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.

NY Appellate Court Holds Default Letter Stating Debt “Will Be Accelerated” Does Not Accelerate the Debt, De-Acceleration Must Be Clear and Unambiguous, and Standing, If Raised, Is an Element to De-Acceleration

By: Wayne Streibich, Jonathan M. Robbin, Diana M. Eng, and Jacquelyn A. DiCicco

In Milone v. U.S. Bank National Association, New York’s Appellate Division, Second Department (“Second Department”), held that a notice of default sent to a borrower, stating that failure to cure the default within 30 days “will result in acceleration,” does not “clearly and unequivocally” accelerate the mortgage debt upon expiration of the cure period. 2018 WL 3863269, at *1, — N.Y.S.3d — (2d Dept. Aug. 15, 2018). In sum, the Second Department concluded that the word “will” indicates a future intention that “may always be changed in the interim” and, therefore, does not accelerate the debt for statute of limitations purposes. See id., at *3. In addition, the Second Department ruled that a de-acceleration notice must be clear and unambiguous, and, in a case of first impression, held that standing, when raised, is a necessary element to a valid de-acceleration. See id., at *5.

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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 Rules that Consumers Have the Right to Partially Revoke Consent to Automated Calls under the TCPA

By: Michael Esposito

The Eleventh Circuit Court of Appeals recently issued its opinion in Emily Schweitzer v. Comenity Bank, holding that the Telephone Consumer Protection Act, 47 U.S.C. sec. 227 et seq. (“TCPA”), allows consumers to partially revoke their consent to be called by an automated telephone dialing system. No. 16-10498 (Eleventh Cir. August 10, 2017).

In Schweitzer, Plaintiff was issued a credit card by Comenity Bank (“Comenity” or the “Bank”) in 2012 and, during the application process, provided a cellular phone number to the Bank. In 2013, Plaintiff failed to tender the required monthly credit card payments and, as a result, Comenity used an automated telephone dialing system to make hundreds of calls to Plaintiff on her cellular phone regarding the delinquency. During a call with a Comenity representative on October 13, 2014, Plaintiff informed the representative that Comenity could not call her in the morning and during the work day, because she was working and could not discuss the delinquency while at work. Subsequently, Plaintiff twice told a representative of Comenity to please stop calling her. Thereafter, Comenity did not call Plaintiff’s cellular phone using an automated telephone dialing system.

Ultimately, Plaintiff commenced a suit against Comenity for alleged violations of the TCPA. Specifically, Plaintiff claimed that during the October 13th conversation, she revoked her consent for Comenity to call her cellular phone using an automated telephone dialing system and asserted that Comenity violated the TCPA by placing over 200 calls using an automated system from October 2014 through March 2015. The district court granted summary judgment in favor of Comenity and reasoned that the bank “did not know and should not have had reason to know that [Plaintiff] wanted no further calls.” In addition, the district court stated that Plaintiff did not “define or specify the parameters of the times she did not want to be called” and, therefore, a reasonable jury could not find that Plaintiff revoked her consent to call her cellular phone. Plaintiff appealed.

On appeal, Comenity argued that the district court correctly granted summary judgment in its favor because the TCPA does not allow partial revocations of consent and, even if possible, a reasonable jury could not find that Plaintiff had expressly done so during the October 13th conversation. The Eleventh Circuit Court rejected Comenity’s arguments, finding that “[a]lthough the TCPA is silent on the issues of revocation, [its] decision in Osorio holds that a consumer may orally revoke her consent to receive automated phone calls.” See Osorio v. State Farm Bank, F.S.B., 746 F. 3d 1242, 1255 (11th Cir. 2014).

Further, the Eleventh Circuit explained that since the TCPA is silent as to partial revocations of consent, the analysis of the matter is governed by common law principles, which support its holding that the TCPA “allows a consumer to provide limited, i.e., restricted, consent for the receipt of automated calls.” Moreover, “[i]t follows that unlimited consent, once given, can also be partially revoked as to future automated calls under the TCPA.” In support of its conclusion, the Eleventh Circuit reasoned that it is “logical that a consumer’s power under the TCPA to completely withdraw consent and thereby stop all future automated calls . . . encompasses the power to partially withdraw consent and stop calls during certain times.” Although the Eleventh Circuit noted the district court’s concern that partial revocations may create challenges for both callers and parties attempting to present evidence in support of TCPA claims, it held that any such complications do not warrant limiting a consumer’s rights under the TCPA.

Second, with regard to Comenity’s argument that a reasonable jury could not find that Plaintiff’s statements made during the October 13th conversation constituted a partial revocation of consent under the TCPA, the Eleventh Circuit ruled that the “issue is close” and concluded that the matter of partial revocation was for the jury to evaluate. In reaching its conclusion, the Eleventh Circuit found that summary judgment was not warranted since reasonable minds might differ on the inferences arising from Plaintiff’s request not to be called “in the morning and during the work day.”

This decision is significant because the Eleventh Circuit has expanded the consumer’s right to revoke consent under the TCPA to include partial revocations. Based on this decision, debt collectors conducting business within the Eleventh Circuit will need to update their automated dialing systems to incorporate such partial revocations.

Second Circuit Holds That TCPA Does Not Permit Consumer to Unilaterally Revoke Consent for Telephone Contact Provided in Binding Contract

By: Diana M. Eng and Andrea M. Roberts

In Reyes v. Lincoln Automotive Financial Services, the United States Court of Appeals for the Second Circuit recently held that the Telephone Consumer Protection Act (“TCPA”) does not permit a consumer to unilaterally revoke consent to be contacted by telephone when such consent is given as bargained-for consideration in a binding contract. Reyes v. Lincoln Automotive Fin. Servs., 2017 WL 3675363 (2d Cir. June 22, 2017).

Background

In 2012, Plaintiff-Appellant, Alberto Reyes, Jr. (“Plaintiff”), leased a car which was financed by Defendant-Appellee, Lincoln Automotive Financial Services (“Lincoln”). The lease contained a provision which expressly permitted Lincoln to contact Plaintiff. Plaintiff stopped making payments under the lease and, as a result, Lincoln called Plaintiff in an attempt to cure his default. Plaintiff disputed his balance on the lease and alleged that he requested that Lincoln cease contacting him. Despite Plaintiff’s alleged revocation of consent, Lincoln continued to call Plaintiff. As such, Plaintiff filed a complaint in the Eastern District of New York alleging violations of the TCPA.

The TCPA was enacted to protect consumers from “unrestricted telemarketing” which could be “an intrusive invasion of privacy.” See Mims v. Arrow Fin. Servs., LLC, 565 U.S. 368, 371 (2012) (internal citations omitted). Under the TCPA, any person within the United States is prohibited from “initiat[ing] any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party.” 47 U.S.C. 227(b)(1)(B).

Lincoln moved for summary judgment to dismiss the complaint, and the district court granted the motion, holding that (1) Plaintiff had failed to produce sufficient evidence to establish that he revoked his consent to be contacted and (2) the TCPA does not permit a party to a legally binding contract to unilaterally revoke bargained-for consent to be contacted by telephone. Plaintiff appealed both rulings.

The Second Circuit’s Decision

The Second Circuit affirmed the district court’s holding that under the TCPA, a consumer cannot unilaterally revoke its consent to be called when such consent was part of a bargained-for exchange.[1] In assessing whether a party can revoke prior consent under the TCPA, the Second Circuit agreed with the holdings of its sister courts that a party can revoke prior voluntary or free consent under the statute. See Gager v. Dell Financial Services, 727 F.3d 265 (3d Cir. 2013) (plaintiff permitted to revoke consent, where consent was provided in an application for a line of credit); Osorio v. State Farm Bank F.S.B., 746 F.3d 1242 (11th Cir. 2014) (plaintiff could revoke consent, where consent was provided in an application for auto insurance). The Second Court noted, however, that unlike in Gager and Osorio, Plaintiff’s consent was not provided gratuitously. Rather, Plaintiff’s consent was included as an express provision of a contract with Lincoln. Accordingly, the Second Circuit drew a distinction between the definition of consent under tort and contract law. Specifically, in tort law, the term “consent” is defined as a “voluntary yielding to what another purposes or desires.” Black’s Law Dictionary (10th ed. 2014). However, under contract law, “consent to another’s actions can ‘become irrevocable’ when it is provided in a legally binding agreement, in which case any ‘attempted termination is not effective.’” See Restatement (Second) of Torts 892A(5) (Am. Law Inst. 1979); see also 13-67 Corbin on Contracts 67.1 (2017).

The Second Circuit also determined that a contractual term need not be “essential” to be enforced as part of a binding agreement and that contracting parties are bound to perform on the agreed upon terms; a party who agreed to a valid term in a binding contract cannot later renege on that term or unilaterally declare that it no longer applies simply because the contract could have been performed without it. “[R]eading the TCPA’s definition of ‘consent’ to permit unilateral revocation at any time, as [Plaintiff] suggests, would permit him to do just that,” and the Second Circuit could not “conclude that Congress intended to alter the common law of contracts in this way.” (citation omitted).

Conclusion

This decision is significant, as it addressed the novel issue of whether consent that is given as part of a bilateral contract may be unilaterally revoked by a consumer under the TCPA. Based on Reyes, financial institutions that have consent provisions in binding contracts with consumers have a powerful defense against TCPA claims. In practice, if a contract with a consumer contains an express consent provision, the financial institution would need to agree to the consumer’s request to revoke. Financial institutions should also be cognizant that a consumer, who provides consent to be called in an application, may unilaterally revoke such consent.

[1] The Second Circuit also held that the district court erred in finding that no reasonable jury could find that Plaintiff revoked his consent, as Plaintiff had introduced sworn testimony of revocation. However, this error does not impact the ruling that Plaintiff nevertheless cannot unilaterally revoke his consent under the TCPA when such consent is part of a binding contract.

Florida Second District Court of Appeal Ruling Highlights the Possible Pitfalls of Relying on Prior Servicer Records

By: Michael R. Esposito

Florida’s Second District Court of Appeal (“Second District Court”) recently held that a mortgagee failed to demonstrate it satisfied the condition precedent in a residential mortgage foreclosure. Allen v. Wilmington Trust, N.A., 2D15-2976, 2017 WL 1325896 (Fla. 2d DCA 2016). In Allen, the underlying mortgage contained the standard provision which requires a lender/servicer to notify the borrower of a default prior to the loan being accelerated and a foreclosure filed. In addition to the foregoing provision, the mortgage specified that any notice mailed in relation to the instrument “shall be deemed to have been given to [b]orrower when mailed by first class mail or when actually delivered to [b]orrower’s address if sent by other means.” Prior to the commencement of the action, a notice of default was mailed to the borrower by the prior loan servicer, EMC Mortgage Corporation (“EMC”), in accordance with the provision. Thereafter, Wilmington Trust, N.A. (“Wilmington”) filed a complaint on or about November 21, 2012, seeking foreclosure of the subject mortgage. In response to the lawsuit, the borrower denied Wilmington satisfied all conditions precedent to filing the lawsuit and raised an affirmative defense that asserted Wilmington failed to establish that a notice of default was provided as required by the mortgage.

During the bench trial, a corporate representative of the current servicer testified on behalf of Wilmington. The witness testified as to the boarding process used to verify the accuracy of the records of EMC and specified the related business records included a notice of default that was addressed to the borrower and dated March 12, 2010. Further, the witness testified that because the letter existed, it had been sent to the borrower and there were no records indicating the notice was returned as undeliverable. More importantly, the witness confirmed the business records associated with the loan did not specifically show the notice was actually mailed to the borrower and she was unable to testify as to EMC’s mailing procedures. In response, the borrower objected to the witness’ testimony that EMC mailed the notice and argued Wilmington failed to establish the appropriate foundation for the testimony since she was unfamiliar with the prior servicer’s procedures. Despite the trial court’s denial of the objection, the borrower argued at the close of the bench trial that Wilmington neglected to demonstrate it satisfied the condition precedent of mailing the notice of default. Ultimately, the trial court held the witness’ testimony as to the boarding process was sufficient to show Wilmington satisfied the condition precedent and entered a final judgment of foreclosure in favor thereof.

In reviewing the matter, the Second District Court held the trial court incorrectly relied on the boarding process to prove the notice of default was actually mailed. Although the witness’ testimony as to the boarding process was sufficient to support the admission of the notice of default, the Second District Court concluded that the testimony and evidence proffered failed to establish the notice of default was mailed to the borrower. In support of its conclusion, the Second District Court cited to Burt v. Hudson & Keyse, LLC, 138, So. 3d 1193 (Fla. 5th DCA 2014) and held that while the notice of default was dated, it did not contain any proof that the notice was mailed to the borrower. Without proffering further evidence of proof of regular business practice, an affidavit swearing that the notice of default was mailed, or a return receipt, Wilmington was only able to rely upon the testimony of its witness, who was unable to show personal knowledge of EMC’s general practice in mailing letters. As a result, the Second District Court reversed and remanded the action for dismissal since Wilmington was unable to demonstrate the notice of default was mailed pursuant to an established business procedure of EMC and, therefore, could not prove the required condition precedent was satisfied.

This case highlights the litigation risks associated with service transferred loans and the importance of current loan servicers obtaining all relevant business records and/or education on prior servicer policies and procedures.

U.S. Supreme Court Excludes Banks Collecting Purchased Delinquent Debt from Definition of “Debt Collector” under the FDCPA

By: Diana M. Eng and Louise Marencik

Banks and other consumer finance firms that purchase delinquent debt and then collect on their own behalf are not “debt collectors” under the Fair Debt Collection Practices Act. However, this limitation still does not apply to those institutions that collect on behalf of another.

In a unanimous decision in Henson et al. v. Santander Consumer USA Inc., the United States Supreme Court held that the Fair Debt Collection Practices Act (“FDCPA”) does not apply to banks and other consumer finance firms that purchase and then collect on defaulted debt that they own. No. 16-349, ____ U.S. ____ (2017).

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