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How the State Budget Could Crack Down on Bad Business Practices


How the State Budget Could Crack Down on Bad Business Practices

Apr 16, 2024 | 10:05 am ET
By Sam Mellins/New York Focus
Governor Kathy Hochul unveils her consumer protection agenda, the first proposal of her State of the State package, on January 2, 2024. | Susan Watts / Office of Governor Kathy Hochul

Governor Kathy Hochul unveils her consumer protection agenda, the first proposal of her State of the State package, on January 2, 2024. | Susan Watts / Office of Governor Kathy Hochul

In February 2017, desperate to maintain ownership of her East Flatbush home, health care worker Carla Barker took out an unusual mortgage.

Traditional banks had rejected her, so Barker turned to a private broker, who offered her a loan requiring she sign away ownership of her home to a holding company. Her interest rate would be triple the national average for mortgages, and if she fell behind on loan payments, ownership would pass to the lender, Izia Rokosz. No one explained these terms to Barker or provided her with copies of the documents, according to a lawsuit she filed in federal court.

Rokosz and his associates claim that Barker defaulted on the loan in 2017, and Rokosz now legally owns Barker’s house. Barker sued the lenders in early 2019, alleging that they had violated New York’s consumer protection laws by crafting a loan designed to strip her of her home. Though a federal judge called the group’s alleged behavior “predatory and egregious,” she threw out Barker’s argument based on New York state law.

That’s because New York’s consumer protection laws block lawsuits unless plaintiffs can prove that the alleged unfair conduct affected multiple people. It’s one of only six states with this requirement.

Now, as the New York state government closes in on this year’s state budget, the consumer protection laws that failed Barker could get their first significant overhaul in decades. Governor Kathy Hochul announced Monday that state leaders had reached the “parameters of a conceptual agreement” for the state budget, which would include “strengthening protections against unfair business practices.”

It’s not clear yet what that will look like. One possibility is a measure in the Senate’s budget proposal that would eliminate the requirement that dishonest business practices affect multiple people before consumers can file a lawsuit. The Assembly did not include the measure in its budget proposal, but both chambers are also considering a stand-alone bill that would achieve the same.

New York and federal courts have dismissed hundreds of lawsuits sparked by deceptive practices — like false advertising or hidden fees — because consumers couldn’t prove a pattern of behavior, according to a 2018 report by the National Consumer Law Center. To be successful, consumer protection lawsuits in New York generally have to respond to large fraud schemes, not one-off scams, said Carolyn Carter, who authored the report.

“The individual knows, ‘I’ve been cheated.’ But how does the individual know whether this company has cheated a bunch of other people in the same way?” Carter said. “That makes individual consumer justice really hard to achieve through New York’s consumer protection laws.”

Or the overhaul could take a more modest route that Hochul proposed when she announced her budget agenda in January.

Currently, New York only allows consumer protection lawsuits for “deceptive” tactics, meaning actual misrepresentation or lying. Hochul’s proposal would expand the law to let New Yorkers sue businesses that engage in “unfair” and “abusive” practices, like when a lender steers a borrower to a more expensive repayment plan or a landlord refuses to make repairs for a tenant. The Senate’s proposal included a similar measure.

Only seven states do not bar unfair business practices, as Hochul noted when she announced her proposal. “Guess who’s one of the seven?” she asked.

“Today we’re setting out to change that,” she added.

But her plan would leave intact the requirement that unfair business practices affect multiple consumers before those injured can bring a lawsuit. That means that her changes wouldn’t help New Yorkers in similar situations to Barker.

In her lawsuit, Barker attempted to prove a pattern of behavior by arguing that Rokosz was responsible for 13 other loans to homeowners, mostly in predominantly nonwhite areas, with the same interest rate and also requiring interest-only payments. But this didn’t qualify, the judge ruled, since those schemes differed slightly from the one used on Barker. Her case is ongoing in federal court. A lawyer for Rokosz did not respond to a request for comment.

Cases like Barker’s may deter other consumers from filing their own lawsuits, said Carolyn Coffey, an attorney at the nonprofit Mobilization for Justice, who is representing Barker. “Why go through the trouble of filing a lawsuit trying to get the money back or trying to stop them from doing that against other people?”

Consumer protection advocates treated Hochul’s proposal as a mixed bag.

“It’s great that the governor has embraced this issue as part of her affordability agenda,” said Charles Bell, an advocate at the nonprofit group Consumer Reports. But under Hochul’s plan, New Yorkers “will still be disadvantaged” compared to people in other states, he said.

A few decades ago, New York was a leader in state-level consumer protections. In 1980, the state legislature changed the law to give consumers the right to sue businesses for dishonest practices — which only the state attorney general could do previously.

In 1995, the New York Court of Appeals, the state’s highest court, ruled that such practices had to affect multiple parties, putting in place the requirement at issue today. The ruling sharply narrowed the consumer protection law’s purview, and in the intervening years, other states have leapfrogged New York. While federal law prohibits unfair, deceptive, and abusive business practices, it generally leaves it up to the states to determine individual consumers’ right to sue. New York’s law is now among the weakest in the country.

“Business groups have become more sophisticated about lobbying,” said Bell, allowing them to stave off expansions of the consumer protection law.

Consumer Reports and other consumer advocacy organizations, including Mobilization for Justice and the New Economy Project, have been lobbying the state government to include the Senate’s plan, rather than Hochul’s, in the final budget.

Business and financial groups have been lobbying against Hochul’s plan, too, charging that it will increase the cost of doing business in New York.

“We’re not opposed to consumer protections. But we don’t see this as a consumer protection bill,” said Chelsea Lemon, a lobbyist at the Business Council of New York State. “It’s a windfall for private plaintiffs attorneys that will lead to frivolous lawsuits against honest and reputable businesses.”

Last month, the Business Council and 31 other commerce groups warned that Hochul’s proposal “threatens to dramatically increase extortionate litigation” and urged lawmakers to pursue a smaller, “more targeted approach.” Other groups that have lobbied Hochul and legislators on the proposals include the pro-business Partnership for New York City, Capital One bank, the insurance company The Hartford, and the Life Insurance Council of New York.

The banking industry, meanwhile, is lobbying for an exemption from any potential change. A memo by the New York Bankers Association said that while the group supports the overall intent of Hochul’s proposal, banks should be excluded from New York’s consumer protection law, since they’re already regulated by the state’s Department of Financial Services.

The Business Council’s campaign has criticized one particular aspect of the proposed changes: Both Hochul’s and the Senate’s proposals would require businesses that lose consumer protection lawsuits to pay consumers’ legal fees, but not the other way around. The Business Council charges that this will incentivize frivolous lawsuits. (Some states, like Texas and Georgia, already allow consumers to force businesses to pay their legal fees — but businesses can put the same burden on the consumers, if a court finds that they sued in bad faith.)

“If this were really a consumer protection bill, then attorneys’ fees would be an option for the prevailing party, not just the plaintiff,” Lemon said.

Alex Dery Snider, policy director at the legal nonprofit Empire Justice Center, which supports the Senate’s proposal, said businesses that fear stronger consumer protection rules should simply stay on the right side of the law.

“Any business that’s abiding by federal law is already adhering to these standards,” she said. “So it’s really kind of telling on themselves if they’re having a problem.”

Julia Rock contributed reporting.