On January 21, New York Governor Andrew Cuomo released his Fiscal Year 2021 executive budget proposal for the State of New York. The budget includes proposed legislative that would increase the authority of the Superintendent of the Department of Financial Services (DFS) to impose fines and penalties for violations of the Financial Services Law, the Insurance Law and the Banking Law. The proposed changes are expected to be opposed by the industry.
Governor Cuomo’s proposal would increase the maximum statutory fine that may be imposed on regulated entities and individuals for willful violations of the Insurance Law (or regulations promulgated thereunder) from $1,000 to $10,000 for each offense. The proposal also provides that any person or entity that does not possess a required license under the Banking or Insurance Law will be treated as a licensed entity/individual and be subject to associated penalties. Together, these changes would make unlicensed actors subject to the same $10,000 maximum fine (and other penalties) that apply to regulated entities.
In addition, the proposal would add a new section 312 to the Financial Services Law. This section authorizes the Superintendent to order individuals or entities subject to administrative proceedings or judicial actions under the Financial Services Law, the Banking Law or the Insurance Law to pay restitution to all consumers harmed by their conduct. While this would be a significant statutory change, restitution is a common element of many consent orders that DFS has entered into in the past.
Finally, the proposal would amend the Financial Services Law to increase the maximum fine that can be imposed for certain violations and expand the scope of violations that are subject to the heightened penalties. Currently Section 408(a) allows the Superintendent to levy civil penalties of (1) up to $5,000 per offense for (a) any intentional fraud or intentional misrepresentation of a material fact with respect to a financial product or service (or involving any person offering to provide or providing financial products or services), or (b) any violation of state or federal debt collection practices or fair lending laws and (2) up to $1,000 for any other violation of the Financial Services Law (or regulations promulgated thereunder). Under the Governor’s proposal, the maximum fine would be increased to the greater of $5,000, two times the aggregate damages or two times the aggregate economic gains attributable to the offense. The types of offenses under which a violator might be fined would also be amended to remove the requirement that any fraud be intentional or that a misrepresentation be intentional and relate to a material fact and adds to the list of covered offenses any “unfair, deceptive, or abusive act or practice.” However, penalties for individuals and entities regulated under the Banking Law or the Insurance Law will continue to be as provided under those laws, and the Superintendent is prohibited from imposing a fine under Section 408 in addition to any penalty or fine for the same act or omission that is imposed under the Insurance Law or the Banking Law.
The Governor’s budget, which is being proposed against the backdrop of a projected $6 billion deficit, will now be reviewed and voted on by both chambers of the New York legislature. If adopted as proposed, the changes are expected to go into effect when New York’s fiscal year begins April 1.
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