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On November 14, NYDFS announced a proposed regulation, which would allow regulated entities to share confidential supervisory information with legal counsel or with independent auditors without obtaining prior written approval from the agency. Currently, entities are required to receive prior written approval for each instance in which they want to share confidential supervisory information with hired legal counsel or independent auditors. The proposal would allow a regulated entity to share this information without prior written approval from NYDFS as long as there is a written agreement between the parties, in which the hired legal counsel or independent auditor agrees to, among other things, (i) only use the information for the purposes of legal representation or auditing services; (ii) not to disclose the information to its employees except on a “need to know” basis; (iii) promptly notify NYDFS of any requests for the information; and (iv) maintain records for all information disclosed pursuant to the regulation. Comments on the proposal will be accepted for 60 days following publication in the state register on November 27.
On October 25, NYDFS Superintendent Linda Lacewell announced that the state regulator has joined the Global Financial Innovation Network (GFIN). The GFIN was created by the United Kingdom’s Financial Conduct Authority in 2018 and is an international network of 50 organizations, including most recently the Commodity Futures Trading Commission, FDIC, OCC, and SEC. (Previous InfoBytes coverage here.) According to NYDFS, participation will provide opportunities to engage with international partners to support financial innovation, increase financial market resiliency, and create “better uses of technology for overseeing supervised marketplaces” by, among other things, facilitating cross-border testing of new products and services. NYDFS also reiterated the recent establishment of its new Research and Innovation Division (previous InfoBytes coverage here) as a demonstration of its commitment to innovation.
On October 22, the New York governor directed NYDFS to investigate instances of alleged mortgage deed fraud and deceptive practices targeting homeowners in Brooklyn. In addition to the investigation, the governor also directed NYDFS to “dispatch the Department's Foreclosure Relief Unit to provide assistance to homeowners who believe they may have been a victim of deed fraud or unfair, deceptive, or abusive practices in regard to the sale or attempted purchase of their home.”
As previously covered by InfoBytes, the governor recently signed a package of bills intended to increase consumer homeowner protections. Specifically, A 5615 amended state law related to distressed home loans to extend consumer protections for homes in default and foreclosure by, among other things, (i) providing homeowners additional time to cancel a covered contract with a purchaser; (ii) preventing distressed property consultants from inducing the consumer to transfer the deed to the consultant or anyone else; and (iii) allowing consumers to void contracts, deeds, or other agreements material to the consumer’s property where an individual was convicted of or pled guilty to making false statements in connection with that agreement.
On October 21, the U.S. District Court for the Southern District of New York entered a final judgment in NYDFS’s lawsuit against the OCC challenging the agency’s Special Purpose National Bank Charter (SPNB), concluding that the regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits.” As previously covered by InfoBytes, in May the district court denied the OCC’s motion to dismiss the complaint by NYDFS, which argued that the agency’s decision to allow fintech companies to apply for a SPNB is a move that will destabilize financial markets more effectively regulated by the state. The court stated that because the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, the challenge “is ripe for adjudication.” After the May decision, the OCC informed the court that it would be seeking final judgment in the case, and on October 7, each party submitted proposed final orders (available here and here). The proposals were “nearly identical,” according to the court, as both (i) “direct the Clerk of Court to enter final judgment in favor of plaintiff [NYDFS] and close the case,” and (ii) “provide that each party shall bear its own fees and costs.” However, NYDFS proposed “that the regulation be ‘set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,’” while the OCC suggested the regulation only be set aside “‘with respect to all fintech applicants seeking a national bank charter that do not accept deposits, and that have a nexus to New York State…in a manner that would subject them to regulation by [NYDFS].’” The court agreed with NYDFS, concluding that the OCC “failed to identify a persuasive reason to deviate from ordinary administrative law procedure,” which requires “vacatur” of the regulation.
On October 9, NYDFS announced the creation of the Student Debt Advisory Board, which will advise on consumer protection, student financial products and services, as well as issues facing communities significantly impacted by student debt. The new advisory board is a part of NYDFS’s “Step Up for Students” initiative intended to “safeguard student loan borrowers from discriminatory or predatory practices by student loan servicers.” The announcement comes the same day legislation to protect student borrowers takes effect in the state. As previously covered by InfoBytes, the law requires student loan servicers to comply with requirements set forth in amendments to the state’s banking law and be licensed by NYDFS in order to service student loans owned by residents of New York. Additionally, servicers must adhere to standards similar to regulations that govern mortgages and other lending products.
On September 17, NYDFS announced that Winston Berkman-Breen has been appointed as the agency’s first-ever Student Advocate and Director of Consumer Advocacy. Prior to joining NYDFS, Berkman-Breen was a Justice Catalyst Fellow and Staff Attorney with the Consumer Protection Unit at the New York Legal Assistance Group, where he represented low-income New York consumer borrowers in state and federal court against lenders and debt collectors. In his new role with NYDFS, Berkman-Breen “will advocate on behalf of students and serve as a liaison between DFS and New York consumers with concerns,” including reviewing and analyzing complaint data from student borrowers to recommend appropriate action by the regulator.
On September 5, NYDFS announced a new investigation into the student debt relief industry. NYDFS is issuing subpoenas to eight student debt relief companies to investigate deceptive practices in the industry, including misrepresenting the ability to achieve debt relief and charging improper fees. According to NYDFS, “deceptive” student debt relief companies charge borrowers high fees to consolidate their multiple student loans, while the U.S. Department of Education will offer the same programs free of charge. NYDFS estimates that New York residents collectively owe over $86 billion in student loans.
On August 15, NYDFS announced a settlement with a student loan servicer and its parent company to resolve allegations that the companies failed to comply with state financial services law requirements when servicing, purchasing, and originating student financing agreements. According to the consent order, the student loan servicer—which, among other things, services student financing agreements that constitute retail installment obligations within the meaning of N.Y. Banking Law § 491(6-a)—allegedly engaged in the business of a sales finance company without being licensed by NYDFS and failed to follow the E-Sign Act’s disclosure requirements. NYDFS also claimed the companies failed to disclose to consumers (i) their right to receive non-electronic TILA disclosures; (ii) how to withdraw consent for notice by electronic means; and (iii) the method for requesting paper copy TILA disclosures. Furthermore, the companies also allegedly failed to provide consumers with a statement of the “requirements for access to and retention of TILA disclosures provided to them electronically.” In addition, NYDFS stated that the parent company provided New York consumers with promissory notes containing clauses purportedly allowing for the capitalization/compounding of interest under certain circumstances, which violated state banking laws, even though the companies contended they did not actually capitalize interest.
In addition to paying a $203,000 civil penalty and $33,309 in disgorgement, the student loan servicer will apply for a sales finance company license and a student loan servicer license, and the companies will correct issues concerning their capitalization of interest as well as remove incorrect information from their loan documents.
According to NYDFS, New York’s student loan servicer licensing law, which requires companies servicing student loans held by state residents to meet new standards, takes effect October 9.
On July 31, NYDFS published a notice of proposed rulemaking in the New York State Register. The proposed rule would implement legislation related to the supervision, regulation, and licensing of private student loan servicers passed in March as part of the state’s FY 2020 budget. As previously covered by InfoBytes, unless exempt from certain provisions, student loan servicers must comply with the requirements set forth in the amendments to the banking law and be licensed by NYDFS in order to service student loans owned by residents of New York. Entities exempt from the licensing requirements include servicers of federal student loans, banking organizations, foreign banking organizations, national banks, federal savings associations, federal credit unions, or any bank or credit union organized under the laws of any other state.
Among other things, the proposed regulation outlines servicing standards, examination guidelines, cybersecurity compliance requirements, and definitions for the terms “unfair” and “abusive.” A list of prohibited practices is also provided, which includes: (i) employing schemes to defraud or mislead borrowers; (ii) engaging in unfair, deceptive, abusive, or predatory acts or practices; (iii) “misapplying payments to the outstanding balance of any student loan or to any related interest or fees”; (iv) making false statements or omissions connected to information provided to a government agency; (v) failing to promptly respond to communications received from NYDFS; and (vi) failing to provide responses to consumer complaints.
Generally, the requirements will take effect October 9, with the exception of a phased-in transition period for certain cybersecurity provisions related to 23 NYCRR Part 500 that gives student loan servicers until April 9, 2020 to comply. Comments on the proposed regulation are due September 30.
On August 6, NYDFS announced it is leading a multistate investigation into the payroll advance industry based on allegations of unlawful online lending. According to NYDFS, the investigation will focus on whether companies are violating state banking laws, including usury limits, licensing laws, and other applicable laws regulating payday lending. NYDFS alleges that some companies appear to collect unlawful interest rates disguised as “tips” as well as monthly membership and/or excessive additional fees, and may collect improper overdraft charges.
In addition to New York, other states in the investigation include: Connecticut, Illinois, Maryland, New Jersey, North Caroline, North Dakota, Oklahoma, Puerto Rico, South Carolina, South Dakota, and Texas.
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