New York’s top financial regulator is taking advantage of a rarely used provision in the Dodd-Frank Act that gives the state authorities power to enforce federal consumer protection law.
Benjamin M. Lawsky, New York State’s superintendent of financial services, filed a lawsuit on Wednesday against the Condor Capital Corporation, a subprime auto lender that he accused of siphoning millions of dollars away from the accounts of unwitting borrowers.
The complaint, which also names Condor’s owner, Stephen Baron, contends that Condor deliberately avoided issuing refunds by deceiving customers about positive balances in their accounts. To do this, the company would shut down borrowers’ access to online accounts after a loan had been repaid, leaving them unable to see whether an insurance payoff, overpayment or other transaction had left excess money behind, according to the suit.
Condor is also accused of having little or no standards for safeguarding its customers’ personal information. In one instance, examiners found “stacks of hundreds of hard-copy customer loan files lying around the common areas of Condor’s offices.â€
The company’s executive vice president, Todd Baron, also stored “backup†tapes that contained confidential customer information without encryption at his home, according to the suit.
“Simply put, Condor cannot be trusted to service its customers’ loans or handle their funds and data in a safe and lawful manner,†according to court documents.
Soon after the lawsuit was filed, a judge granted Mr. Lawsky’s office a temporary restraining order to freeze Condor’s accounts and operations, a spokesman at the department said. The company, which is in Long Island, held more than 3,000 loans to New York State residents worth more than $55 million at the end of 2013, according to the complaint.
A receptionist at Condor, who declined to give her name, said the company had no comment on the lawsuit, which was filed in Federal District Court in Manhattan.
Dodd-Frank, the financial overhaul law put into place after the financial crisis, contains provisions that prohibit deceptive, abusive or unfair practices by financial companies. It also allows state regulators to enforce those provisions and grants them broader authority than they would have under state law.
But few state regulators have taken advantage of this ability to cast a wider net.
In March, Lisa Madigan, the Illinois attorney general, used authority granted under the Dodd-Frank Act to file a lawsuit against a payday lender she accused of intentionally deceiving borrowers. Mr. Lawsky may be the first bank superintendent to enforce Dodd-Frank, and legal experts say the move could encourage other state regulators to exercise such powers.
“The authority is clearly there, but it’s never been used by a state regulator before,†said Alan S. Kaplinsky, a lawyer who leads the consumer financial services group at Ballard Spahr. “Once Lawsky does it, other state regulators are going to look at it.â€
