New York Executive Order and Regulation Requires Banks To Honor Forbearance Requests And Other Regulated Entities To Potentially Restrict Late And Overdraft Fees

On March 7, 2020, Governor Cuomo issued Executive Order No. 202.9 (the “Order”) which sought to modify New York Banking Law to deem “an unsafe and unsound business practice” if any bank, subject to the Department of Financial Services (the “Department”), fails to “grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days.” See here. The Order also directed the Superintendent of Department to issue emergency regulations which provide consumers with the opportunity to forbear on loan payments and for the waiver of late and overdraft fees.

On March 19, 2020, the Department issued guidance to New York regulated financial institutions regarding the ongoing COVID-19 a pandemic (the “Guidance”). See here. Specifically, the Guidance urged all financial institutions “to do their part to alleviate the adverse impact caused by COVID-19 on those consumers and small businesses that can demonstrate financial hardship caused by COVID-19.” This includes taking reasonable and prudent actions to, among other things:

  • Waive overdraft fees;
  • Provide new loans on favorable terms;
  • Waive late fees for credit card and other loan balances;
  • Increase credit card limits for creditworthy customers;
  • Offer payment accommodations, such as payment deferrals which would avoid delinquencies, defaults, or negative credit notations;
  • Ensure that consumers and small businesses do not experience a disruption of service if financial institutions close their offices;
  • Alerting customers to the heightened risk of scams and price gouging during the COVID-19 disruptions; and
  • Proactively reaching out to customers via app announcements, text, email or otherwise to explain the above-listed assistance being offered to customers.

The Guidance further urged financial institutions, where reasonable and prudent, to refrain 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. The Department stated that it believed such efforts were “consistent with safe and sound banking practices as well as in the public interest and will not be subject to examiner criticism.”

Please contact Ryan L. DiClemente, Esq. for any questions on this guidance and/or the continuing impact the COVID-19 pandemic has on financial institutions across the country.