Empire Justice Center Testimony on the New York State Department of Financial Services: Assembly Standing Committee on Insurance, Assembly Standing Committee on Banks, Assembly Standing Committee on Oversight, Analysis and Investigation

Kirsten Keefe, Saima Akhtar December 01, 2011

The Merger of the New York State Banking Department and the New York State Insurance Department into the New York State Department of Financial Services

Thank you for the opportunity to present testimony at today’s hearing reviewing the merger of the New York State Banking Department and the New York State Insurance Department into the New York State Department of Financial Services.  We appreciate the Committees’ recognition of consumer issues as a critical component to ensuring a safe and sound financial services industry.

Empire Justice Center is a statewide legal services organization with offices in Albany, Rochester, White Plains and Central Islip (Long Island).  We provide support and training to legal services and other community-based organizations, undertake policy research and analysis, and engage in legislative and administrative advocacy.  We also represent low-income individuals, as well as classes of New Yorkers, in a wide range of poverty law areas including consumer law.  Our consumer unit focuses on foreclosure defense and mortgage lending issues, though we also have experience with debt collection, credit reporting and other non-mortgage consumer cases.

Empire Justice is a steering committee member of New Yorkers for Responsible Lending (NYRL), a statewide coalition promoting access to fair and affordable financial services and the preservation of assets for all New Yorkers and their communities.  NYRL is committed to fighting predatory practices in the financial services industry through policy reform, education and outreach, research and direct services.  NYRL has over 150 members, representing community financial institutions, community-based organizations, affordable housing and first-time homebuyer groups, advocates for seniors, legal services organizations, and community reinvestment, fair lending, and consumer advocacy groups.

Our impression of the merged Department of Financial Services thus far is very positive.  As consumer advocates, we were concerned that consumers’ issues may get lost in the shuffle but we have been encouraged by public statements made by Superintendent Benjamin M. Lawsky both when he was confirmed by the Senate Banking Committee, as well as at the launch of the Department in New York City on October 3, 2011.  In those statements, Superintendent Lawsky noted what we as a country have learned over the past five years: that ensuring protections for consumers is a critical component of, and not a challenge to, a safe and sound financial services industry.

Superintendent Lawsky has met with members of NYRL and has expressed strong interest in meeting with advocates on a monthly basis moving forward.  The Superintendent has also been open to meeting with consumer advocates around the state in conjunction with his travel schedule.  We hope that this is the beginning of a strong and fruitful relationship with the Department.  In addition, the Department has invited a member of NYRL to represent the interests of consumers on the State Charter Advisory Board.  We hope that as the Department continues to move forward and evolve, that NYRL will be further considered for representation on councils and advisory committees that may be formed to represent the interests of consumers and to inform the Department regarding predatory practices consumers are experiencing throughout New York in the financial services and insurance industries.

We also have been encouraged by the Department’s banking division’s focus on the mortgage servicing industry.  In October 2010, under authority bestowed on the Superintendent by the Legislature through the Foreclosure Prevention and Responsible Lending Act of 2008, the NYS Banking Department promulgated Business Conduct Rules for Servicing Mortgage Loans which are among the strongest regulations for mortgage services in the country.  The Department recently met with consumer advocates who work directly with homeowners and their mortgage servicers to discuss violations of the regulations that we have identified, and enforcement mechanisms that are within the authority of the Department.  The Department seems eager to build its consumer complaint process and to work with homeowners and consumer advocates and ensure mortgage servicer compliance with the regulations.

We are also heartened by several Agreements that the Department has entered into over the last few months with mortgage servicers directly.  Thus far, the Department has entered into Agreements with Ocwen Financial Corporation (subsuming Litton Loan Servicing), Saxon Mortgage Services, Inc. (and its parent, Morgan Stanley), American Home Mortgage Servicing, Inc. and Vericrest Financial, Inc.  The Department has creatively used its authority to encourage, if not strong arm, these servicers to consent to much needed improvements in their procedures and processes.  Again, the Agreements crafted by the Department set among the strongest, if not the strongest, standards for mortgage servicers in the county.

One point to highlight about these Agreements is that they require mortgage servicers to refer homeowners to HUD approved non-profit housing counseling agencies, recognizing the high value of the direct assistance provided by these agencies and their legal services partners in helping New York homeowners avoid foreclosure and maintain homeownership.  We strongly support the inclusion of this requirement in the Agreements (as well as similar referrals required under New York Real Property Actions and Proceedings Law Sec. 1304, New York Banking Laws 6-l and 6-m) since direct assistance has proven to be the most effective means to ensure mortgage servicers’ compliance with the business conduct rules for mortgage servicers as well as with the Home Affordable Modification Program (“HAMP”), the federal loan modification program.

However, it is important to note that our statewide Foreclosure Prevention Services Program, which funds the vast majority of statewide non-profit direct services for homeowners in default and foreclosure, ends this calendar year.  Continued funding for the last fiscal quarter of this year, as well as in the 2012 budget, is needed to ensure these services continue to be available to New York’s homeowners.

We also are pleased with the Department’s recent actions around force-placed insurance in the Agreements with mortgage servicers, including the implementation of strong new rules that require the servicers to maintain homeowners’ existing insurance policies when possible, and mandate that any force-placed insurance policies purchased be reasonably priced.  We hope that the Superintendent will be able to expand the rules to all mortgage servicers, and continue to work with NYRL on insurance issues to ensure that families have affordable homeowners’ insurance whenever possible.

Consumer advocates have also had discussions with the Department regarding the need for better data disclosure regarding insurance to prevent discrimination in the marketplace.  We urge the Department (as well as the Legislature) to implement a data disclosure rule for residential property insurers.  The rule should require residential property and casualty insurers to publicly disclose data on the type and pricing of property insurance policies they issue, cancel or do not renew by census tract.  Empire Justice Center and NYRL are concerned about the persistence of discrimination in the property and casualty (P&C) insurance market.  We believe that public disclosure of property insurance underwriting and pricing will help ensure fair access to affordable, quality insurance for homeowners in low income communities and in communities of color.

Finally, we urge the Department to work with Governor Cuomo and the Legislature to ban the use of credit report data in the underwriting and pricing of home and automobile insurance.  The use of such data has a disparate impact on low income consumers and communities of color.

Thank you again for this opportunity to comment on the new Department of Financial Services.  Empire Justice believes that the Department is off to a good start in terms of considering the needs and concerns of consumers and working with the financial services industry to ensure their policies help, not harm, consumers.  We look forward to working together with the Department to improve access to fair and responsible financial services for consumers.