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News & Commentary

The View from Under the Regulator's Heel

March 2, 2006

by LaLa Wang

LaLa Wang is president of MLX.com, an online real-estate service. The details of her case can be found at www.asklala.com.

New Yorkers, smarting from the high cost of housing and related transactions fees, wonder why the Internet hasn’t yet increased transparency and reduced transactions costs in this market. Part of the answer is New York’s Apartment Information Vendor (AIV) law, which provides New York State regulators with a competition-busting weapon they can use at the behest of entrenched real-estate special-interest groups. Thousands of apartment-hunting consumers pay the price.

For ten years my company has chosen to stand up against the New York Department of State’s (NYDOS) selective enforcement of the AIV law. Recently I was in the ironic position of arguing before a judge that I am trustworthy enough to hold an AIV license, which NYDOS recognized as “onerous” in 1995 and “obsolete” in 2005, a license NYDOS commanded me to obtain in 1998, but denied me in 2002, a license granted to me by a judge on appeal in 2004 and that NYDOS tried to deny again through a further appeal.

Sound confusing? In fact, it is far worse than confusing. This case, spanning an entire decade, is a textbook illustration of how regulators can carry selective enforcement to extremes, penalize innovative upstarts, and help status-quo favorites create barriers to entry.

Fifteen years ago, as an aspiring entrepreneur, I envisioned a single, connected real-estate marketplace where renters, buyers, sellers, landlords, and brokers could list or search for New York City properties. The benefits, in addition to lower prices and more choices for consumers, included a reduction in discriminatory steering by brokers and a stronger competitive position for independent brokers.

When we launched our Internet platform, MLX.com, consumers, landlords, and small brokers all eagerly embraced our innovative time- and cost-saving system.

After our success in empowering consumers caused a stir with powerful real-estate traditionalists who wanted to maintain control of access to real-estate listings, their friends at NYDOS used -- or abused -- the antiquated AIV law to keep our company from giving consumers the access that brokers had, and from letting consumers control their own apartment searches. The more we stood up for consumers and our right to innovate, the more incensed state officials became. Although we had not one consumer complaint and our professional version was the mainstay of 3,000 real-estate brokers, the state suspended my broker’s license for operating an “unlicensed AIV.” A real-estate trade association followed suit by terminating my membership.

Since we are not, in fact, an AIV, and since AIVs are essentially prohibited from providing online searches for rental apartments, it seems clear that the purpose of this prosecution was to clear the way for traditional brokers.

Consider this set of circumstances:

• In 1995 New York Secretary of State Alexander F. Treadwell agreed that the AIV law is “onerous” and “should be amended.” And in June 2005 NYDOS published a Proposed Rule Making acknowledging that the law is “obsolete” and that the majority of AIVs operate without a license.

• Though the Department of State regulates AIVs, it is not responsible for prosecuting those who are unlicensed, according to statute. In 2005 the department corroborated that "unlicensed businesses that provide these [AIV] services do no[t] fall under the jurisdiction of this Department.” Yet in 1998 it issued a complaint against MLX for operating without an AIV license. And in 2000 the department suspended my real-estate broker’s license on grounds that I refused to obtain an AIV license.

• From 1999 to the present I have inquired why NYDOS has refused to enforce compliance by licensed AIVs -- the job it is, by statute, supposed to be doing. Violation of AIV laws by licensed AIVs demonstrates, according to the statute, “untrustworthiness.” But NYDOS fails to suspend violators’ AIV or real-estate broker’s licenses, instead from time to time issuing token fines, then permitting licensed AIVs to return to their illegal practices.

• In 2001, at my request, Attorney General Eliot Spitzer’s office sent a representative to NYDOS asking it to reinstate my broker’s license. NYDOS refused.

• From 2002 to 2003 a Governor’s Office of Regulatory Reform representative worked on reinstating my broker’s license until he was pulled off the case. In March 2003 Secretary of State Randy Daniels referred me to his assistant, who offered help, then disappeared.

• In 2003 I bowed to NYDOS’s pressure and applied for the AIV license. After eight months and half a dozen follow-up letters, including letters from state senators, in 2004 NYDOS denied the license based on “untrustworthiness,” defined as operating an AIV without a license. Yet when an attorney asked on behalf of an unlicensed AIV in 2005 if NYDOS policy is to license unlicensed AIVs, an NYDOS representative replied, “Yes,” affirming NYDOS senior license investigator Scott McGoldrick. (Apparently, that policy doesn't apply to me.)

• I appealed the denial, and in December 2004 a judge overturned NYDOS and granted me the AIV license. In January 2005 NYDOS opposed granting the license to me.

• From 2004 until now NYDOS officials, including General Counsel Robert Leslie, Counsel Bruce Stuart, and acting Secretary of State Frank Milano, have all participated in discussions with legislators regarding changes to the “obsolete” AIV law. A regulator indicated that it is “obligatory” for NYDOS to oppose all adverse decisions.

• In 2005 the Attorney General’s Office again encouraged NYDOS to license me as an AIV. It refused. On February 22, 2006, I returned to a hearing where NYDOS sought to deprive me of the license I never wanted, but need in order to stay in business. All subpoenaed state witnesses failed to appear, and the presiding judge was the same judge who suspended my broker’s license in 2000.

As the regulators effectively derailed our vision of an open real-estate marketplace, forcing us to change or eliminate services for consumers, we came to understand that our problems arose not just from real-estate special-interest groups, but from government officials fearful of challenges to their authority. To show that they are in control, these officials, charged with protecting consumers, make decisions that harm consumers.

As a newcomer to politics, I've been shocked to find out how little these officials are concerned about public welfare, public scrutiny, or accountability -- and how important it is for us to bring their actions to light.