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New York Announces Creation of Consumer Protection and Financial Enforcement Division

Posted By USFN, Wednesday, July 17, 2019
Updated: Monday, July 15, 2019

Megan K. McNamara, Esq.
Berkman, Henoch, Peterson, Peddy & Fenchel, PC
USFN Member (NY)

The New York Department of Financial Services (“DFS”) announced the creation of the Consumer Protection and Financial Enforcement Division (“CPFED”) on April 29, 2019.  In the press release, Linda Lacewell, the acting DFS Superintendent, stated that the CPFED would be a “powerhouse” that combines seven previously separate units and departments into one united division under the leadership of Katherine A. Lemire, the newly appointed Executive Deputy Superintendent. The seven departments that are now consolidated into the CPFED include the Enforcement Division, the Investigations and Intelligence Division, the Civil Investigations Unit, the Producers Unit, the Consumer Examinations Unit, the Student Protection Unit, and the Holocaust Claims Processing Office.

Lacewell stated in the press release that the purpose of the CPFED is to protect and educate consumers against consumer fraud. In addition, the department will enforce state and federal law with respect to banking, insurance, and financial services. The press release specifically stated that the CPFED “is also responsible for developing investigative leads and intelligence in furtherance of the Department’s efforts to enforce the Banking, Insurance and Financial Services laws, with particular focus on the review and response to cybersecurity events and the development of supervisory, regulatory and enforcement policy and direction in the area of financial crimes.”

The creation of the CPFED appears to be a reaction to what is perceived by DFS as a policy shift within the Consumer Financial Protection Bureau (“CFPB”) to be friendlier to the financial services industry leaders. Notably, in January 2018, then DFS Superintendent, Maria Vullo said, “I am disappointed by the new administration’s sudden policy shift, which is clearly intended to undermine necessary national financial services regulation and enforcement.”

Vullo further stated that “DFS remains committed to its mission to safeguard the financial services industry and protect New York consumers, and will continue to lead and take action to fill the increasing number of regulatory voids created by the federal government.”

Since January 2018, the scene and its players have changed dramatically.  Specifically, Vullo left her position as DFS Superintendent, with Lacewood taking over, and the CFPB appointed Kathy Kraninger as its director in place of acting director Mick Mulvaney. This shakeup is expected to have a dramatic impact on the shape of both CFPB and DFS. As a result, mortgage servicers and their lawyers may be paying close attention to the climate change and the affect that it will have on the foreclosure process.

In late 2016, New York State implemented new regulations with respect to vacant and abandoned properties, also known as “zombie-houses.” These regulations put greater requirements on lenders and mortgage servicers to secure and maintain vacant properties that are in foreclosure. In addition, the failure to comply came with the potential for substantial fines from DFS. The creation of the CPFED is likely to yield additional regulations in line with the zombie-house initiative, and as such, will likely lead to foreclosure actions being a prime focus of the division.    

While it is hard to predict the direction of this newly created department, it is expected to involve cybersecurity. DFS promulgated 23 NYCRR Part 500, a regulation establishing cybersecurity requirements for financial services companies, which took effect March 1, 2017.  These requirements may affect how the CPFED will focus its efforts on enforcing these regulations as DFS did with zombie-houses.

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