In New York, the state Senate has passed a bill (S7420) to enhance the enforcement powers of the New York Department of Financial Services (NYDFS) over unlicensed activity.
Specifically, it allows the NYDFS to have additional oversight of banks and insurance companies that are not currently licensed in this state and authorizes penalties for such violations.
The bill is pending in the state Assembly; if passed, it would be effective immediately.
Gap in penalty provisions
The bill is designed to resolve what lawmakers see as a gap in the penalty provisions of the banking, insurance and general financial services laws that “advantage persons who disregard licensing, registration, and similar authorization requirements”.
The bill does this imposing a penalty for “prohibited unlicensed acts,” which is defined first as “engaging in an activity in this state for which (authorization) by the superintendent is required by” banking, insurance, or financial services laws or their associated regulations without being authorized. It is defined secondly as “any act or omission by a person who is required by banking, insurance, or financial services laws or their associated regulations to be authorized by the Superintendent to do such business and is not so authorized, if such act or omission would constitute a violation of those laws or regulations if such a person had been authorized.”
The law provides the NYDFS Superintendent with the power to investigate possible unlicensed activities and hold adjudicatory proceedings to assess civil penalties against person committing prohibited, unlicensed acts.
The penalties for infractions by unlicensed parties are designed to be the same as those set forth in the respective sections of NYDFS regulations, such that if the activity falls within the banking arena, those penalties would apply, and if they fall in the area of insurance, those would apply, etc.
“The law is designed “to protect users of financial products and services from imprudent conduct and harmful business practices in New York’s Financial Services marketplace.”
NY Senate Bill S7420
Consequences
Currently, if a person engages in activities for which authorization from the NYDFS Superintendent is required and does not have such authorization, there is no civil penalty for it. And if such a person acted in ways that would constitute a violation if he or she did have authorization, that person often faces no consequences under NYDFS regulations.
The example the bill’s drafters offer here is of a person conducting a loan business for which a license is required but doing so without one. Not only can the Superintendent not impose a fine for the lack of a license, the Superintendent cannot impose a fine if that unlicensed individual charges an illegal rate of interest.
The law is designed “to protect users of financial products and services from imprudent conduct and harmful business practices in New York’s Financial Services marketplace,” the lawmakers say in the bill.
