The New York Department of Financial Services (DFS) released guidance for its regulated financial institutions and mortgage servicers in light of the COVID-19 pandemic, authorizing banks to take “reasonable and prudent actions” to work with consumers and small businesses that have been impacted by the novel coronavirus.
To implement its guidance, the DFS also released an emergency regulation mandating the waiver of certain financial services fees and directing banks to grant applications for mortgage forbearance for a 90-day period.
What happened
In the first memo to the chief executive officers (or equivalents) of DFS-regulated financial institutions, the DFS urged covered entities “to do their part to alleviate the adverse impact caused by COVID-19,” offering several suggestions.
Financial institutions should waive overdraft fees; provide new loans on favorable terms; waive late fees for credit card and other loan balances; waive automated teller machine (ATM) fees; increase ATM daily cash withdrawal limits; waive early withdrawal penalties on time deposits; and increase credit card limits for creditworthy customers, according to the memo.
Banks should offer 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 the DFS said would avoid delinquencies, triggering events of default or similar adverse consequences, and negative credit agency reporting caused by COVID-19-related disruptions.
Further, financial institutions should ensure that consumers and small businesses do not experience a disruption of service if the bank closes its office (making other avenues available to consumers and businesses to continue managing their accounts and making inquiries) and alert customers to the heightened risk of scams and price gouging.
The DFS instructed financial institutions to proactively reach out to customers―via app announcements, texts, email or otherwise―to explain the COVID-19-related assistance being offered.
The memo also said that, in their capacity as creditors to businesses, financial institutions should work with companies of all sizes to provide accommodations “to the extent reasonable and prudent” and “consistent with safe and sound banking practices,” with options such as refraining 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.
Taking such measures “will not be subject to examiner criticism,” the DFS said.
The memo to mortgage servicers provided a similar list of actions, including forbearing mortgage payments for 90 days; refraining from reporting late payments to credit rating agencies for 90 days; offering mortgagors an additional 90-day grace period to complete trial loan modifications; and ensuring that late payments during the COVID-19 pandemic do not affect mortgagors’ ability to obtain permanent loan modifications.
In addition, the DFS advised mortgage servicers to waive late payment fees and any online payment fees for a period of 90 days, postpone foreclosures and evictions for 90 days, ensure that mortgagors don’t experience a disruption of service if offices close, and reach out to customers about the assistance being offered.
The DFS followed up the memos with an emergency regulation mandating that covered financial institutions provide residential mortgage forbearance on property located within New York for a period of 90 days to any individual residing in the state who demonstrates financial hardship as a result of the COVID-19 pandemic, subject to safety and soundness requirements. The emergency regulation does not explain how financial hardship is to be demonstrated, leaving this to covered institutions’ discretion.
Financial institutions must make applications for forbearance “widely available” to any individual who resides in New York, pursuant to the regulation. The criteria developed by regulated institutions must be “clear, easy to understand and reasonably tailored to the requirements of” the institution, the DFS said, with applications processed and responded to no later than 10 business days after the bank receives the necessary information.
Banking organizations are also required to eliminate fees charged for ATM use, overdraft fees and credit card late payment fees for any individual who demonstrates financial hardship due to the coronavirus.
Although the emergency regulation set a time period of 90 days, the DFS said it will renew the regulation if faced with a longer emergency.
Why it matters
These actions apply to New York-regulated financial institutions and branches located in New York and demonstrate the seriousness with which New York is taking the impact of COVID-19 on consumers of financial services in the state.
These actions do not apply to national banks or banks chartered by a different state. It also does not apply to unregulated fintech firms or private investors who hold mortgages or leases. Perhaps most significantly, the eviction forbearance is not binding on the lion’s share of the state’s landlords, who are private actors.
Still, this action furthers Governor Cuomo’s earlier statements that not assisting borrowers during the COVID-19 pandemic is considered an unsafe and unsound banking practice. Also, with forbearance suppressing defaults, mortgage-backed security default triggers are held in check, for now.
We will continue to watch this space closely, especially with the rollout of the federal relief package. We expect to see more such actions around the country if the COVID-19 pandemic continues longer than expected.
To read the memo to financial institutions, click here.
To read the memo to mortgage servicers, click here.