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From Banking and Finance Law Daily, April 24, 2014

New York state regulator first to enforce Dodd-Frank Act against subprime auto lender

By Thomas G. Wolfe, J.D.

The Superintendent of the New York State Department of Financial Services (NYDFS), Benjamin Lawsky, has obtained a temporary restraining order in federal court against Condor Capital Corporation (Condor), a subprime auto lender, and its owner, Stephen Baron. As the first state regulator to bring a legal action to enforce violations of the Dodd-Frank Act, the NYDFS alleged that Condor devised a scheme to unlawfully retain millions of dollars in positive credit balances from its customers and engaged in other unfair, abusive, and deceptive practices.

While recently obtaining the temporary restraining order, the NYDFS is also seeking restitution for the consumers, the disgorgement of Condor’s profits, the appointment of a receiver to wind down the company’s operations, and securing consumers’ personally identifiable information that may have been compromised. The NYDFS claims that Condor and its owner violated provisions of the Dodd-Frank Act and New York law.

In an April 23, 2014, release, Lawsky asserted, “When companies abuse New York consumers, we will use any tool at our disposal to get restitution and help make things right. As alleged, the defendants bilked millions of dollars from vulnerable borrowers who could least afford it. We are taking swift action today to stop them from abusing any more consumers and help obtain relief for those who were victimized.”

Dodd-Frank Act provision. According to the NYDFS release, the proceeding against Condor and its owner is the first legal action initiated by a state regulator under section 1042 of the Dodd-Frank Act. In particular, that provision empowers state regulators to bring civil actions in federal court for violations of the consumer protection requirements set forth in the Dodd-Frank Act, and to obtain restitution and other remedies for wronged consumers.

Complaint. The NYDFS filed its complaint on April 23, 2014, against Condor and Stephen Baron in the U.S. District Court for the Southern District of New York (Docket No. 14-CV 2863). The complaint describes Condor as a “New York-based sales finance company wholly owned by defendant Baron that acquires and services subprime automobile loans.”

According to the complaint, for years Condor has “knowingly and systematically hidden the existence of the positive credit balances and retained them for itself, and has maintained a policy of refusing to refund them except when expressly requested by a customer.” Moreover, Condor allegedly has ensured that the customer requests would “occur rarely, if ever, by actively concealing the existence of positive credit balances to prevent customers from detecting them and requesting refunds.”

In addition, the NYDFS alleges that Condor “has deceptively programmed its website so that a customer’s account for a loan that has been paid in full is removed from the website immediately upon repayment—even if the account has a positive credit balance” that is due to the customer. Essentially, this Condor practice “makes it impossible for a customer to view the account thereafter, detect any positive credit balance, or request a refund,” the NYDFS maintains.

Condor is also alleged to have endangered the security of its customers’ personally identifiable information, placing them “at serious risk of identity theft.” For example, NYDFS examiners found stacks of customer loan files “lying around the common areas of Condor’s offices.” Also, despite repeated directives from the NYDFS, Condor allegedly failed to “adopt basic policies, procedures, and controls to ensure that its information technology systems (and the customer data they contain) are secure.”

Attorneys: Eric Corngold, Anne E. Beaumont, Christopher M. Colorado, and Raina L. Nortick (Friedman Kaplan Seiler & Adelman LLP) for Benjamin Lawsky as Superintendent of the New York State Department of Financial Services. Joy Feigenbaum and Nancy I. Ruskin for the New York State Department of Financial Services.

Companies: Condor Capital Corporation

MainStory: TopStory ConsumerCredit DoddFrankAct EnforcementActions IdentityTheft Loans NewYorkNews Privacy StateBankingLaws UDAAP

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