New York Gov. Andrew Cuomo gives financial regulators the ability to levy stiffer fines and restitution under his preliminary budget proposal.
With the Department of Financial Services having recently enacted fiduciary like rules for all sales of life insurance and annuities, Cuomo's proposal has implications for insurers.
The biggest change would add a new section to the Financial Services Law authorizing the DFS superintendent to order individuals or entities subject to administrative proceedings or judicial actions to pay restitution to all consumers harmed by their conduct.
"While this would be a significant statutory change, restitution is a common element of many consent orders that DFS has entered into in the past," the law firm Eversheds Sutherland explained in a legal alert.
However, given the new Regulation 187 rules -- which took effect for life insurance sales on Aug. 1, 2019 and for annuity sales on Feb. 1, 2020 -- the change adds to the risk element for insurers and producers selling these products in New York.
Cuomo’s budget, which is being proposed against the backdrop of a projected $6 billion deficit, will now be reviewed and voted on by both chambers of the New York legislature. If adopted as proposed, the changes are expected to go into effect when New York’s fiscal year begins April 1.
Cuomo’s proposal would increase the maximum statutory fine that may be imposed on regulated entities and individuals for violations of state insurance law from $1,000 to $10,000 for each offense.
Also, any person or entity that does not possess a required license under the banking or insurance law will be treated as a licensed entity/individual and be subject to the same penalties.
"The proposal would amend the Financial Services Law to increase the maximum fine that can be imposed for certain violations and expand the scope of violations that are subject to the heightened penalties," the Eversheds Sutherland alert noted.
Current law allows the DFS superintendent to levy civil penalties of up to $5,000 per offense for "any intentional fraud or intentional misrepresentation of a material fact with respect to a financial product or service (or involving any person offering to provide or providing financial products or services)," or any violation of state or federal debt collection practices or fair lending laws.
Fine can be upped to $1,000 for any other violation of the Financial Services Law.
Under the governor’s proposal, the maximum fine would be increased to the greater of $5,000, two times the aggregate damages or two times the aggregate economic gains attributable to the offense.
"The types of offenses under which a violator might be fined would also be amended to remove the requirement that any fraud be intentional or that a misrepresentation be intentional and relate to a material fact and adds to the list of covered offenses any 'unfair, deceptive, or abusive act or practice,'" Eversheds Sutherland explained.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com. Follow him on Twitter @INNJohnH.
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