DFS Has NRA Relationships, Rent-to-Own Lenders in Its Sight

by Manatt, Phelps & Phillips, LLP
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Banks in New York have been warned: The state’s Department of Financial Services (DFS) will be keeping a close eye on relationships with the National Rifle Association (NRA) and similar organizations.

In addition, the regulator issued a consumer alert about rent-to-own or land installment contracts, prompted by a current investigation into whether such practices may constitute unlicensed, predatory mortgage lending.

What happened

At the direction of Governor Andrew M. Cuomo, the DFS sent letters to covered entities asking them to review their relationships with the NRA and similar organizations, and encouraging recipients “to consider whether such ties harm their corporate reputations and jeopardize safety,” the DFS said.

“New York may have the strongest gun laws in the country, but we must push further to ensure that gun safety is a top priority for every individual, company and organization that does business across the state,” Governor Cuomo said in a statement. “I am directing the [DFS] to urge insurers and bankers statewide to determine whether any relationship they may have with the NRA or similar organizations sends the wrong message to their clients and their communities who often look to them for guidance and support. This is not just a matter of reputation, it is a matter of public safety, and working together, we can put an end to gun violence in New York once and for all.”

Following the Parkland, FL, school shooting, a number of companies have terminated their relationships with the NRA, the DFS said, with multiple insurers in the state announcing the end of discount programs with the organization.

“Our financial institutions can play a significant role in promoting public health and safety in the communities they serve, thereby fulfilling their corporate social responsibility to those communities,” according to the DFS memorandum. “They are also in the business of managing risks, including their own reputational risks, by making risk management decisions on a regular basis regarding if and how they will do business with certain sectors or entities.”

In light of this, “and subject to compliance with applicable laws, the Department encourages its chartered and licensed financial institutions to continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations, if any, as well as continued assessment of compliance with their own codes of social responsibility,” DFS Superintendent Maria T. Vullo wrote. “The Department encourages regulated institutions to review any relationships they have with the NRA or similar gun promotion organizations, and to take prompt actions to managing these risks and promote public health and safety.”

The DFS also put entities engaged in rent-to-own or land installment contracts on notice of heightened scrutiny. The regulator issued a consumer alert “warning New Yorkers about the pitfalls” of such contracts, as well as suggesting factors to consider before signing a contract and providing information on how to get legal help if needed.

“The consumer alert was prompted by a current DFS investigation into whether alternative home purchase agreements, such as rent-to-own, lease-to-own or land installment contracts, being offered in New York constitute unlicensed, predatory mortgage lending,” the agency explained.

DFS “takes very seriously its obligation to protect consumers from predatory lenders,” Vullo said in a statement. “Alternative home purchase agreements often are being marketed to financially distressed consumers, promising a path to homeownership, but putting consumers at risk without the protections of a mortgage.”

Lease-to-own, rent-to-own and land installment contracts may violate applicable New York laws and regulations regarding fair lending, mortgage protections, interest rates, habitability, property condition and/or real property disclosures, the DFS noted. The consumer alert cautioned consumers to consider alternatives, learn what the company knows about a property before signing a contract and understand their legal rights.

To read the DFS memorandum to banks on risk management relating to the NRA, click here.

To read the DFS consumer alert on rent-to-own and installment contracts, click here.

Why it matters

With the memorandum on risk management relating to the NRA and similar organizations as well as the current investigation into rent-to-own and installment contracts, the DFS continues to cement its relationship as a very aggressive regulator.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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