The consumer financial services attorney (the petitioner) who sued the New York State Department of Financial Services (DFS) and its superintendent, Benjamin Lawsky, to obtain access to DFS’s database of alleged illegal payday lenders recently filed his opposition to the agency’s motion to dismiss his petition.

The lawsuit seeks to compel DFS to comply with the petitioner’s request under the New York Freedom of Information Law (FOIL) for documents pertaining to DFS’s database of out-of-state consumer lenders. The agency claims these lenders are illegal payday lenders with whom banks should not deal. The petition seeks not only the names of these lenders but also seeks documents relating to how they were selected for inclusion. DFS rejected the request, stating that the requested documents could be withheld from disclosure under FOIL because they pertained to law enforcement, and their disclosure would interfere with law enforcement investigations. (For additional background, see our prior legal alert.)

In its motion to dismiss, DFS renewed its objection, citing the law enforcement exemption. According to DFS, the database qualified for this exemption because it was created as part of its ongoing investigation of online payday lenders, and disclosure would interfere with that investigation by allowing payday lenders to easily make changes to their practices to avoid detection “within the electronic payments networks.” DFS also argued that the information was exempt from disclosure under FOIL as intra-agency materials “that reflect the Department’s deliberative process” because the database was the result of “deliberations and communications among DFS staff.”

In his opposition to DFS’s motion, the petitioner argued that DFS did not provide the “particularized and specific” justification required by FOIL for withholding documents. He argued that in light of DFS’s “prior public statements to the effect that the database is primarily an enumeration of lenders’ names and other identifying information-information already known to the lenders themselves,” it is “highly improbable” that disclosure would result in evasive conduct by lenders. According to the petitioner, nothing in DFS’s prior statements suggests that the database contains “an artificial intelligence device or algorithm” or other “secret formula” for identifying illegal conduct. The petitioner asked the court to conduct in camera inspection of the requested information to determine whether the law enforcement exemption should apply.

The petitioner also argued that the intra-agency exemption does not apply because the database is merely a collection of factual data that must always be disclosed under FOIL regardless of how it was compiled, and a motion to dismiss is inappropriate because DFS only raised factual issues and not points of law as required by applicable procedural rules. The petitioner made the further argument that the public and legitimate lenders have a substantial interest in knowing how the list is compiled and whether the selection process could potentially “sweep up compliant firms with illegal lenders.” He asserted that because “[a]n undisclosed government rule that has the effect of causing the largest banks in America to boycott certain disfavored lenders is tantamount to a ‘secret law’,” the requested information should be disclosed under FOIL as a final agency policy or determination.

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, Joel E. Tasca at 215.864.8188 or tasca@ballardspahr.com, or Marjorie J. Peerce at 212.223.0200 x8039 or peercem@bssfny.com.


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