A consumer financial services attorney (the petitioner) recently filed a petition in New York state court against the New York State Department of Financial Services (DFS) and its superintendent, Benjamin Lawsky. The lawsuit seeks to compel DFS to comply with a request under the New York Freedom of Information Law (FOIL) for documents pertaining to DFS’s database of out-of-state consumer lenders—which the petition refers to as a “blacklist”—that DFS claims are illegal payday lenders with whom banks should not deal.

DFS has been involved in ongoing aggressive enforcement-related activities, which the agency announced in August 2013, designed to stop supposedly unlawful payday lending to New York consumers over the Internet. Our prior e-alert on this announcement is available here. As part of its efforts, DFS issued a memorandum to 117 banks under its supervision, urging them to work with the agency to “choke off” banking system access to certain identified “illegal” payday lenders, as well as to the broader payday lending industry.

In June 2014, DFS announced that it had created a database of companies that had been subject to DFS actions based on evidence of illegal payday lending. DFS explained that the database would be available to financial institutions to help ensure that electronic payment and debit networks are not used to transmit or collect on illegal payday loans.

Following the June 2014 announcement, the petitioner made a request to DFS under FOIL for documents relating to the database, including documents pertaining to the process for selecting lenders for inclusion. DFS rejected the request, stating that the requested documents related to law enforcement purposes and therefore could be withheld from disclosure under FOIL.

In his petition filed last week, the petitioner explained that the purpose of his request was part of an effort to understand the policies, procedures, and scope of DFS’s anti-payday lending campaign, particularly the means by which legitimate, licensed, and fully legally compliant lenders might inadvertently be selected for inclusion in the database. The petition further states that legitimate lenders have a substantial interest in knowing how the list is compiled, and that the public has an interest in understanding whether the selection process will include only lenders engaging in illegal conduct, or will inadvertently include compliant lenders.

The petition alleges that DFS has not explained how disclosure of the selection process for the database would prejudice ongoing law enforcement efforts, and that DFS therefore has not met FOIL’s standard for withholding documents, which requires specific and particularized justification. The petition further notes that DFS’s refusal to provide an updated computerized list of lenders included in the database is inconsistent with its previous release of a print-based list of such lenders in August 2013.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). Our attorneys, including the attorneys who joined us from the New York City litigation firm Stillman & Friedman, P.C., to form Ballard Spahr Stillman & Friedman LLP, have substantial experience in handling litigation with the DFS and the New York Attorney General.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or rosenblum@ballardspahr.com, or Joel E. Tasca at 215.864.8188 or tasca@ballardspahr.com.


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