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NYDFS provides affiliate cybersecurity program guidance
Recently, NYDFS issued an industry letter to regulated entities advising that a covered entity may adopt the cybersecurity program of an affiliate. New York’s Cybersecurity Regulation (23 NYCRR Part 500) requires regulated entities (Covered Entities) to implement risk-based cybersecurity programs to protect their information systems as well as the nonpublic information maintained on them. (See continuing InfoBytes coverage on 23 NYCRR Part 500 here.) Specifically, 23 NYCRR Part 500 allows “Covered Entities to adopt ‘the relevant and applicable provisions’ of the cybersecurity program of an affiliate provided that such provisions satisfy the requirements of the Cybersecurity Regulation.” NYDFS is also permitted to fully examine the adopted portions of the affiliate’s cybersecurity program to ensure compliance, even if that affiliate is not covered or regulated by NYDFS otherwise. Covered Entities are reminded that while they may adopt an affiliate’s cybersecurity program in whole or in part, the Covered Entity may not delegate compliance responsibility to the affiliate, and is responsible for ensuring it cybersecurity program complies with 23 NYCRR Part 500, “regardless of whether its cybersecurity program is its own or was adopted in whole or in part from an affiliate.” Additionally, a Covered Entity’s compliance obligations are the same whether it adopts an affiliate’s cybersecurity program or implements its own cybersecurity program. Among other things, Covered Entities are required to provide, upon request, all “documentation and information” related to their cybersecurity programs, including evidence that an adopted affiliate’s cybersecurity program meets the requirements of 23 NYCRR Part 500. At a minimum, NYDFS requires access to an affiliate’s “cybersecurity policies and procedures, risk assessments, penetration testing and vulnerability assessment results, and any third party audits that relate to the adopted portions of the cybersecurity program of the affiliate.” NYDFS also explained that foreign bank branches and representative offices often have head offices located outside the U.S. that are not directly regulated by NYDFS. For these entities, all documentation and information relevant to the adopted portions of their head offices’ cybersecurity programs must be provided to NYDFS examiners to evaluate the Covered Entities’ compliance with 23 NYCRR Part 500.
NYDFS creates Climate Risk Division
On November 3, NYDFS announced the creation of the Climate Risk Division and the appointment of Dr. Yue (Nina) Chen as its Executive Deputy Superintendent and the inaugural NYDFS Director of Sustainability and Climate Initiatives. According to the announcement, the Climate Risk Division will, among other things: (i) include climate risks in its regulated entities supervision; (ii) support industry growth regarding climate risk management; (iii) coordinate with international, national, and state regulators; (iv) develop internal capacity regarding climate-related financial risks and support the capacity-building of peer regulators; and (v) ensure access to financial services is fair for all communities.
NYDFS issues proposed amendments to debt collection rules for third-parties
On October 29, NYDFS issued draft proposed amendments to 23 NYCRR 1, which regulates third-party debt collectors and debt buyers. Among on things, the proposed amendments:
- Define “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium.”
- Amend the definition of a “debt collector” to include “as any creditor that, in collecting its own debts, uses any name other than its own that would suggest or indicate that someone other than such creditor is collecting or attempting to collect such debts.”
- Require collectors to clearly and conspicuously send written notification within five days after an initial communication with a consumer letting the consumer know specific information about the debt, including (i) the name of the creditor to which the debt was originally owed or alleged to be owed; (ii) account information associated with the debt; (iii) merchant/affinity/facility brand association; (iv) the name of the creditor to which the debt is currently owed; (v) the date of alleged default; (vi) the date the last payment (including any partial payment) was made; (vii) the statute of limitations, if applicable; (viii) an itemized accounting of the debt, including the amount currently due; and (ix) notice that the consumer “has the right to dispute the validity of the debt, in part or in whole, including instructions for how to dispute the validity of the debt.”
- State that disclosures may not be sent exclusively through an electronic communication, and that a formal pleading in a civil action shall not be treated as an initial communication.
- Prohibit collectors from communicating by telephone or other means of oral communication when attempting to collect on debts for which the statute of limitations has expired.
- Require collectors to provide consumer written substantiation of a debt within 30 days of receiving a written request via mail (consumers who consent to receiving electronic communications must still receive substantiation via mail).
- Limit collectors to three contact attempts via telephone in a seven-day period. Only one conversation with a consumer is permitted unless a consumer requests to be contacted.
- Permit collectors to communicate with consumers through electronic channels only if the consumer has voluntarily provided consent directly to the debt collector.
Comments on the proposal are due November 8.
New York expands CRA requirements to non-depository mortgage lenders
On November 1, the New York governor signed S5246A, which expands the New York Community Reinvestment Act (New York CRA) to cover non-depository lenders. Under the act, nonbank mortgage providers’ lending and investment in low- and moderate-income communities will be subject to NYDFS review. The anti-redlining law—which previously only measured banks’ activities in low- to moderate-income communities—is intended to “ensure everyone has fair and equal access to lending options in their pursuit of purchasing a home, especially in communities of color which continue to be impacted by the effects of the pandemic and have historically faced many more hurdles when seeking a mortgage,” Governor Kathy Hochul stated. The act follows a report issued by NYDFS in February, which examined redlining in the Buffalo metropolitan area and concluded that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. (Covered by InfoBytes here.) At the time, the report made numerous recommendations, including a recommendation to amend the New York CRA to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws. The act takes effect in a year.
NYDFS seeks to implement Commercial Finance Disclosure Law
On October 20, NYDFS published a notice announcing a proposed regulation (23 NYCRR 600) to implement New York’s Commercial Finance Disclosure Law (CFDL) (covered by InfoBytes here). The CFDL was enacted at the end of December 2020, and amended in February to expand coverage and delay the effective date to January 1, 2022. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which includes persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients when a specific offering of finance is extended for certain commercial transactions of $2.5 million or less.
As previously covered by InfoBytes, NYDFS solicited comments on a pre-proposed regulation released last month, which, among other things, (i) specified persons and entities required to comply with the regulation; (ii) defined terms used within the CFDL, including “commercial financing” and “finance change”; (iii) explained APR rate calculations and allowed tolerances; (iv) outlined specific disclosure requirements, including formatting and signature requirements; and (vi) detailed several provisions related to commercial financings that offer multiple payment options, certain duties of financers and brokers involved in commercial financing, record retention requirements, and the reporting process for certain providers that calculate estimated annual percentage rates.
The proposed regulation made several changes to the pre-proposed regulation based on comments NYDFS received. These include:
- Modifying the definition of when a specific offer is made that triggers the requirement to provide a disclosure. NYDFS stated that this change “should allow for some negotiations between borrowers and lenders before disclosures are required.”
- Adding the Secured Overnight Financing Rate (SOFR) as an acceptable rate index for use in adjustable-rate financings due to the cessation of LIBOR at the end of the year.
- Clarifying the definition of a “broker” to be “defined in terms of the substantive services they perform during the underwriting process.”
- Modifying the allowed tolerances when calculating APRs as required under Part 600.04. For most transactions, NYDFS explained that the tolerance threshold will remain one-eighth of one percent. For irregular transactions, NYDFS proposed a larger tolerance of one-quarter of one percent.
Additionally, the proposed regulation provides that the compliance date for the final regulation will be six months after the final adoption and publication of the regulation in the State Register. Comments on the proposed regulation are due December 19.
NYDFS requires flood insurance and diversity and inclusion training for insurance producers and public adjusters
On October 13, NYDFS announced that property/casualty insurance producers are required to take continuing education in flood insurance and diversity and inclusion. NYDFS is the first state regulator to mandate such requirements, which have been added to the state’s insurance regulations. “Requiring education on flood insurance and diversity and inclusion is not only timely, it is in the best interest of consumers,” acting Superintendent Adrienne A. Harris said. In addition, property/casualty insurance producers who sell flood insurance through the National Flood Insurance Program (NFIP) will be required to comply with the continuing education requirement, which according to the NYDFS announcement, is intended to ensure consumers receive accurate NFIP quotes and are not accidentally underinsured for flood damage. The requirement will assist “producers and adjusters to better service a diverse population of consumers and be culturally sensitive and aware when interacting with consumers and members of the public,” NYDFS stated.
NYDFS awards funds to support underserved communities
On October 7, NYDFS announced the first awards from the New York Community Development Financial Institution (CDFI) Fund to support access to safe and affordable banking services in historically underserved and redlined, low-income communities. According to the announcement, with a multi-year $25 million New York state-commitment, the CDFI Fund plans to allocate resources for the growth of CDFIs to assist in the delivery of affordable financial products and services and financial literacy programming to low- and moderate-income New York citizens. In addition, the CDFI Fund will expand “access to capital and technical assistance services for New York State small businesses and non-profit organizations.” In total, 31 CDFIs were selected to receive financial inclusion grants, which totaled nearly $5 million.
NYDFS issues pre-proposed regulation to implement Commercial Finance Disclosure Law
On September 21, NYDFS Acting Superintendent Adrienne A. Harris announced a pre-proposed regulation to implement New York’s Commercial Finance Disclosure Law (CFDL) (covered by InfoBytes here), which was enacted at the end of December 2020, and amended in February to expand coverage and delay the effective date to January 1, 2022. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which includes persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients at the time a specific offering of finance is extended for certain commercial transactions of $2.5 million or less.
The CFDL and the pre-proposed implementing regulation are applicable to persons or entities who (i) extend a specific offer of commercial financing to a recipient (i.e., a person who applies for commercial financing and is made a specific offer of commercial financing); (ii) solicit and present specific offers of commercial financing on behalf of a third party; or (iii) provide or will provide commercial financing to recipients and communicate a specific amount, rate or price, in connection with the commercial financing, either directly to a recipient, or to a broker with the expectation that the information will be shared with a recipient.
The term “commercial financing” is defined broadly to include:
- Open-End Financing
- Closed-End Financing
- Sales-Based Financing (i.e., merchant cash advance)
- Defined to mean any transaction repaid over time as a percentage of sales or revenue, in which the payment amount may vary by sales or revenue volume, including any financing with a sales or revenue based true-up mechanism.
- Accounts Receivable Purchase Transactions, including Factoring
- Factoring is defined to mean any accounts receivable purchase transaction that includes an agreement to purchase, transfer, or sell a legally enforceable claim for payment held by a recipient for goods or services that have been supplied or rendered, but for which payment has not yet been made.
- Asset-Based Lending
- Defined to mean a transaction in which advances are made from time to time contingent upon a recipient forwarding payments received from one or more third parties for goods or services the recipient has supplied or rendered to such third party.
- Lease Financing
- Defined to mean providing a lease for goods that includes a purchase option that creates a security interest in the goods leased, including a “finance lease” as defined in the UCC.
- Any other form of financing for which proceeds are not primarily intended for consumer-purpose.
Notwithstanding, the pre-proposed regulation provides that commercial financing does not encompass any transaction in which a financer provides a disclosure required by the Truth in Lending Act. The following entities and transactions are exempt from the CFDL: (i) financial institutions (defined as a chartered or licensed bank, trust company, industrial loan company, savings and loan association, or federal credit union, authorized to do business in New York); (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) technology service providers; (v) certain lease transactions under the New York Uniform Commercial Code; (vi) lenders who make no more than five applicable transactions in New York in a 12-month period; (vii) individual commercial financing transactions in an amount over $2.5 million; and (viii) commercial financing transactions involving certain vehicle dealers.
Among other things, the pre-proposed regulation:
- Includes definitions for terms used in the CFDL and the pre-proposed regulation, including definitions of “finance charge” under the different covered transactions (e.g., commercial financing transactions generally, account receivable purchase transactions that are not factoring transactions, factoring transactions, lease financing transactions).
- Explains how providers should calculate the annual percentage rate and outlines allowed tolerances.
- Outlines formatting requirements for disclosures for the following types of financing: (i) sales-based financing (including merchant cash advances); (ii) closed-end financing; (iii) open-end financing; (iv) factoring transaction financing; (v) lease financing; (vi) general asset-based financing; and (vii) all other commercial financing transactions.
- Provides disclosure requirements for instances where the amount financed is greater than the recipient funds, which includes a disclosure entitled “Funding You Will Receive.”
- Provides that, consistent with the CFDL, a provider must give the required disclosures to a recipient at the time of extending a specific offer for commercial financing. The pre-proposed regulation defines “at the time of extending a specific offer” to mean (i) any time a specific periodic or irregular payment amount, rate or price in connection with commercial financing is quoted in writing to a recipient, based upon information from, or about, the recipient; and (ii) any subsequent time when the terms of an existing consummated commercial financing contract are changed, prior to the recipient agreeing to the changes, if the resulting changes would increase the finance charge (certain alternative parameters apply with respect to open-end credit plans). The pre-proposed regulation also notes that where a provider allows a recipient to select from multiple offer options or customize a financing offer, the provider need only provide the disclosure(s) for the specific offer that the recipient elects to pursue.
- Provides disclosure signature requirements, which may be electronic (prior to consummating a commercial financing, a financer must obtain a copy of the disclosures made pursuant to the CFDL that are signed by the recipient).
- Describes how the CFDL’s $2.5 million disclosure threshold is calculated.
- Outlines requirements for commercial financings that offer multiple payment options.
- Specifies certain duties of financers and brokers involved in commercial financing, including record retention requirements (four years).
- Details the reporting process for which certain providers calculating estimated annual percentage rates will report data to the superintendent relating to “the estimated annual percentage rates disclosed to the recipient and actual retrospective annual percentage rates of completed transactions” in order to facilitate accurate estimates for future transactions.
Outreach comments on the pre-proposed regulation are due by October 1. After NYDFS completes this preliminary phase, NYDFS will make a formal proposed regulation. Comments on the formal proposed regulation will be due within 60 days of publication in the State Register. NYDFS expects to have a final regulation in place by January 1, 2022, which is the effective date set forth in the underlying law.
NYDFS: Regulated insurers should expedite Ida-related claims
On September 2, NYDFS advised regulated insurers to expedite Tropical Depression Ida-related insurance claims. Emphasizing the severity of damage experienced by homeowners and businesses, NYDFS urged insurers to work towards a fair and speedy resolution of claims. In addition to outlining expectations related to the claims process, NYDFS noted that it will also “expedite the issuance of temporary adjustor permits as necessary to qualified out-of-state independent insurance adjusters pursuant to New York Insurance Law” to increase the number of available adjusters to process claims.
NYDFS offers guidance on preventing sexual orientation discrimination in mortgage lending
On August 31, NYDFS issued new guidance to regulated mortgage lenders for developing and implementing programs to comply with the state’s fair lending law, which “prohibits discrimination in, among other things, the granting, withholding, extending, or renewing, or in the fixing of the rates, terms, or conditions of any form of credit on the basis of sexual orientation.” According to an analysis conducted by NYDFS of mortgage loan applications and mortgage loan terms (between 2016 and 2018) from four non-depository lenders and one bank, “in all but two of the fifteen data sets reviewed, same-sex pairs of applicants were denied mortgage loans at higher rates than opposite-sex pairs of applicants.” Additionally, the analysis found that “in six of the data sets, same-sex pairs received between 9 and 17 basis points higher average annual percentage rates than opposite-sex pairs.” NYDFS emphasized that a “same-sex pair” does not necessarily involve LGBTQI individuals, but could also be a mortgage loan application from a father and son or two business partners of the same sex, among other pairings. As such, NYDFS acknowledged that it was “unable to determine with certainty whether discrimination based on sexual orientation occurred as to any particular same-sex pair within the data set.”
However, because NYDFS concluded that its findings raised enough concerns over the potential for discrimination against LGBTQI mortgage applicants, NYDFS advised mortgage lenders to take the following actions, among others, to mitigate discrimination: (i) vest responsibility in senior management to develop a fair lending plan and ensure mortgage lending practices comply; (ii) monitor the implementation of the fair lending plan and “continually address[] application and underwriting processes as well as pricing policies”; (iii) implement a training program and semi-annually provide updates on fair lending issues; (iv) “[e]nsure automatic and timely review by a higher-level supervisor of all rejected or withdrawn applications for loans from same-sex pairs who indicated that they would live together in the mortgaged property; (v) extend (in writing) a fair lending plan’s principles to a mortgage lender’s refinancing and collection practices; and (vi) periodically review and update fair lending compliance programs and fair lending plans to ensure they remain current. Mortgage lenders are also advised to utilize rate sheets and exception logs to document applications from same-sex pairs, document approved loans for such applicants that received less favorable terms, and conduct statistical and regression analysis of loan data.