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Where does Benjamin Lawsky get the right?

Here's how a New York regulator is able to swing far beyond state lines

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New York’s Department of Financial Services superintendent Benjamin Lawsky is clearly intent on making a name for himself – bringing action to put the brakes on Ocwen Financial Corp. (OCN) and Wells Fargo (WFC) $2.7 billion MSR deal.

And Lawsky is warning other nonbank mortgage servicers that he’s looking at them, too, worried that they are growing too fast to properly service all the mortgages they’ve been taking on.

While a few consumer advocates may be cheering, a lot of people are wondering exactly where a New York state regulatory body gets off on coming down on an Atlanta-based corporation? Especially considering that only a small percentage of the mortgages in the deal are inside New York state?

Funny you should ask. We asked Compass Point Research & Trading sent out this handy guide.

Who Falls Under the DFS Umbrella?

The DFS supervises all insurance companies that do business in New York. If a particular bank, credit union or other financial institution is not New York State-chartered, they are generally not supervised by the DFS.

Mortgage servicers that service loans in New York and money transmission companies are also under the DFS’ umbrella. In total, the DFS oversees approximately 3,900 institutions holding $5.7 trillion in consolidated assets.

What Are the DFS’ Powers?

Generally, the new DFS consolidated the regulatory powers of the New York banking and insurance regulators. These supervisory powers include, but are not limited to, chartering, licensing, establishing registration requirements, and examination. The DFS also has a new department – the Financial Frauds and Consumer Protection Unit (FFCPU) – which has an expanded oversight and enforcement mandate. Previously, fraud investigators for the New York bank and insurance regulators could only investigate possible violations of specific statutes, whereas the new DFS unit enjoys a broader mandate. The DFS’ fraud unit may investigate and levy a civil penalty 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 violation of existing federal lending or debt collection laws. As is the case for most of the reforms outlined in the Dodd-Frank Act, it is most important how these terms are defined.

For example, in the New York law that created the DFS, there is no precise definition of “fraud,” leaving much for those heading this new agency to decide. Further, the definition of “financial products or services” is broader than any narrowly defined mandate previously held by the banking or insurance regulator. The definition of covered financial products includes “any financial product or financial service offered or provided by any person regulated or required to be regulated by the superintendent.” The DFS has the power to investigate, hold public hearings, and impose civil penalties if it determines that wrongdoing took place. The maximum monetary penalty is $5,000 per violation. When aggregated, these per violation have the potential to be quite impactful.

For more about who Benjamin Lawsky is and what to expect from him, click below.

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