New York Bankers Must Consider Forbearance, Other Consumer Protection in Response to COVID-19

EO 202.9 broadly extends to any banking organization licensed or chartered under New York State Banking Law.¹ Under EO 202.9, it will be a violation of law for any New York State Banking Institution to refuse to provide consumers facing a financial hardship due to the COVID-19 pandemic an opportunity for a forbearance of mortgage payment obligations. Denial of a request for forbearance by a New York State Banking Institution to any person or business who has a financial hardship as a result of COVID-19 shall be deemed an unsafe and unsound practice. EO 202.9 gives NYSDFS authority to write emergency regulations implementing two earlier Industry Letters it issued that were intended to give economic relief to consumers and small businesses: (1) Guidance to New York State Regulated and Exempt Mortgage Servicers Regarding Support for Borrowers Impacted by the Novel Coronavirus (COVID-19); and (2) Guidance to New York State Regulated Financial Institutions Regarding Support for Consumers and Businesses Impacted by the Novel Coronavirus (COVID-19). Similarly, under New York State Executive Order 202.8, New York broadly prohibits enforcement of any eviction or foreclosure for any residential or commercial property proceedings for a period of 90 days.

The NYSDFS will be promulgating emergency regulations requiring the development of an application for persons or entities facing a financial hardship to apply for forbearance of mortgage payments. Emergency regulations are generally promulgated without the usual notice and comment period and are likely to be effective immediately or on an extremely short notice. EO 202.9 requires applications for forbearance to be made widely available for consumers, and New York Banking Institutions are expected to grant applications in all “reasonable and prudent circumstances.” EO 202.9 requires the forbearance for a period of 90 days for any person or business who has a financial hardship as a result of COVID-19.

In addition to mortgage forbearance, EO 202.9 authorizes NYSDFS to adopt an emergency regulation restricting or modifying fees for the use of ATMs, overdraft fees and credit card late fees of licensed or regulated entities, taking into account the financial impact on the New York consumer, the safety and soundness of the licensed or regulated entity, and any applicable federal requirements. The following previously issued NYSDFS guidance may be included in the new regulations:

• Waiving overdraft and ATM fees;
• Providing new loans on favorable terms;
• Waiving late fees for credit card and other loan balances;
• Increasing ATM daily cash withdrawal limits;
• Waiving early withdrawal penalties on time deposits;
• Increasing credit card limits for creditworthy customers;
• Offering payment accommodations, such as allowing loan customers to defer payments at no cost, extending the payment due dates or otherwise adjusting or altering terms of existing loans, which would avoid delinquencies, triggering events of default or similar adverse consequences, and negative credit agency reporting caused by COVID-19 related disruptions;
• Ensuring that consumers and small businesses do not experience a disruption of service if financial institutions close their offices, including making available other avenues for consumers and businesses to continue to manage their accounts and to make inquiries;
• Alerting customers to the heightened risk of scams and price gouging during the COVID-19 disruptions, and reminding customers to contact their financial institutions before entering into unsolicited financial assistance programs; and
• Proactively reaching out to customers via app announcements, text, email or otherwise to explain the above-listed assistance being offered to customers.

The New York measures go further, but are consistent with, guidance issued by federal financial regulators that extend to both state and federally chartered banks. Federal regulators issued a joint statement encouraging all banks to use the substantial capital and liquidity buffers they have to support consumers and businesses during this COVID-19 pandemic. The Federal regulators stated: “These capital and liquidity buffers were designed to provide banking organizations with the means to support the economy in adverse situations and allow banking organizations to continue to serve households and businesses. The agencies support banking organizations that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner. The agencies expect banking organizations to continue to manage their capital actions and liquidity risk prudently.”

EO 202.9 is broad in scope and will be defined by emergency regulations published by NYSDFS. NYSDFS Industry letters can be used to anticipate the scope of the emergency regulation. As financial regulators globally address the COVID-19 crisis, rules and guidance for financial institutions are changing rapidly. It is important to stay current on developments, most of which are effective without significant implementation time. Generally, the regulatory direction is for financial institutions to take all reasonable measures to meet financial needs of and ameliorate the challenges being faced by customers affected by coronavirus.

Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm's capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 resources page.

1.  Within the scope of the order is any New York State licensed: bank holding company, mortgage broker, mortgage banker, mortgage loan servicer, mortgage loan originator, licensed lender, check casher, sales finance company, insurance premium finance agency, money transmitter, budget planner, out-of-state state bank that maintains a branch or branches or representative or other offices in this state, or foreign banking corporation licensed by the superintendent to do business or maintain a representative office in this state (New York State Banking Institutions). New York State Banking Institutions can be looked up on the NYSDFS website.