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NYDFS encourages financial institutions to assist Puerto Rico
On February 5, the New York governor announced measures to assist with disaster relief for hurricane and earthquake-ravaged Puerto Rico. In an Industry Letter, NYDFS informed state-regulated financial institutions that they may receive Community Reinvestment Act (CRA) credit for “community development activities that revitalize or stabilize designated disaster areas” in Puerto Rico. The letter included the Federal Reserve Bank of New York’s Investment Connection program as one way for New York financial institutions to earn CRA credit. The announcement also mentioned the Guidance to New York State Regulated Banks and Credit Unions Regarding the Earthquakes in Puerto Rico issued on the same day by NYDFS. The guidance urged financial institutions with customers based in Puerto Rico to “consider all reasonable and prudent steps to assist such customers affected by the recent earthquakes in Puerto Rico.” Some of the specific suggestions included (i) waiving ATM fees, overdraft fees, and late payment fees; (ii) increasing ATM daily withdrawal limits and credit card limits; and (iii) working with customers to defer payments or extend payment due dates on loans. The NYDFS guidance also encouraged state-regulated financial institutions to assist in collecting charitable donations and in notifying their customers how they can donate to help Puerto Rico to recover.
NYDFS to take action against check cashing companies for BSA/AML violations
On February 3, NYDFS announced it intends to take enforcement action through an administrative proceeding against several check cashing entities for alleged violations of New York Banking Law and federal laws and regulations related to the business of check cashing. According to NYDFS, examinations revealed multiple concerns related to the entities’ Bank Secrecy Act/anti-money laundering (BSA/AML) program and transaction monitoring, including (i) inaccurate books and records; (ii) cashing post-dated checks; (iii) insufficient BSA/AML compliance; and (iv) inadequate risk-assessment procedures and customer identification and Know Your Customer programs. NYDFS also stated that management at the identified entities failed to implement effective controls to mitigate and manage BSA/AML compliance programs and Office of Foreign Assets Control risks despite “repeated criticism of the entities’ performance.”
NYDFS conducted a subsequent investigation, which found additional alleged violations that circumvented Federal and state banking laws, such as (i) hiring undisclosed employees who were paid “off the books”; (ii) conducting an unlicensed mobile check-cashing business; and (iii) and engaging in an illegal check-cashing scheme that structured transactions and falsified business records to give the appearance that checks were cashed on multiple dates, when in fact they were all cashed on a single date. The administrative proceeding to revoke the entities’ licenses and seek civil penalties will begin February 24.
NYDFS provides additional time on LIBOR transition plans
On January 27, NYDFS announced an update to its industry letter, previously covered by a Buckley Special Alert, pushing back the response deadline. Regulated entities will now have until March 23 (45 additional days) to deliver their transition plans. According to the updated request, the deadline was extended after NYDFS received a number of requests to add additional time to respond.
Special Alert: NYDFS accelerates Libor transition planning
On December 23, 2019, the New York Department of Financial Services issued an “Industry Letter” requesting that each NYDFS-regulated institution submit the institution’s plan for addressing the transition away from Libor-based credit, derivative, and securities exposures. The NYDFS letter has spurred additional focus by financial institutions in the issue, and not only by those regulated by NYDFS. This Client Alert summarizes the current state of play in Libor transition, and outlines some key considerations for developing a Libor transition plan.
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Click here to read the full special alert.
If you have any Libor-related questions please contact a Buckley attorney with whom you have worked in the past.NYDFS appoints Leandra English to executive team
On January 14, NYDFS Superintendent Linda Lacewell announced that former Deputy Director of the CFPB, Leandra English, will serve as Special Policy Advisor to the Department. In her role, English will report directly to Lacewell and will manage and develop NYDFS’ policy initiatives involving consumers, financial services, and other issues. English will also be responsible for spearheading NYDFS’ policy development and analysis process, and assisting in the identification of common regulatory trends and risks across industries.
NYDFS creates Consumer Protection Task Force
On January 9, NYDFS announced the creation of the Consumer Protection Task Force, which will help the department implement the “extensive consumer protections proposals” outlined in the governor’s recent proposal to expand state oversight and enforcement of the financial services industry. (See previous InfoBytes coverage on the governor’s proposal here.) Specifically, the task force will work on measures designed to enhance (i) regulatory oversight of debt collectors; (ii) protections against elder financial abuse; (iii) access to affordable banking services; and (iv) consumer protection laws to defend state residents against unfair, deceptive and abusive practices. Individuals named to the task force were chosen “based on their extensive experience and expertise in the areas of economic justice, housing, health and debt collection, and advocacy on behalf of communities throughout New York.”
New York proposes state-level increase in consumer finance oversight
On January 8, the New York governor released a proposal that would, among other things, expand the entities subject to NYDFS’ enforcement authority and harmonize state regulator authority to bring actions against entities engaging in unfair, deceptive, or abusive acts or practices with federal authority. Proposed within the 2020 State of the State agenda are several initiatives designed to increase the state’s oversight and enforcement of the financial services industry. Key measures include:
- Abusiveness claims. The proposal would make New York consumer protection law consistent with federal law by aligning the state’s UDAAP powers with those of the CFPB, thereby empowering state authorities to bring abusiveness claims under state law.
- Eliminate certain exemptions. The proposal would end exemptions from state oversight for certain, unspecified consumer financial products and services. “With the current federal administration reducing the number and breadth of enforcement actions brought by the CFPB, it is crucial that state consumer protection laws apply to all the same consumer products and services subject to Dodd-Frank,” the proposal states.
- Closing loopholes and creating a level playing field. Under the proposal, state-licensed cryptocurrency companies would be required to pay assessment fees similar to other financial services companies. Currently, only supervised entities licensed under the state’s insurance law or banking law are required to pay assessments to NYDFS to cover examination and oversight costs.
- Fines. In order to effectively deter illegal conduct, the proposal would amend the state’s insurance law to increase fines. Additionally, instead of the current Financial Services Law (FSL) penalty of $5,000 per violation, the governor proposes “capping penalties at the greater of $5,000, or two times the damages, or the economic gain attributed to the violation,” while also updating the FSL to provide “explicit authority for [NYDFS] to collect restitution and damages.”
- Debt collection. Debt collectors under the proposal would be required to be licensed by NYDFS, thus allowing the department to examine and investigate suspected abuses. Additionally, NYDFS’ new oversight authority would allow it to bring punitive administrative actions against debt collectors, which may result in significant fines or the loss of a license. The proposal would also codify the FTC’s rule prohibiting confessions of judgment in consumer loans.
As previously covered by InfoBytes, the proposal would also, among other things, expand access to safe and affordable financial services through a collaborative initiative between the state’s Community Development Financial Institutions, NYDFS, and other state agencies designed to improve outreach and financial literacy education to the unbanked and underserved communities.
New York to expand access to safe and affordable financial services
On January 4, the New York governor unveiled a proposal to expand access to safe and affordable financial services as part of the 2020 State of the State agenda. Included is a proposal to create the “Excelsior Banking Network” (Network), which is intended to “expand financial inclusion and access to affordable bank accounts and credit products” by providing $25 million in seed funding for the state’s Community Development Financial Institutions (CDFI) Fund. The Network—formed through a collaborative initiative between CDFIs, NYDFS, and other state agencies—will, among other things, engage in outreach and financial literacy education to the unbanked and expand available microcredit. “CDFIs are local financial service providers with locations throughout New York State, and often are the sole provider of banking and other financial services in low-income communities that are not served by traditional banks and financial institutions,” the announcement stated. Funding will be leveraged by participating CDFIs through targeted investments in underserved communities.
The governor also proposed the creation of a statewide Office of Financial Inclusion and Empowerment (Office), which is intended to meet the financial services needs of low- and middle-income New York consumers. The Office will be based at NYDFS, and “will maintain a centralized list of financial services counseling providers—across housing, student loan, debt, and general financial literacy—throughout the [s]tate and coordinate state and local services aimed at expanding access to credit and enhancing financial empowerment.” According to the announcement, the Office will also “incubate new programs to expand access to safe and affordable banking services, credit and financial education; coordinate public-private partnerships; and foster provision of high-quality, low-cost financial products statewide.”
NYDFS encourages regulated entities to prepare for cyber attacks
On January 4, NYDFS issued an Industry Letter warning regulated entities about the “heightened risk” of cyberattacks by hackers affiliated with the Iranian government following the killing of Iranian official Qasem Soleimani, and strongly encouraging entities to undertake preparations to ensure quick responses to any suspected cyber incidents. Specifically, NYDFS recommends that regulated entities (i) patch/remediate all vulnerabilities (especially publicly disclosed vulnerabilities); (ii) ensure employees are adequately able to handle phishing attacks; (iii) “fully implement multi-factor authentication”; (iv) “review and update disaster recovery plans”; (v) and quickly respond to further alerts from the government or other reliable sources, even outside regular business hours. The letter notes that NYDFS’ cyber regulation 23 NYCRR 500.17 (previously covered by InfoBytes here), requires regulated entities to notify NYDFS “‘as promptly as possible but in no event later than 72 hours’ after a material cybersecurity event.”
NYDFS directs financial institutions to submit LIBOR transition risk management plans
On December 23, NYDFS issued an Industry Letter (Letter) directing its regulated depository and non-depository institutions, insurers, and pension funds to outline their plans for managing the risks associated with the potential impact of LIBOR’s likely cessation at the end of 2021. NYDFS seeks assurance that regulated institutions’ board of directors and senior management fully understand the associated risks, have developed appropriate plans, and have initiated actions to facilitate transition to an alternative reference rate. The Letter does not mandate use of any particular alternative rate, but notes that “the Alternative Reference Rates Committee . . ., convened by the FRB and the [Federal Reserve Bank of New York (FRBNY)], has chosen [the Secured Overnight Financing Rate published by the FRBNY] as its recommended alternative to U.S. dollar LIBOR.” The Letter requires NYDFS-regulated institutions to describe: (i) programs that will assess financial and non-financial transition risks; (ii) “processes for analyzing and assessing alternative rates, and the potential associated benefits and risks of such rates both for the institution and its customers and counterparties”; (iii) processes to communicate with customers and counterparties; (iv) plans and processes for “operational readiness, including related accounting, tax and reporting aspects of [the] transition” from LIBOR; and (v) their governance framework, including oversight by an institution’s board of directors or its equivalent governing authority. Institutions are required to submit their transition-risk management plans to NYDFS by February 7.