BILL NUMBER: S1956

SPONSOR: THOMAS
 
TITLE OF BILL:

An act to amend the financial services law, in relation to the jurisdic-
tion of the department of financial services over the financing of motor
vehicles; and to amend the vehicle and traffic law, in relation to the
licensing of motor vehicle dealer finance managers

 
PURPOSE:

This bill gives the Department of Financial Services jurisdiction over
auto financing, and places auto financing transactions under the defi-
nition of a "financial product or service." It also authorizes the
Department of Financial Services (DFS) to establish a motor vehicle
financing bureau, and gives DFS regulatory authority over financing
transactions and financing departments at auto dealerships.  It also
requires auto dealerships to designate a finance manager and to license
said financing manager with the Department of Financial Services. The
Department of Financial Services may establish a licensing course and
charge a nominal licensing fee for financing managers not to exceed $200
              

during any 2-year period.

 
SUMMARY OF PROVISIONS:

Section 1: Amends Subparagraph (B) of paragraph 2 of subsection (a) of
section 104 of the financial services law to provide that all motor
vehicle sales financing transactions, whether said financing is origi-
nated at an auto dealership or a lending institution, shall fall under
the jurisdiction of the Department of Financial Services as a "financial
product or service."

Section 2: Amends the opening paragraph of section 205 of the financial
services law to add a subsection (b) which authorizes the Superintendent
of the Department of Financial Services to establish a "motor vehicle
financing bureau," and to promulgate any and all rules and regulations
necessary to regulate motor vehicle financing transactions and motor
vehicle financing departments.

Section 3: Amends paragraphs 6 and 7 of subsection (c) of section 301 of
the financial services law to add four new paragraphs which will allow
the Department of Financial services to (1) promulgate rules and regu-
lations for motor vehicle dealer finance departments and finance manag-
ers, (2) establish educational materials and/or mandated instructional
course(s) for motor vehicle dealer finance managers who must also apply
for licensing, (3) impose a licensing and course fee for motor vehicle
dealer finance manager applicants, not to exceed $200 and 16 hours of
instruction per every 2 years, and establish and impose penalties,
including license suspensions and revocations for violations of Depart-
ment of Financial Services regulations by motor vehicle dealers and
motor vehicle finance managers.

Section 4: Amends subdivision 3 of section 415 of the vehicle and traf-
fic law to require that any auto dealer who sells motor vehicles which
are financed, or who facilitates in any way the financing of motor vehi-
cles, must act as or employ a finance manager licensed by the Department
of Financial Services. Every finance manager must complete the licensing
course mandated by the Department of Financial Services.
Section 5: This act shall take effect on the two hundred seventieth day
after it shall have become a law.

 
EXISTING LAW:

Under current law, auto dealers are not subject to the regulatory
authority of the Department of Financial Services. Dealer financing
departments are largely unregulated and have little oversight; there are
few universal regulations that apply to auto dealer financing trans-
actions.

 
JUSTIFICATION:

Abuses in auto lending (typically originated at dealerships) are ramp-
ant. Scams targeting consumers involve fraudulent loan applications,
inflated vehicle sale prices, inflated application income levels and
false employment information, and addition of add-ons like (sometimes
nonexistent) warranties and insurances, etc.  These financing scams are
very lucrative for car dealerships, but often leave consumers thousands
of dollars in debt, saddled with vehicles they can never have been
reasonably expected to afford, and with few avenues of recovery. What's
worse, in some cases, finance managers have moved from dealer to dealer
perpetrating the same fraudulent activities with no licensing require-
ments, state oversight, or a licensing registry to prevent them from
doing so.

Currently, there are few universal regulations in the financial divi-
sions of car dealerships, despite that these dealerships behave like
lenders and many times are in fact lenders even though they sell loans
to larger banks and lenders almost immediately after a sale takes place.
Regulating dealerships' finance departments could help bring them in
line with consumer protection regulations in the banking industry and
standardize practices to protect consumers. The Department of Financial
Services currently does not have jurisdiction over lenders who are also
sellers of goods (the auto dealerships, in this case).

Giving the Department of Financial Services jurisdiction over dealership
finance managers and their financing activities, and requiring auto
dealers to designate a finance manager, will help to deter dishonest,
deceptive, fraudulent, and criminal activities that take place in dealer
financing departments. Authorizing the Department of Financial Services
to establish a licensing course and/or educational materials for finance
managers will help auto dealerships to better understand the regulations
in the financing industry and ensure that they are complying with all
laws, rules, and regulations necessary to protect consumers.

 
LEGISLATIVE HISTORY:

S.5489 of 2015- Referred to Banks
S.5489 of 2016- Reported from Banks and Committed to Rules
S.5278 of 2017- Referred to Banks
S.5278 of 2018- Referred to Banks

 
FISCAL IMPLICATIONS:

None.

 
LOCAL FISCAL IMPLICATIONS:
None.

 
EFFECTIVE DATE:
This act shall take effect on the two hundred seventieth day after it
shall have become a law.