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NYDFS releases guidance on risk management
On December 21, 2023, NYDFS released guidance for managing significant financial and operational risks associated with climate change for New York State-regulated banking and mortgage institutions. The guidance emphasized the importance of ensuring operational resiliency which is “the ability to deliver operations, including critical operations and core business lines, through a disruption from any hazard.” Regulated organizations are encouraged to consider three key areas: 1) understanding climate-related financial risks; 2) prioritizing operational resilience; 3) and complying with consumer protection laws when adjusting risk frameworks for climate-related risks. The NYDFS categorizes climate-related financial risks as either physical risks, like hurricanes, floods, and wildfires, or transition risks from policy, regulations, adoption of new technologies, consumer, and investor preferences, and changing liability risks which can directly and indirectly affect financial institutions.
Regulated organizations are urged to consider potential impacts on at-risk communities while adapting their risk management approaches. NYDFS suggests they maintain reasonable, risk-based business strategies to prevent unnecessary market disruptions and comply with consumer protection laws and fair lending considerations at all times. The guidance suggests institutions also maintain fair lending practices while managing climate-related financial risks, and further suggests not divesting from low-income communities to manage risk.
The NYDFS has not set a timeline for implementation of the Guidance expectations as it would like “to provide regulated organizations with sufficient opportunity to integrate consideration of climate-related financial and operational risks into their governance frameworks, organizational structures, business strategies and risk management processes in a proportionate manner.” To offer an overview of these documents and highlight key feedback themes, NYDFS has scheduled a webinar for January 11, 2024, at 11:30 am ET. Interested parties can register for the webinar via the provided link. The Department also made additional resources available to aid organizations in implementing measures to tackle climate-related risks.
California’s new mortgage servicer during a “state of emergency” to be effective
Recently, California enacted SB 455 to address mortgage servicing during a state of emergency. SB 455 will require a mortgage servicer (transferring a mortgage secured by a property within a proclaimed emergency zone) to provide the new servicer with written records between the borrower and the old servicer on the borrower’s election to use insurance proceeds to repair or replace property damaged by a disaster. Additionally, SB 455 prevents the new servicer from disregarding any prior written agreements between the original servicer and the borrower regarding property repairs that were approved by the owner of the promissory note. The SB 455 bill will be effective January 1, 2024.
NY enacts the Fair Medical Debt Reporting Act
On December 13, the New York governor signed into law S4907A, or the Fair Medical Debt Reporting Act (the “Act”), a medical debt credit reporting bill that will bar credit reporting agencies from directly or indirectly incorporating medical debt into consumer credit reports. The Act specifically prohibits hospitals, health care professionals, and ambulances from reporting medical debt to credit agencies. The Act defines medical debt as any amount owed or claimed by a consumer “related to the receipt of health care services, products, or devices provided to a person” by a hospital, health care professional, or ambulance service. Notably, obligations charged to a credit card are excluded from medical debts unless the card is specifically designated for health care expenses under an open-ended or closed-end plan.
NY passes law to preserve credit card points and rewards for consumers
On December 10, New York General Business Law § 520-e went into effect according to the Governor’s press release. The new law prevents credit card holders from losing unused earned credit card points and requires credit card issuers to send consumers a notice of any outstanding credit card points or rewards they have accrued in their accounts, even after the account is closed. Specifically, credit card issuers will have 45 days to provide notice of any outstanding credit card rewards or points following the closing of a consumer’s account. From the date of the issuer’s notice, consumers will have a 90-day grace period to redeem their points or rewards.
NY state court granted decision to continue its new check cashing fee methodology
On December 7, the Supreme Court of the State of New York granted a motion to dismiss a challenge made to NYDFS’s check cashing regulation and ruled in favor of NYDFS. As previously covered in InfoBytes, the January regulation’s methodology capped the maximum percentage check cashing fee for most check types (social security, unemployment, emergency relief, veterans’ benefits) at 2.2 percent or $1, whichever is greater, and eliminated automatic fee increases based on CPI every year that had been in place since 2005.
Shortly after the rule took effect in June, several plaintiffs sued NYDFS alleging that the amended regulation was arbitrary and capricious, violated the purpose of the banking law, and was an unconstitutional property deprivation. The NY Supreme Court found that the amended regulation had a rational basis and was supported by the administrative record. Because NYDFS neither violated the NY state banking law nor the Administrative Procedures Act, the court further declared that the “amended regulation did not constitute a deprivation of property in the absence of either procedural or substantive due process.” Because the court dismissed the petition entirely in NYDFS’s favor, the court denied the plaintiffs’ motion for preliminary injunction as merely “academic.”
Illinois adopts regulatory changes as part of its Collection Agency Act
On December 1, the State of Illinois’s Department of Financial and Professional Regulation promulgated final regulations implementing provisions of the Illinois Collection Agency Act. As previously covered by InfoBytes, Illinois transferred oversight of collection agencies from the Division of Professional Regulation to the Division of Financial Institutions under Public Act 102-975 in November.
Illinois proposed the new rules to “help the Division of Financial Institutions fulfill its newly-granted statutory responsibility and align these rules with regulatory requirements” set forth by the Illinois Collection Agency Act. Adoption of the new rules will not result in any substantive changes for Illinois Collection Agency licensees but will mirror the previous rules governing collection agencies at 68 Ill. Admin. Code 1210; additionally, the new rules have been adjusted to bring collection agencies in alignment with other industries regulated by the Division of Financial Institutions. Specifically, the new rules adjust the previous collection agency rules “regarding definitions, officers, applications for or changes to licensure, communications, pseudonyms, changes in ownership, recordkeeping, fees, payments, and the granting of variances to better reflect the standards of the Division of Financial Institutions.”
Lastly, the rules add three new sections: (i) Administration and Enforcement of the Act, which grants the director administrative and enforcement power over collection agencies; (ii) Reports, which requires licensees to file written reports (upon at least 45-day notice by the Division); and, (iii) Investigations and Examinations, which generally states that licensees may be “examined from time to time” to ensure compliance. The rules went into effect on November 20, 2023.
NY AG and others demand cooperation and accountability from big banks; write to CFPB and OCC
On December 7, the Attorney General for the State of New York, Letitia James, led a group of 20 attorneys general in submitting letters to the OCC and the CFPB urging the agencies to ensure that national banks cooperate with state attorneys’ general investigations into violations of state laws. The letters state that in the beginning of the 2000s, banks began to claim immunity from state oversight. The attorneys general argue that this position was furthered by a 2002 OCC advisory letter directing states to refer potential violations of state law to the OCC, and a 2004 rule which expanded the test for when national banks were exempted from state laws. The attorneys general allege that states’ have been limited “in their ability to address a wide range of unfair and deceptive practices that affect their citizens, including bait-and-switch practices and the failure to clearly and conspicuously disclose rate changes, late fees and overdraft fees.” As a result, the attorneys general ask the OCC to “issue supervisory guidance… advising that it is unsafe and unsound, and that it creates a material risk of unfair or abusive acts or practices, for any [b]ank to refuse to cooperate with State AG information requests that seek to further enforcement of applicable state laws.”
Illinois Collection Agency Act oversight transferred to the Division of Financial Institutions
Effective November 20, 2023, the Illinois Department of Financial and Professional Regulation adopted provisions regarding the Illinois Collection Agency Act. According to the Notice of Adopted Repealer, Public Act 102-975 has transferred the oversight of collection agencies from the Division of Professional Regulation to the Division of Financial Institutions. With the Division of Financial Institutions planning to introduce new regulations to align them to the agency’s standards, the Department proposes to repeal the existing regulations from the Division of Professional Regulation.
Maryland finalizes money transmitter regulation; adds agent of the payee exemption
On November 17, the Maryland Commissioner of Financial Regulation recently adopted edits to proposed regulations, Code Md. Code Regs. 09.03.14.01, .03-.18, bringing Maryland generally in alignment with the CSBS Money Transmitter Model Law which has been recently adopted by several other states (covered by InfoBytes here, here, and here). Some provisions in the new regulation conform with the model law, while a few stand out as unique additions in Maryland.
For example, among the newly adopted regulations, amended Regulation .03 provides an exemption for persons appointed as an agent of the payee if (i) there is a written agreement between the payee and agent for payment processing, aligning with Maryland law; (ii) there is public recognition of the agent collecting payments on behalf of the payee; (iii) upon the agent’s receipt of payment, the payor’s obligation ends without risk; (iv) the agent is not serving in an escrow capacity; (v) the agent is not acting as an agent to more than one party; and (vi) the agent mandates prompt, unconditional payment without tying it to future events or performances. This agent of the payee exemption deviates from the model law’s version of the same exemption.
Additionally, amended Regulation .08 establishes corporate governance standards that require money transmitter licensees to maintain a framework that is commensurate with the size, operational complexity, and overall risk profile of the licensee. This standard also sets expectations around internal audit, external audit, and risk management functions of a license. While this concept is not provided for in the model money transmission law, it aligns with the CSBS model state regulatory prudential standards for nonbank mortgage servicers (covered by InfoBytes here).
The final regulation will be effective December 11, 2023.
Mass AG proposes legislation to combat “junk fees”
On November 30, the Massachusetts Attorney General’s office proposed regulations to combat so-called “junk fee” practices and make business payment methods more transparent, according to this press release
The purpose of the new rules is to help define unfair and deceptive practices for imposing fees as well as establishing standards for automatic renewal or continuous service contracts. Under the proposed regulations, the following acts performed by a business would be considered an “unfair and deceptive practice”: failing to disclose the total price of a product; failing to disclose any fees, interest, charges, or other expenses related to a product; and failing to disclose the total price before requiring a consumer to provide any personal information. The proposed regulations also state that, for recurring fees and trial offers, companies must provide a means of contact so that a consumer may cancel and must offer a way for a consumer to terminate a trial period in the same way it was entered.
The AG’s office will be holding a public hearing on the proposal on December 20 and is accepting public comments until then. If enacted, Massachusetts would be only the second state (following California) to issue a rule specifically targeting “junk fees.”