On Saturday March 21, 2020, the Governor of the State of New York, Andrew M. Cuomo, issued Executive Order No. 202.9 – Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency (“EO 202.9” or the “Executive Order”), in an effort to protect New York consumers and businesses suffering financial hardship as a result of the COVID-19 pandemic.
Governor Cuomo issued the Executive Order under the authority of Section 29-a of Article 2-B of the New York Executive Law, which permits the Governor to temporarily suspend any statute, local law, ordinance, or orders, rules or regulations of any agency during a state disaster emergency if compliance with such provisions would prevent, hinder, or delay action necessary to cope with the disaster or if necessary to assist or aid in coping with such disaster, and to issue any directive during a disaster emergency necessary to cope with the disaster.[1]
Pursuant to the foregoing powers and authority, Governor Cuomo:
- modified Subdivision two of Section 39 of the New York Banking Law “to provide that it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank which is subject to the jurisdiction of the [New York State Department of Financial Services (DFS)] shall not 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;”
- directed the Superintendent of the DFS “to ensure under reasonable and prudent circumstances that any licensed or regulated entities provide to any consumer in the State of New York an opportunity for a forbearance of payments for a mortgage for any person or entity facing a financial hardship due to the COVID-19 pandemic;” and
- empowered the Superintendent of the DFS “to promulgate emergency regulations to direct that, solely for the period of this emergency, fees for the use of automated teller machines (ATMs), overdraft fees and credit card late fees, may be restricted or modified . . . taking into account the financial impact on the New York consumer, the safety and soundness of the licensed or regulated entity, and any applicable federal requirements;”
in each event for the period from the date of the Executive Order through April 20, 2020.[2]
While EO 202.9 was welcomed as a necessary and important relief measure for New York persons and businesses, it left many licensed or regulated entities, which are also trying to cope with the financial repercussions of the COVID-19 pandemic, with uncertainty and questions regarding the applicability and implementation of the changes and directives.
Guidance is needed to assist these entities in determining exactly what constitutes a “financial hardship” stemming from the pandemic, and whether certain facts and circumstances may or may not be considered in determining whether or not a forbearance is justified under the circumstances. While we recognize that it is nearly impossible to draft a definition that will encompass all potential instances of financial hardship, some guidance in this area would be prudent to minimize confusion and disputes. Financial hardships are generally understood to be severe situations resulting from an illness or accident, loss of property, or other similar extraordinary and unforeseeable circumstances arising as a result of (in this case) the COVID-19 pandemic and outside of the control of the affected party. But what about exclusions and considerations such as available insurance proceeds, potential liquidation of assets (to the extent such liquidation would not itself cause further hardship), availability of additional financing or credit (again, to the extent it would not itself cause further hardship), and other potential mitigants? While this determination will be very fact-specific and largely dependent on individual circumstances, some guidance is necessary to assist the affected entities in making these difficult determinations.
In addition, some clarity is needed to assist banking organizations and financial institutions in determining if they are in fact subject to the new restrictions. As drafted, the Executive Order deems it an unsafe and unsound business practice if “any bank which is subject to the jurisdiction of the Department . . . shall not grant a forbearance . . . for a period of ninety days.” However, it is unclear as to whether this is intended to limit the new restrictions to “banks” as defined under the Banking Law[3], or whether it includes each of the various entities that are otherwise subject to the restrictions (and potential penalties) set forth in Section 39. Is this an instance where the context requires a different meaning of the term “bank” for purposes of this modification?
What is a forbearance supposed to look like? Can there be conditions and/or restrictions? If so, what is permissible? How is lost profit, interest, cost, or expense recouped by the institutions? There are a number of issues and considerations that will arise in the context of these modifications and directives as parties begin to implement changes in an effort to comply.
Modifying Section 39 of the Banking Law to deem these actions as unsafe and unsound business practices provides an indication that the Governor wants the mandate to be taken seriously, and penalties may be levied accordingly. Other examples of unsafe or unsound business practices include price tampering, dealing with OFAC sanctioned parties, failure to implement sound governance, falsifying book entries, failure to maintain true and accurate books, and interest rate spread collusion. Given the severity of the consequences of non-compliance with the Executive Order and the relevant laws, violations of which can trigger penalties[4] potentially adding up to hundreds of millions of dollars, immediate guidance from the DFS is imperative. Guidance now will help to minimize disputes later on. But until that guidance is published or determined, it would be prudent for licensed or regulated entities to establish procedures for review and determination of these issues giving due consideration to the facts and circumstances of each case.
It should be noted that the Executive Order did direct the Superintendent of the DFS to promulgate emergency regulations “to require that the application for such forbearance [of payments for a mortgage for any person or entity facing a financial hardship] be made widely available for consumers, and such application shall be granted in all reasonable and prudent circumstances . . . .”[5] This portion of the directive indicates that appropriate forbearances shouldn’t be overly restrictive or limited, but that any such forbearances shall be granted by the licensed or regulated entities to the extent it would be reasonable and prudent to do so under the circumstances. That said, until the regulations and guidance are issued, uncertainty remains in the face of these emergency measures.
Accordingly, New York consumers, residents and businesses alike will be pleased to see that the Governor and the DFS are taking action to mitigate the negative impact of COVID-19. However, licensed and regulated entities, which are already struggling to cope with the economic fallout of this pandemic are left with challenges and uncertainty in implementing changes to address the modifications and directives set forth in EO 202.9.
We intend to monitor the situation closely and provide updates as information becomes available.
[1] N.Y. Exec. Law § 29-A (1).
[2] See Executive Order No. 202.9
[3] N.Y. Bank. Law §2 (1): “The term, ‘bank,’ when used in this chapter, unless a different meaning appears from the context, means any corporation, other than a trust company, organized under or subject to the provisions of article three of this chapter.”
[4] See N.Y. Bank. Law §44.
[5] See Executive Order No. 202.9
