The Business Council of New York State strongly opposes S.7508 / A.9508, Part NN which would greatly and superfluously expand the power and oversight of the Department of Financial Services on entities already heavily regulated by other government institutions. This overly broad legislation would lead to another layer of needless regulatory oversight and cost to regulated parties.
The memorandum of support for this bill states that the bill gives, “DFS the authority to proceed directly against unlicensed entities using the same administrative hearing procedures DFS uses for adjudicating infractions by licensed entities.” And that, “this bill expands upon the definition of a financial product or service and small business…”
In fact, the bill does much more than the above language indicates. The bill expands authority over any entity that sells to a consumer or small business, any security, investment advice, or money management device, warranty, guarantee and suretyship, among other things. It also expressly removes language from the Financial Services Law that exempted financial products or services that are regulated under the exclusive jurisdiction of a federal agency or authority, regulated for the purpose of consumer or investor protection by any other state agency, state department or state public authority.
Not only is this expansion over regulatory oversight unto already-regulated financial institutions unnecessary and duplicative, federal law certainly preempts state laws, such as this, that interfere with the powers of national banks. In Barnett Bank of Marion County, N.A. v. Nelson, the Supreme Court held that the National Bank Act of 1864 preempts state laws that “significantly interfere” with a “national bank’s exercise of its powers" - a standard that lower courts have ever-since applied to hold a wide variety of state laws as preempted. This legislation surely treads on the same path regardless of the specific preemption language therein.
Further, it is important to remember that national financial institutions are not wholly immune from state law. They are subject to generally applicable state laws concerning contracts, torts, property rights, and debt collection when those laws do not conflict with or frustrate the purpose of federal law. In these areas, these institutions are already properly regulated by state entities that ensure consumer protections in these areas. In particular, New York’s Attorney General’s office has been particularly active over the last two decades.
To illustrate that point, in August of 2018, then Attorney General Underwood filed comments with the Federal Trade Commission (FTC) highlighting the significant role state Attorneys General play in consumer protection. Therein, she stated, “The State Attorneys General play a distinct and important role in consumer protection, given our broad authority to act in the public interest combined with our responsibility to enforce state laws. We have a long history of protecting consumers from unfair and deceptive practices. The State Attorneys General frequently use our consumer protection authority - derived from states’ traditional police powers - to investigate violations of law, enjoin harmful conduct, redress consumer harm through injunctive relief and restitution, and deter further violations through civil penalties…”
The Business Council fully understands, recognizes and supports the idea of protecting consumers from bad business practices. However, the broadness of this bill, far beyond its stated goals, will not achieve the desired outcome. The bill merely consolidates the power to regulate a myriad of industries with one state agency, where multiple state and federal regulatory bodies already regulate the same. The bill is far too broad and will serve to weaken enforcement of the smaller entities that the bill was supposed to target.
For these reasons, The Business Council of New York State, Inc. is strongly opposed to this legislation.