The merger of New York state’s banking and insurance departments might not create the powerful agency first advertised, according to Governor Andrew Cuomo’s recent budget deal with legislative leaders.
At first Cuomo called for a merger that included the existing State Consumer Protection Board, naming it the Department of Financial Regulation.
But under the $132.5 billion budget agreement reached Sunday, the Consumer Protection Board will instead be folded into the Department of State. Cuomo spokesmen could not immediately comment on what new powers, if any, the consumer protection arm would have.
The failure to incorporate consumer protection into the new banking and insurance agency marks one of the few concessions by Cuomo during the budget process.
Wall Street has a close eye on the new agency since whatever form it takes will affect the fees financial companies pay to the state and the regulations they must follow. The first version proposed of the new agency had drawn extensive complaints about new fees from New York’s insurance companies.
Cuomo has some of his reputation riding on the new regulator, given that as attorney general, he made national headlines investigating banks and brokerages and pursuing a number of consumer cases. They included overcharging by drug companies and a probe into whether insurers defrauded the heirs of deceased veterans.
Dwight Evans, the chief of staff for Senate Banks Committee Chair Joseph Griffo, an upstate Republican, said that lawmakers had decided to leave much of the work of consumer protection in cases of financial fraud to the attorney general’s office.
Evans also said that lawmakers were uncomfortable with a provision of Cuomo’s proposal that would have funded consumer protection probes through penalties levied on banks.
The proposal would also have doubled the maximum penalties for bank fraud to $5,000 from the current $2,500. It is unclear whether that provision will be carried into the final plan.
At a March 7 Senate hearing on the proposed regulatory merger, New York Bankers Association President Michael Smith testified that the funding of consumer protection initiatives through fraud penalties could lead to overly aggressive prosecution of banks.
Such a funding mechanism would create a clear conflict of interest, which would result in inappropriate findings of bad deeds and inappropriate imposition of these penalties, Smith said.
Details on the new regulatory agency, to be called the Department of Financial Services, are scant and will be included only in the final budget. The legislature has yet to draft the budget bill but is expected to pass it by March 31.
(Editing by Joan Gralla, Chris Sanders and Kenneth Barry)
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