BILL NUMBER: S7420
SPONSOR: KRUEGER
 
TITLE OF BILL:
An act to amend the financial services law, in relation to allowing the
department of financial services to have additional oversight of banks
and insurance companies that are not currently licensed
 
PURPOSE OR GENERAL IDEA OF BILL:
This bill will resolve faults in penalty provisions of the Banking Law,
Insurance Law, and Financial Services Law that advantage persons who
disregard licensing, registration, and similar authorization require-
ments. The bill does this imposing a penalty for "prohibited unlicensed
acts," which are defined as (1) "engaging in an activity in this state
for which (authorization) by the superintendent is required by" the
Banking, Insurance, or Financial Services laws or the regulations
promulgated thereunder, without being so authorized, and (2) "any act or
omission by a person who is required by (the Banking, Insurance, or
Financial Services laws or the regulations promulgated thereunder, 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
 
THE BANKING, INSURANCE, OR FINANCIAL SERVICES LAWS) OR THE REGULATIONS
PROMULGATED THEREUNDER, IF SUCH PERSON WERE SO (AUTHORIZED)."
 
SUMMARY OF PROVISIONS:
SECTION 1 STATES THE PURPOSE OF THE BILL.
SECTION 2 PROVIDES THAT THE SUPERINTENDENT OF FINANCIAL SERVICES MAY
HOLD ADJUDICATORY PROCEEDINGS TO ASSESS CIVIL PENALTIES AGAINST PERSONS
WHO HAVE COMMITTED PROHIBITED UNLICENSED ACTS, AS THE SUPERINTENDENT MAY
DO FOR OTHER VIOLATIONS OF THE BANKING, INSURANCE, AND FINANCIAL
SERVICES LAWS.
SECTION 3 AUTHORIZES THE SUPERINTENDENT OF FINANCIAL SERVICES TO INVES-
TIGATE ACTIVITIES THAT MAY CONSTITUTE PROHIBITED UNLICENSED ACTS, AS THE
SUPERINTENDENT MAY DO WITH RESPECT TO OTHER ACTIVITIES WITHIN THE SUPER-
INTENDENT'S JURISDICTION.
SECTION 4 CREATES A NEW SECTION OF LAW, FINANCIAL SERVICES LAW SECTION
408-A, WHICH DEFINES "PROHIBITED UNLICENSED ACT" AND ESTABLISHES THE
APPLICABLE PENALTIES, WHICH MAY BE ASSESSED BY THE SUPERINTENDENT AFTER
NOTICE AND A HEARING. THE PENALTIES ARE AS FOLLOWS:
FOR A PROHIBITED UNLICENSED ACT THAT RELATES TO THE REQUIREMENTS OF THE
BANKING LAW OR THE REGULATIONS PROMULGATED THEREUNDER, THE PENALTY IS AS
PROVIDED IN SECTION 44 OF THE BANKING LAW FOR ANY VIOLATION OF THE BANK-
ING LAW.
FOR ENGAGING WITHOUT AUTHORIZATION IN A BUSINESS FOR WHICH AUTHORIZATION
IS REQUIRED UNDER THE INSURANCE LAW OR THE REGULATIONS PROMULGATED THER-
EUNDER, THE PENALTY IS THE SAME AS THE PENALTY SET FORTH IN SECTION 1102
OF THE INSURANCE LAW.
FOR ENGAGING WITHOUT AUTHORIZATION IN A BUSINESS FOR WHICH AUTHORIZATION
IS REQUIRED UNDER THE INSURANCE LAW OR THE REGULATIONS PROMULGATED THER-
EUNDER AND, FURTHER, ENGAGING IN AN ACT THAT CONSTITUTES A VIOLATION OF
THE INSURANCE LAW OR THE REGULATIONS PROMULGATED THEREUNDER FOR THOSE
PERSONS WHO ARE PROPERLY AUTHORIZED, THE PENALTY IS THE SAME AS THE
PENALTY FOR VIOLATIONS SET FORTH IN SECTION 109 OF THE INSURANCE LAW OR
ANY OTHER PROVISION OF THE INSURANCE LAW APPLICABLE TO THE ACTIVITY,
WHICHEVER IS HIGHER.
FOR A PROHIBITED UNLICENSED ACT THAT RELATES TO THE REQUIREMENTS OF THE
FINANCIAL SERVICES LAW OR THE REGULATIONS PROMULGATED THEREUNDER, THE
PENALTY IS THE SAME AS THE PENALTY PROVIDED FOR IN FINANCIAL SERVICES
LAW SECTION 408 FOR VIOLATIONS OF THE FINANCIAL SERVICES LAW OR THE
REGULATIONS PROMULGATED THEREUNDER.
ADDITIONALLY, FOR A PROHIBITED UNLICENSED ACT THAT RESULTS IN CONSUMER
HARM, THE SUPERINTENDENT MAY IMPOSE A PENALTY UP TO DOUBLE THE AMOUNT
APPLICABLE TO SUCH VIOLATION SET FORTH ABOVE, AND THE SUPERINTENDENT MAY
ORDER RESTITUTION TO HARMED CONSUMERS.
CONSISTENT WITH EXITING LAW, SECTION 4 OF THE BILL ALSO PROVIDES THAT A
PARTICULAR ACT OR OMISSION CONSTITUTING A PROHIBITED UNLICENSED ACT
CANNOT BE PENALIZED TWICE. IF THE SUPERINTENDENT IMPOSES A FINE FOR A
PROHIBITED UNLICENSED ACT PURSUANT TO THE PROVISIONS OF THE INSURANCE
LAW OR BANKING LAW, THE SUPERINTENDENT MAY NOT ADDITIONALLY IMPOSE A
PENALTY FOR THE SAME ACT OR OMISSION PURSUANT TO THE FINANCIAL SERVICES
LAW.
ALSO CONSISTENT WITH EXISTING LAW, THIS SECTION ESTABLISHES THAT THE
CIVIL PENALTIES THAT THE SUPERINTENDENT OF FINANCIAL SERVICES COLLECTS
FOR PROHIBITED UNLICENSED ACTS MUST BE APPLIED IN THE SAME MANNER AS
CIVIL PENALTIES RECEIVED BY THE SUPERINTENDENT FOR OTHER VIOLATIONS OF
THE FINANCIAL SERVICES LAW.
SECTION 5 OF THE BILL PROVIDES, CONSISTENT WITH EXISTING LAW, THAT IF
THE SUPERINTENDENT BELIEVES THAT A VIOLATION OF THE NEWLY CREATED
SECTION 408-A HAS BEEN ATTEMPTED OR COMMITTED, THE SUPERINTENDENT, IN
THEIR DISCRETION, MAY REPORT SUCH ACTIVITY TO THE APPROPRIATE LICENSING
AUTHORITY OR DISTRICT ATTORNEY OR TO THE NEW YORK STATE ATTORNEY GENER-
AL.
 
JUSTIFICATION:
TO PROTECT OF USERS OF FINANCIAL PRODUCTS AND SERVICES FROM IMPRUDENT
CONDUCT AND HARMFUL BUSINESS PRACTICES IN NEW YORK'S FINANCIAL SERVICES
MARKETPLACE, ALL PERSONS OFFERING FINANCIAL PRODUCTS AND SERVICES IN NEW
YORK STATE SHOULD BE SUFFICIENTLY DETERRED FROM DISREGARDING THE LAWS
AND REGULATIONS GOVERNING THE OFFERING OF FINANCIAL PRODUCTS OR
SERVICES, REGARDLESS OF WHETHER THEY ARE PROPERLY LICENSED, REGISTERED,
OR OTHERWISE AUTHORIZED TO CONDUCT SUCH BUSINESS. FURTHERMORE, PERSONS
PROVIDING FINANCIAL PRODUCTS AND SERVICES SHOULD NOT BENEFIT FROM THEIR
FAILURE TO BE SO AUTHORIZED. CURRENTLY, AS TO ENGAGEMENT IN MANY ACTIV-
ITIES FOR WHICH AUTHORIZATION FROM THE SUPERINTENDENT OF FINANCIAL
SERVICES IS REQUIRED, A PERSON LACKING SUCH AUTHORIZATION IS NOT SUBJECT
TO CIVIL PENALTY FOR ACTS THAT WOULD CONSTITUTE VIOLATIONS SUBJECT TO
PENALTY IF THE PERSON DID HAVE PROPER AUTHORIZATION, AND THE PERSON MAY
NOT EVEN BE SUBJECT TO A PENALTY FOR CARRYING ON SUCH A BUSINESS WITHOUT
THE REQUIRED AUTHORIZATION. THIS MEANS, FOR EXAMPLE, THAT A PERSON
CONDUCTING A LOAN BUSINESS FOR WHICH A LICENSE IS REQUIRED CANNOT BE
FINED BY THE SUPERINTENDENT FOR DOING THAT BUSINESS WITHOUT A LICENSE.
MOREOVER, IF THAT UNLICENSED PERSON CHARGES AN ILLEGAL RATE OF INTEREST,
THE SUPERINTENDENT STILL CANNOT IMPOSE A FINE. THIS IS INCONGRUOUS WITH
THE PROVISIONS OF THE BANKING LAW THAT SUBJECT PROPERLY LICENSED LENDERS
TO FINES FOR VIOLATING INTEREST RATE LIMITS.
THIS ACT REMEDIATES THIS FAULT IN THE LAW BY PROVIDING THAT ANY PERSON
ENGAGED IN ACTIVITY FOR WHICH SUCH PERSON MUST BE LICENSED BY THE SUPER-
INTENDENT OF FINANCIAL SERVICES WILL BE SUBJECT TO A CIVIL PENALTY FOR
CONDUCTING SUCH ACTIVITY IN A MANNER INCONSISTENT WITH THE LAW, REGARD-
LESS OF SUCH PERSON'S LICENSURE STATUS.
 
PRIOR LEGISLATIVE HISTORY:
THIS IS A NEW BILL.
 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
NONE.
 
EFFECTIVE DATE:
THIS BILL WOULD TAKE EFFECT IMMEDIATELY.