New York’s Banking Chief Takes Aim at Consumer Protection Fouls (Corrected)

Aug. 12, 2019, 9:31 AM; Updated: Aug. 12, 2019, 3:10 PM

Among Linda Lacewell’s first moves upon taking over as New York’s superintendent of financial services was to combine her agency’s broader consumer protection and financial frauds unit with the “sharpshooters” in its enforcement division.

The creation of the new Consumer Protection and Financial Enforcement Unit in late April is just part of Lacewell’s plan to renew the state’s focus on consumer protection as the federal government, and particularly the Consumer Financial Protection Bureau, pull back on their enforcement efforts.

“The goal was to supercharge the consumer protection division with what I like to call the sharpshooters from the banking enforcement universe, and put all of those excellent resources to work for the consumer. Which is really putting our money where our mouth is,” Lacewell said in an Aug. 8 interview at the New York Department of Financial Services’ office in lower Manhattan.

Just don’t call the new unit a “mini-CFPB,” Lacewell said of the new unit, which includes 243 of the DFS’s 1,327 employees.

“My comment is that it’s not so mini,” she said.

‘Smart, Tough, Fearless Lawyers’

New York Gov. Andrew Cuomo (D) nominated Lacewell, at the time the governor’s chief of staff, in January. She took over as the acting superintendent in February after Maria Vullo’s departure from the post.

Lacewell is a former federal prosecutor who worked on the Enron case in the U.S. Attorney’s Office for the Eastern District of New York and a veteran of the New York attorney general’s office. She won confirmation from the state Senate on June 21.

The DFS tapped Katherine Lemire, a former federal prosecutor who also served as a prosecutor in the Manhattan District Attorney’s office as well as counsel to former New York City Police Commissioner Ray Kelly, to lead the consumer protection unit.

Lemire wasn’t the only former prosecutor to join Lacewell’s top rank of deputies. In May, Justin Herring, the former chief of the U.S. Attorney’s Office for the District of New Jersey’s Cyber Crimes Division, joined the DFS to lead a new Cybersecurity Division.

Lacewell said that the Cybersecurity Division would be on an equal footing with the DFS’s banking, insurance and consumer protection divisions.

New York set up the first cybersecurity regulatory regime in the U.S. in February 2017, and they fully came into effect in March.

“The biggest threat to government, to industries, to elections, all of it, is cybersecurity,” Lacewell said.

But the new superintendent said her agency would not only focus on enforcement. Herring will be providing detailed policy ideas about where to take cybersecurity rules, and other recent hires, like Matthew Homer to lead a new Innovation and Research Division, come from industry and other areas.

Still, Lacewell said that federal prosecutors fit the mold for what she wants to see at the DFS.

“Here’s basically what we’re looking for on behalf of real people: Smart, tough, fearless lawyers who will fight for people. Who are not afraid of challenges, famous lawyers, big industries, whatever they may be,” she said.

Filling Gaps

Federal prosecutors will also have some powerful tools at their disposal as they try to rein in some potentially abusive practices in the financial services industry. The New York Financial Services Law, which led to the combination of the state’s banking and insurance regulators in 2011, gives the DFS the authority to supervise any financial institution operating in the state, as well as any institution that has New York customers.

It also gives the DFS gap authority, which allows the regulator to oversee companies and business lines that do not have an existing regulator elsewhere. Lacewell said she used that gap authority in initiating an investigation alongside 10 other state regulators of the payroll advance industry on Aug. 6.

That power gave the DFS the authority to create first of their kind rules for virtual currencies, known as the BitLicense.

Lacewell said that her new innovation unit would look to encourage financial technology developments in the state, with the goal of getting partnerships between fintech firms and New York’s community banks and increasing services to the state’s unbanked and underbanked.

And she sounded a slightly different tone than Vullo on the idea of a regulatory sandbox in the state. Vullo famously said on several occasions that “toddlers play in sandboxes” in rejecting the idea.

Lacewell said any consideration of a sandbox was “far down the road.”

Strong Bonds

Anti-money laundering and sanctions enforcement will remain a top DFS priority, and Lacewell said she plans to meet with regulators in Europe to discuss supervision of the many foreign banks under her agency’s jurisdiction.

One foreign bank, MUFG Bank, agreed to a $33 million settlement in June with the DFS in a lawsuit over the Japanese bank’s shift to a national charter with the Office of the Comptroller of the Currency. The DFS alleged that the bank was trying to escape an enforcement action.

Lacewell said she doesn’t expect to see other foreign banks attempt to shift to a federal charter, in part because of the service New York’s supervisors can provide.

“Federal regulators can sometimes be a lot more remote. They have a lot more going on. We speak to our entities. We’re available to them,” she said.

That said, Lacewell said that the DFS and her federal counterparts, particularly at the Federal Reserve Bank of New York, the Federal Deposit Insurance Corp. and the Financial Crimes Enforcement Network work well together.

And she wants to return to that level of cooperation with the CFPB.

“It was a beautiful relationship in the past. I would like to see that get resurrected,” she said.

(The settlement amount with MUFG was $33 million, not $333 million as previously reported.)

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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