By Jeff Haynes
Since his appointment as the New York State Banking Department’s 43rd Superintendent in March, Richard H. Neiman has had plenty of weighty issues vying for his attention.
The subprime loan crisis was already in full swing when Neiman left his position as chairman, president and chief executive officer of TD Bank USA, the wholly owned subsidiary of The Toronto-Dominion Bank, to take his new job as superintendent.
As more time revealed more problems within the subprime sector, Neiman and his counterparts nationwide were dealt a new challenge in April by the U.S. Supreme Court. In the case of Watters v. Wachovia Bank, the court ruled that Wachovia Mortgage Corp. is not subject to state regulations because the mortgage company is a subsidiary of Wachovia Bank, which is chartered through the federal Office of the Comptroller of the Currency (OCC). Wachovia Mortgage then, by extension, was ruled to be under the OCC’s jurisdiction and not the state’s – in this case Michigan.
The following week, a lawsuit filed by the Connecticut and Massachusetts bankers associations and the Maine Association of Community Banks against Framingham, Mass.-based TJX underscored the problems with identity theft. The lawsuit stemmed from a data breach last year at TJX – parent company of discount retailers T.J. Maxx, Marshalls, HomeGoods, A.J. Wright and Bob’s Stores – that reportedly exposed 45.7 million credit and debit card numbers in the company’s computer system.
Meanwhile, a former New York State Banking Department examiner, James Gass, pleaded guilty to corruption-related charges. A statement from the department announcing the conviction reports that Gass had received $30,000 and employment from a check cashing firm in exchange for providing confidential department information. Upon his retirement from the department in 2003, Gass went to work for the same check cashing company as the “compliance officer” at a salary of $85,000 per year.
The statement also reports that the defendants, including Gass, will pay a total monetary penalty of $4.3 million, and that Gass will be subject to a lifetime ban from involvement, either direct or indirect, in the financial services industry.
Recently, Neiman talked with Banking New York about some of these issues and his transition into his new role.
Q. What were the key elements about the superintendent position that made it appealing to you?
Neiman: I couldn’t think of a more exciting or challenging time to lead the New York State Banking Department. There is no shortage of challenging issues to be addressed, such as preemption, preservation of the dual banking system and subprime lending.
It is also exciting to join an active and reform-minded administration, under Gov. [Eliot] Spitzer, and I look forward to helping them achieve their priorities, including the enhancement of economic development throughout the state.
Q. Describe some of the factors from your time in prior positions, such as at TD Bank USA, that you feel made you stand out to Gov. Eliot Spitzer.
Neiman: In a way, I have been preparing for this job my whole career. I started as a congressional intern working my way through college and went on to work in many facets of the financial services industry. I have been a regulator, an attorney, an executive and a consultant. So, I have seen the industry from a number of perspectives.
I would like to think that our governor considered the diversity of my skill set, the depth of my knowledge, and my passion for the industry as key factors in the selection process.
Q. Talk about some of your prior experience that you will draw on in your new role.
Neiman: Throughout my career, I have always appreciated the importance of identifying clear goals, setting measurable objectives and managing a team working together to accomplish those goals. In the three months I have been in the superintendent role, I have begun forming the partnerships needed to accomplish both short- and long-term goals that address a range of issues.
Q. Do you think you could return to the private sector in the future, such as possibly rejoining TD Bank USA?
Neiman: Right now, I have plenty on my plate and I am just focusing on my role as superintendent.
Q. You’ve talked about the subprime market situation being described as a crisis, market in turmoil or a market undergoing a correction. Which do you feel is the most accurate label?
Neiman: In my opinion, all three of these terms are accurate. The recent events in the subprime market and predatory lending practices in general have, in many instances, created a crisis for impacted consumers and their communities.
Within the mortgage market itself, there are already a number of forces at work taking corrective actions, such as the tightening of underwriting standards. However, I also expect that we will see a legislative and regulatory response.
Q. There are many players involved in the subprime problems happening today, including the borrower, the broker, the lender and the investment banks. Is there a way to target solutions at each of those players, and if so, what kind of role can your department play?
Neiman: The department has a large role to play, especially in the area of enforcement, as we regulate approximately 300 mortgage bankers and over 2,300 brokers. We set high standards for all of our supervised entities and enforce them through our examination process. Through exams, we identify any potential patterns of predatory or abusive lending practices. When problem signs are present, we are able to take decisive action because New York has progressive consumer protection laws.
In March, Gov. Spitzer created an interagency task force, which I chair, to address the issues that face New Yorkers. The Task Force to Halt Abusive Lending Transactions (HALT Task Force) brings together the heads of all the state agencies and departments related to mortgage issues, so we can take decisive and coordinated action.
Part of our goal is to recommend regulatory and legislative changes, as well as other solutions, that enhance consumer protection while keeping our state’s mortgage market strong.
Q. A recent report from the national Mortgage Bankers Association shows the incidents of fraud climbed significantly in 2006. What are some of the types of fraud you are seeing take place?
Neiman: There is a variety of types of fraud we must watch for in the mortgage industry, including fraud involving foreclosures, flipping and identity theft.
Q. How do you plan to tackle those problems?
Neiman: The Banking Department’s Criminal Investigations Bureau recently established a joint Mortgage Fraud Unit between the Banking Department and Secretary of State. The unit has reached out to local law enforcement agencies throughout the state to notify them of our internal expertise and our ability to assist them.
Even prior to this dedicated unit, the department had been dealing with mortgage fraud cases for years. We have been involved in many investigations with various district attorney’s offices across the state – investigating these cases and sending them for prosecution with the relevant DA’s office.
One of the HALT Task Force’s primary initiatives directly addresses this issue by partnering with law enforcement agencies to continue our efforts in pursing enforcement actions against those engaging in wrongful conduct.
Q. The security breach at TJX Cos. has highlighted the threat of identity theft. Are there steps your office can take to shore up consumer protection?
Neiman: During our standard examinations, we ensure that our institutions are in compliance with applicable federal regulations and have the proper controls, policies and procedures in place. If an institution notifies us of a breach, we work with them and follow up to ensure the issue has been handled according to regulations.
We are also vigilant about stressing the importance of following federal regulations around data security when we meet with various trade groups or with individual institutions.
Q. Has the Watters v. Wachovia case set a dangerous precedent and how does it impact your department?
Neiman: Consumers should be disappointed. It’s unfortunate that the national banks’ mortgage subsidiaries will not be obligated to conform to the more protective state consumer laws that may apply to a state institution.
I feel this decision will further impede local efforts to respond quickly and with innovative measures, and undermines the vital role states have historically played in the area of consumer protection. The ruling is also likely to have an adverse impact on the federal-state balance and the dual banking system, and further undermine the competitive equality between state and national banks.
Having said that, I am still anxious to explore additional ways that the Banking Department can work cooperatively with the OCC to enhance areas of mutual interest, like consumer protection. In fact, I recently met personally with Comptroller [John] Dugan to discuss these and other issues.
Q. Has the recent conviction of former examiner James Gass hurt public confidence in the department, or has his conviction demonstrated the effectiveness of the department’s investigations?
Neiman: The Banking Department has zero tolerance for corruption – either internally or within the institutions we supervise. This incident took place in 2004 and the department has taken significant steps since then, including a change in management of the division and mandatory rotation of all examiners.
Q. Do you feel this has created more pressure on you to be extra vigilant in keeping corruption out of the department?
Neiman: The department has always been, and will continue to be, very vigilant. As with any organization, we continuously reassess policies and procedures to ensure we are being as effective as possible, adapting to changing environments, and acting in ways that are both ethical and in the best interest of the public we serve.
Q. Apart from the issues already discussed, what are some of your short and/or long-term goals as superintendent?
Neiman: In the short term, I had a number of senior roles that had to be filled and I have made great progress adding to the already strong team at the department. In the long-term, I want New York to remain as a global financial center that is competitive and vibrant. To do that, we need to keep New York in the forefront of prudential supervision, working with the industry to ensure a regulatory system that works while not sacrificing compliance.
I also want New York to continue in the forefront of the effort to protect consumers, particularly with regard to mortgage fraud and predatory lending.
Q. If there is such a thing as a typical day at the office, what would it be like?
Neiman: With approximately 550 employees focused on regulating a vibrant industry, there is no such thing as a “typical day” at the office.
Initially, I spent a lot of time getting to be more familiar with the department, its divisions and its people. I was also meeting with consumer and advocacy groups, trade associations, fellow regulators, and individual institutions to gain a more in-depth knowledge with various businesses’ and organizations’ priorities and challenges.
Q. Whether it’s a few hours or a whole weekend, when you find that you do have some free time, how do you like to unwind and forget about work for a while?
Neiman: I have a wife, as well as two daughters, ages seven and nine, who like to keep me occupied with plenty of outdoor activities on the weekends. When I’m not entertaining my girls, and if I can sneak out before they wake up, I’m always looking for a tennis match. However, I will admit that my game may have suffered over the past few months while my attentions have been focused elsewhere!
Jeff Haynes is a reporter for The Commercial Record, a Connecticut-based newspaper serving the financial industry in New England for 125 years.
Copyright 2007 The Warren Group