BILL NUMBER: S239

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 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 two 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 traffic
law to require that any auto dealer who sells motor vehicles which are
financed, or who facilitates in any way the financing of motor vehicles,
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 states that 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 generally unregulated and have little oversight with few
universal regulations that apply to auto dealer financing transactions.

 
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, false
employment information, and addition of add-ons like (sometimes nonex-
istent) 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 reason-
ably expected to afford, and with few avenues of recovery. What's worse,
in some cases, finance managers have moved from dealer to dealer perpe-
trating the same fraudulent activities with no licensing requirements,
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 these regulations, dealerships often
behave like lenders and many times are 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 indus-
try and standardize practices to protect consumers.

The Department of Financial Services currently does not have jurisdic-
tion 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
deceptive, fraudulent, and criminal activity that takes 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 in better understanding the regu-
lations in the financing industry and ensure that they are complying
with all laws, rules, and regulations necessary to protect consumers.

 
LEGISLATIVE HISTORY:

2020: 5.1956 (Thomas) / A.4928 (Blake) - Referred to Consumer
Protection.
2019: 5.1956 (Thomas) / A.4928 (Blake) - Banks Committee Discharged and
Committed to Consumer Protection.
2017-18: 5.5278 (Hamilton) / A.4618 (Blake) - Referred to Banks.
2016: S.5489 (Klein) / A.7865 (Blake) - Reported and Committed to Rules.
2015: S.5489 (Klein) / A.7865 (Blake) - 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.