accruing interest. While this much-needed clarification may reduce the volume of “reverse-Avila” FDCPA litigation, questions still remain about the best method to accurately characterize balances in collection notices.

Background

In Taylor v. Fin. Recovery Servs., Inc., No. 17-1650-cv (“Taylor”), the Second Circuit confirmed that the appellants (and many other members of the consumer bar) were misapplying its decision in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016) (“Avila”).1 In Avila, the Second Circuit ruled that a debt collector violates 15 U.S.C. § 1692e of the Fair Debt Collection Practices Act (“FDCPA”) if it identifies the “current balance” of a debt without disclosing that such balance could increase due to the accrual of interest or fees. In that case, interest was actually accruing on the subject debt. Continue reading

D.C. Circuit Sets Aside FCC’s Expansive Interpretation of the Telephone Consumer Protection Act

Wayne StreibichEdward W. Chang, Jonathan M. Robbin, Scott E. WortmanDiana M. Eng, and Hilary F. Korman

In a significant ruling for businesses, technological progress, and the economy at large, the D.C. Circuit Court of Appeals unanimously granted in part, and denied in part, various petitions for review of the Federal Communications Commission’s (“FCC”) adoption of its 2015 Declaratory Ruling and Order (the “2015 Order”) on the Telephone Consumer Protection Act (“TCPA”). The 2015 Order significantly changed the legal landscape of the TCPA, and had serious global consequences for numerous markets and businesses. In ACA Int’l v. FCC, (D.C. Cir. Mar. 16, 2018), the D.C. Circuit provided guidance on a number of issues, including the FCC’s “unreasonably expansive interpretation” of what constitutes an “Automatic Telephone Dialing System” or “ATDS” under the TCPA.

Background

Congress enacted the TCPA in 1991 to curb abusive telemarketing practices and encroachments on business and consumer privacy. The TCPA contains a private right of action permitting aggrieved parties to recover $500 for each call made (or text message sent) in violation of the statute, and up to $1,500 for each “willful or knowing” violation. See 47 U.S.C. § 227(b)(3). However, with the evolution of technology, statutory damages that may have seemed reasonable in 1991 have since morphed into a mammoth threat against any company employing automated dialing equipment. The FCC (the agency vested with the authority to promulgate regulations implementing the TCPA’s requirements) has further compounded the issue by propounding a litany of rulemakings and declaratory rulings that have expanded the scope and reach of the TCPA. Continue reading

Eastern District of New York Court Holds Debt Collection Letter Stating Settlement May Have Tax Consequences Does Not Violate the Fair Debt Collection Practices Act

By: Jonathan M. Robbin, Diana M. Eng, and Andrea Roberts

In Ceban v. Capital Management Services, L.P., Case No. 17-cv-4554 (E.D.N.Y. Jan. 17, 2018), the District Court held that the statement “[t]his settlement may have tax consequences” in a debt collection letter does not violate the Fair Debt Collection Practices Act (“FDCPA”).

On or about August 6, 2016, Plaintiff, Julian Ceban (“Plaintiff”) received a collection letter from defendant Capital Management Services, L.P. (“Defendant”) concerning his outstanding debt (the “Letter”). The letter stated, in relevant part, that Defendant was “authorized to accept less than the full balance due as settlement” and that Plaintiff could “contact [Defendant] to discuss a potential settlement.” Further, the letter indicated: “This settlement may have tax consequences. If you are uncertain of the tax consequences, consult a tax advisor.” Continue reading

Eleventh Circuit Holds that Voicemails Are “Communications” and Clarifies “Meaningful Disclosure” Under the FDCPA

By:  Diana M. Eng and Paul Messina, Jr.

In Stacey Hart v. Credit Control, LLC, No. 16-17126 (11th Cir. Sept. 22, 2017), the United States Court of Appeals for the Eleventh Circuit clarified two significant definitions under the Fair Debt Collection Practices Act (“FDCPA”), one of which was a novel issue for the Court.  First, the Eleventh Circuit ruled that the first voicemail that Credit Control LLC (“Credit Control”) left for Stacey Hart (“Hart”) qualified as a “communication” within the meaning of 15 U.S.C. § 1692a(2).  Because the voicemail was the initial communication between the parties, Credit Control had to provide the required disclosures under 15 U.S.C. § 1692e(11), commonly known as the “mini Miranda” warning.

Second, the Eleventh Circuit determined the novel issue of what constitutes a “meaningful disclosure” under the FDCPA by ruling that an individual caller is not required to disclose his/her identity as long the caller discloses that the call is being made on behalf of a debt collection company and the debtor collection company’s name.

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