Grants the department of financial services jurisdiction over the financing of motor vehicles

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 originated 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 regulations for motor vehicle dealer finance departments and finance managers, (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 Department 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: 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 transactions.

Justification

Abuses in auto lending (typically originated at dealerships) are rampant. 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 requirements, state oversight, or a licensing registry to prevent them from doing so.

Currently, there are few universal regulations in the financial divisions 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

This is a new bill.

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.