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New York State Temporarily Modifies Regulations Governing Mortgage Payments and Consumer Fees

By: Jason P. Hipp

New York StateAs just one of the many aspects of New York State’s response to the coronavirus outbreak, last month, on March 21, 2020, New York Governor Andrew Cuomo issued Executive Order 202.9 (the Order), which directed institutions regulated by the New York Department of Financial Services (DFS) to provide financial relief to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days. 

To carry out that general mandate, the Order directed DFS to ensure that “licensed or regulated entities”—which includes banks and savings banks, credit unions, investment companies and mortgage loan servicers, among others—provide to consumers in New York State an opportunity to make an application for a forbearance of mortgage payments (including principal and interest) to “any person or entity facing a financial hardship” resulting from the COVID-19 pandemic and grant such applications in “all reasonable and prudent circumstances.”  While the Order does not specify the precise meaning of the “forbearance,” when read in context of the Order as a whole, it appears to refer solely to a forbearance of mortgage payments for a consumer in New York State.  The Order also empowers DFS to issue regulations directing the restriction or modification of ATM fees, overdraft fees and credit card late fees.

The Order took effect on March 21, 2020, and, under a subsequent executive order issued on April 7, 2020, will remain in effect through May 7, 2020.

Days after the Order, on March 24, 2020, DFS issued emergency regulations implementing the Order.  Under the emergency regulations—which remain in effect for the same period of time as the Order— “New York regulated institutions” (which include both banking organizations and mortgage servicers) are required to grant forbearances of payments due on a residential mortgage for property in New York for ninety days for individuals who reside in New York and demonstrate COVID-19-related financial hardship.  3 NYCRR § 119.3(a).  Denial of such forbearance will subject an institution to a review by DFS of whether that activity constituted an unsafe or unsound practice (relying on several factors enumerated by DFS).  3 NYCRR § 119.3(f).  All DFS-regulated institutions are subject to such a review, notwithstanding language in the Order limiting the review to the practices of any “bank.”

Under the emergency regulations, DFS also required “banking organizations” to provide financial relief to individuals who demonstrate COVID-19-related financial hardship by:  (1) eliminating fees for the use of ATMs owned or operated by the banking organization; (2) eliminating overdraft fees and (3) eliminating credit card late payment fees.

The emergency regulations require regulated institutions to promptly notify consumers of the available relief and respond to applications within ten  business days after receiving all needed information.  3 NYCRR § 119.3(c) and (e).

In addition to the requirements of these initiatives, DFS also issued a broader set of advisory guidelines.  The March 19, 2020 guidance is directed to the same populations as the Order and DFS regulations (mortgage servicers and other regulated financial institutions).  The guidance to mortgage servicers recommends that these institutions take actions to benefit mortgage borrowers, such as refraining from reporting late payments to credit agencies.  The guidance to regulated financial institutions recommends that financial institutions “do their part to alleviate” the financial hardship of the COVID-19 pandemic on small businesses and consumers (whereas the Order and regulations are limited to consumers), and applies to a variety of loans (whereas the Order and regulations are limited to mortgages and bank and credit card fees).  The guidance includes that financial institutions should provide new loans on favorable terms, offer payment accommodations, and increase ATM cash withdrawal and credit card limits.  The guidance also urges financial institutions to refrain from exercising rights and remedies based on “potential technical defaults under material adverse change and other contractual provisions that might be triggered by the COVID-19 pandemic.”  However, as these guidelines are voluntarily and broadly worded, the regulations described above prevail over the guidelines in the event of an inconsistency.  3 NYCRR § 119.3(j).

As the financial effects of the COVID-19 pandemic continue to evolve in New York, careful attention is required to the rapidly shifting patchwork of rules and regulations governing financial institutions in New York.  The Order, emergency regulations, and guidance discussed in this article each vary in the scope of their application based on the type of financial institution (such as a bank or mortgage servicer); the characteristics of the loan (such as whether the loan is a mortgage or other type of loan); and the characteristics of the customer (such as an individual consumer or business).  These distinctions call for careful attention to ensure that financial institutions serving customers in New York remain fully compliant with New York law.