BILL NUMBER:S5489

TITLE OF BILL:  An act to amend the financial services law, in
relation to the jurisdiction 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 definition 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
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.