Governor Andrew Cuomo's 2020 agenda includes a series of consumer protection items designed to enhance the authority of the New York Department of Financial Services (NYDFS) to oversee broad swaths of licensed and unlicensed financial entities.

With the stated purpose of "eliminating unnecessary exemptions for consumer financial products and services" and "clos[ing] loopholes and creat[ing] a level playing field for regulated entities,"1 the governor's proposed 2020 budget allows the NYDFS to bring actions against unlicensed financial entities in the same manner as it would against a licensed entity, expands upon the definition of a financial product, and increases the statutory fines that NYDFS may assess.

The bill is also designed to increase consumer financial protections for vulnerable populations and, in particular, elderly or incapacitated adults.2

Expansion of Financial Protection Authorities

The budget bill expands the definition of a New York-regulated "financial product or service" and removes a number of the federal law exemptions previously found in NYDFS regulations. The bill's new definition for "financial product or service" would include the provision of:

  1. Investment advice, a security, or a money management device to a consumer or small business;
  2. A warranty, guarantee, or suretyship provided to a consumer or small business;
  3. A merchant cash advance provided to a consumer or small business; or
  4. A contract involving any of the aforementioned products or services.

The budget bill is also noteworthy for the expansion of NYDFS enforcement capabilities to encompass unlicensed entities. Unlicensed financial entities not otherwise exempt from NYDFS licensure that are required by New York state banking laws to have a license would now be subject to the same laws as licensed entities in New York, including the penalties enumerated therein.

The bill increases such penalties as well, insofar as they relate to any fraudulent, misrepresentative, unfair, deceptive, or abusive acts or practices. The new fines would amount to the greater of (1) $5,000; (2) a multiple of two times the aggregate damages attributable to the offense; or (3) a multiple of two times the aggregate economic gain attributable to the offense.

NYDFS Expansion Criticisms

Several industry groups have already criticized the proposal. The Business Council of New York State, for example, has strongly opposed what it calls the "superfluous" and "overly broad" proposed regulations. The group's opposition memo takes particular issue with the removal of several federal exemptions, as well as the inclusion of the new product and service categories, which it believes will extend NYDFS oversight to already-regulated products and industries.3

Protections for Vulnerable Adults

In addition to the more general consumer protection proposals outlined above, the budget bill takes specific aim at the financial exploitation of vulnerable adults. The proposal defines a vulnerable adult as "an individual who, because of mental and/or physical impairment is potentially unable to manage his or her own resources to protect himself or herself from financial exploitation."

The proposal would allow financial institutions, assuming proper disclosures, to apply transaction holds of up to five days (subject to extension) where the institution reasonably believes that the financial exploitation of a vulnerable adult has occurred or has been attempted.

Although the budget bill does outline timing and hold requirements, it defers the specifics to future NYDFS regulations. For example, the bill provides that "the superintendent may adopt regulations identifying the factors that a banking institution should consider in determining whether (i) the financial exploitation of a vulnerable adult may have occurred, may have been attempted, or is being attempted; and (ii) the placement of a transaction hold is necessary to protect a vulnerable adult’s money, assets, or property." 

It is also noteworthy that the current proposal merely provides that a financial institution, "may, at its discretion, apply a transaction hold" in these circumstances. The proposal also contains an immunity clause for institutions or employees of institutions that act in good faith in relation to the application of this section on vulnerable adults.

NYDFS Expansion Could Take Effect April 2020

If the budget is approved by the state legislature, the budget provisions could take effect in April of this year.4 As state governments continue to ramp up their own financial enforcement abilities in the perceived absence of rigorous federal enforcement of the industry, it is likely that there will be continued state legislative developments in this space.

DWT will continue to monitor legislative and regulatory enforcement priorities related to the financial industry in New York state and across the nation.