Relates to restrictions on employees of the banking department, collecting assessment fees, suspending mortgage bankers; repealer

Summary of provisions

This bill makes a number of amendments that clarify, correct or modernize various provisions in the Banking Law ("BL"), and one amendment to the section of the Real Property Law governing late charges on certain mortgage loans.

Section 1 of the bill amends BL § 14-d(7) to clarify the institutions to which the subdivision applies.

Section 2 of the bill amends BL § 22 with respect to the Superintendent's authority to require that applicants be fingerprinted. It also corrects the numbering of the subdivisions in the section. It also authorizes the Superintendent to update a criminal background check done by another entity if it is more than five years old, and makes provision for a federal criminal history report to be obtained other than through the DCJS (e.g. through the NMLS under Article 12-E).

Section 3 of the bill amends BL § 23 to authorize the Department to retain investigation fees paid even if a certificate of organization is not "filed."

Section 4 of the bill amends BL § 24 to clarify that extension of the 90 day period for the examination and approval of an organization certificate is within the sole discretion of the Superintendent. There are also a number of amendments to make the section gender-neutral. The amendment in BL § 24(3) is not intended to have substantive effect, since the requirements for approval appear elsewhere in this Article. Finally, a missing reference to BL § 136 is added to BL §24(4).

Section 5 of the bill amends BL § 25(1) and (3) with respect to the approval of authorization certificates. Several of the changes are to make references to the Superintendent gender-neutral. Another amendment increases from 60 to 90 days the discretion of the

Superintendent to extend the time period in which to issue the authorization certificate, where the applicant needs the time to raise capital or fulfill other conditions precedent to starting business. The amendment also authorizes the Superintendent to extend the time period for longer than 90 days where he or she determines th,at "extraordinary circumstances" exist. Similarly, the amendment to BL § 25(3) clarifies that the Superintendent may grant more than a single extension of time for the applicant to commence business.

Sections 6, 7 and 8 of the bill make amendments to BL §§ 28, 28-a and 28-b, respectively. The first two amendments are designed to make references to the Superintendent gender-neutral. In addition, BL 28-b(2), which concerned an outdated committee created by its enacting legislation, is deleted.

Section 9 of the bill amends BL § 28-b(5) to delete superfluous language.

Section 10 of the bill adds a new BL § 36-b. This section clarifies how records required by other sections of the Banking Law may be preserved, including by electronic storage media, and sets forth criteria for electronic storage.

Section 11 of the bill amends BL § 42 to allow the Superintendent to modify the notice provisions otherwise contained in the section, where the public interest will be served.

Section 12 of the bill amends BL § 229 to eliminate a reference to a section of law which has been repealed.

Section 13 of the bill amends BL § 413 to delete the reference to BL 142-b which has been repealed.

Section 14 of the bill amends BL § 460(2) to delete a reference to section 458 which has been repealed.

Section 15 of the bill amends BL § 4002 consistent with the changes to BL § 22 described above. Also, a limited exception to the requirement that fingerprint reviews be completed before an approval is granted by the Superintendent is added for the limited situation where a proposed entity has a surplus of incorporators.

Section 16 of the bill amends BL § 5004(8) to delete the references to sections that have been repealed.

Section 17 of the bill amends BL § 591 (1) (b) to make the fingerprint requirements of Article 12-D consistent with those of BL . 22.

Section 18 of the bill amends BL § 592(1) to delete unnecessary verbiage. Section 595(8) already addresses the issues covered by the deleted language.

Section 19 of the bill amends BL § 592-a to correct a reference from "licensee" to "registrant" and to delete unnecessary verbiage as in the case of Section 592(1).

Section 20 of the bill amends subdivisions 1,2,4, 4-a, 5, 6 and 7-a of BL § 595 and adds a new Subdivision 3. Subdivision 2 extends the suspension period from 30 to 90 days, and adds to the list of violations for which a suspension may be imposed without a hearing, those set forth in paragraphs (b) and (c). New Subdivision 3 clarifies when any such suspended license or registration may be reinstated; otherwise, the license or registration will terminate by operation of law after 90 days. Conforming changes are made to the other amended subdivisions.

Section 21 of the bill amends Real Property Law § 254-b, which currently prohibits "late charges" in excess of 2 percent of the delinquent installment, so that it explicitly bars interest rate increases on loans secured by residential homes and cooperative apartments arising from a default (e.g. a "default interest rate").

Section 22 of the bill amends BL 9001-a consistent with the amendments to BL §§ 22 and 4002. Also, a limited exception to the requirement that fingerprint reviews be completed before an approval is granted by the Superintendent is added for the limited situation where a proposed entity has a surplus of incorporators.

Sections 23 to 38 make similar changes to various recordkeeping provisions in the Banking Law. These changes also modernize and conform the recordkeeping requirements applicable to regulated entities to make them consistent with the amendments to BL § 36-b.

Section 39 of the bill provides for the effective date of the bill.

Existing law

The Banking Law currently contains many outdated references and much outdated language. Numerous sections on recordkeeping authorize preservation of photographic records but do not mention electronic recordkeeping. In addition, recordkeeping obligations of sales finance companies and money transmitters are provided in regulations rather than by statute. Also, the ability of the Superintendent to suspend a license or registration are now limited under Banking Law 595. The Real Property Law permits certain late fees in times of default, but its provisions have been subject to misinterpretation.

Prior legislative history

This proposal was originally introduced in 2009 and 2010. The bill passed the Senate in 2010 but not the Assembly.

Statement in support

This bill would demonstrate the ongoing commitment of New York to update its statutory framework for the regulation of entities subject to its jurisdiction. The vast majority of the changes remove outdated references and make other non-substantive changes in the Banking Law to reflect the environment within which financial services now operate.

In addition, the following substantive changes would be made:

BL § 42 contains the requirements for publication of certain information on the Department's bulletin board (now electronic). On the rare occasion when approval of an application or order is time sensitive, publication of a notice under BL § 42 is not feasible or cannot be done consistent with Banking Law § 36(10). The proposed amendment to Banking Law § 42 would allow the Superintendent to vary or waive notice periods under that section as long as he or she determines that consideration of the matter is in the public interest and such waiver is necessary because of unusual and extraordinary circumstances.

BL § 595 sets forth the circumstances under which the Department can suspend the license or registration of a mortgage banker or mortgage broker. In dealing with licensed financial service providers, including mortgage bankers and brokers, during the recent subprime mortgage and credit crisis, the Department has determined that the current Banking Law provisions for suspensions and revocations of licenses or registrations do not provide sufficient flexibility and are unnecessarily costly. Most provisions of the Banking Law governing the suspension of non-banking entities limit the Superintendent's ability to suspend a license to 30 days and require a hearing to revoke a license. Thus, as a practical matter, the Superintendent must simultaneously issue an order of suspension and schedule a revocation hearing. Moreover, licensed entities often ask for time to hire counsel and prepare for a hearing and therefore request postponement of the hearing. Consequently, the proposed amendment would extend to 90 days the Superintendent's authority to suspend a license of a mortgage banker or the registration of a mortgage broker for cause, as defined in the Banking Law.

As a result of the current state budget crisis, the Department has analyzed areas where it believes it is incurring needless expense. One such area is in holding revocation hearings for non-bank licensed financial services providers, in this case mortgage bankers and brokers, who have violated certain key legal obligations and where there is no defense in the statute and where hearings are unnecessarily costly, especially because the respondent often does not appear at the hearing. The proposed amendments to BL § 595 would eliminate the need for such hearings in' the case of the mortgage bankers and brokers.

The amendment to BL § 25 would increase, from 60 days to 90 days, the discretion of the Superintendent to extend the time period in which to issue an authorization certificate, where the applicant needs the time to raise capital or fulfill other conditions precedent to starting a business. The amendment also authorizes the Superintendent to extend the time period for longer than 90 days where he or she determines that "extraordinary circumstances" exist. The first amendment would give start-up banks a longer period of time in which to complete their "launch" activities.

The amendments to the Real Property Law would remove any confusion over whether a lender could increase the interest rate on a loan in addition to charging late fees in default situations. While the Department believes that increasing the interest rate in such situations is not currently permissible, some institutions have reached a contrary conclusion based on their interpretation of the

wording of the statute. The instant amendment would eliminate any such confusion.

Budget implications

There are no budget implications from this bill.

Effective date

The bill would take effect immediately upon enactment, provided that section 21 of the bill will apply only to loans made after the effective date of the bill, and sections 28 and 33 will take effect on the 60th day after the effective date of the bill.