State Regulator Invokes Dodd-Frank Act Authority for the First Time: New York State Department of Financial Services Files Lawsuit Against Subprime Auto Lender Alleging Theft of Customer Funds and Endangerment of Customer Data; Becomes First State Regulator to File Consumer Financial Protection Lawsuit Under Dodd-Frank

Sullivan & Cromwell LLP - May 27, 2014

On April 23, 2014, Benjamin M. Lawsky, Superintendent of the New York State Department of Financial Services (“DFS”), filed a complaint (the “Complaint”) in the U.S. District Court for the Southern District of New York against Condor Capital Corporation (“Condor”), a subprime indirect auto lender, and Stephen Baron, Condor’s Chief Executive Officer (“CEO”) and sole owner.  The gravamen of the Complaint is that Condor stole funds from its auto loan customers and endangered the personal information of its customers and, in so doing, engaged in unfair, deceptive, and abusive acts or practices (“UDAAP”) in violation of the federal Consumer Financial Protection Act of 2010 (the “CFPA”).  The same day the Complaint was filed, DFS was granted a temporary restraining order freezing Condor’s accounts and operations.  On May 13, 2014, the court ordered that the relief granted in the temporary restraining order be continued and, further, that a receiver be appointed pending a decision on DFS’s request for a permanent injunction and other relief.
The Complaint appears to mark the first legal action brought by a state regulator pursuant to Sec. 1042 of the CFPA.  Sec. 1042 authorizes state regulatory and law enforcement authorities to bring civil actions against state-chartered entities to enforce federal consumer financial law, including UDAAP, and affords these state authorities the full panoply of remedies that are available to the Consumer Financial Protection Bureau (the “CFPB”) under the CFPA – regardless of whether those same (or similar) remedies would be available under state law.