Judge Invalidates NY Title Insurance Restrictions; DFS, 10 Other States Start Investigation of Usurious Lending Practices

August 9, 2019 at 9:55 am Leave a comment

I have good news for those of you who offer Title Insurance through a CUSO and bad news for those of you who offer loan advances circumventing NY’s Usury Laws. I’m assuming none of you fall into the second category.

Title Insurers won an important victory yesterday, but how long lasting it is remains to be seen. The NY Law Journal is reporting that a Manhattan Supreme Court Judge has struck down dreaded Insurance Regulation 208, which caps title insurance fees and limits entertainment expenses on the Title Insurance Industry. When I can find a copy of the decision I will add it to the Blog. Some of my most ardent readers follow this issue more closely than Donald Trump watches Fox and Friends.

But don’t get too excited, in fact, you may be experiencing déjà vu. This is not the first time the judge has struck down these regulations. An earlier decision was reversed by the Appellate Division this past January and you can bet that this decision will again be scrutinized by the Appellate Courts. According to the Law Journal the judge based her ruling on arguments raised by the NY Land Title Association which, were not addressed in the previous round of litigation. This time around the judge concluded that parts of the regulation violate the due process rights of Title Insurers, because they do not adequately explain what constitutes illegal activity.


This is turning into quite an interesting battle. The industry looked like it was on the verge of getting the Legislature to repeal these Regulations in the last session, but the effort stalled short of a goal line.


The second bit of news I want to bring to your attention deals with the age old question when is a loan a loan? The answer is not as easy as you might think. Late last year Bloomberg Business Week reported on how Lenders were evading NY’s Usury Laws to offer businesses predatory loans. I predicted at the time that the Attorney General and DFS would quickly start investigating the practice.


Well I wouldn’t call their response quick, but yesterday Department of Financial Services Superintendent Lacewell announced that she will be taking the lead in a joint multi-state investigation of these questionable lending practices.


The law is not as clear as it should be. NY law caps loans at 25% Annual Interest but “To constitute a loan the agreement must provide for repayment absolutely.” As explained, in this December 6, 2018 decision by NY’s First Department Appellate Division. The Lenders reported on by Bloomberg circumvent this requirement by entering into agreements to receive a percentage of a Businesses’ future income. Since the future income is not guaranteed the advance is not a loan.


I’m just a simple County Lawyer, but this seems like an issue crying out not only for Judicial, but Legislative review. In the meantime, I hope that the defendants in the upcoming investigation are well versed in what does and does not constitute an Unfair, Deceptive, or Abusive Act or Practice.


On that happy note, enjoy your weekend we really don’t have too many of these left before summer ends.

Entry filed under: Compliance, Legal Watch, Mortgage Lending, New York State, Regulatory. Tags: , , , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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