Following an “unscheduled special examination” into the practices of a licensed auto lender, the New York Department of Financial Services filed a complaint in the United States District Court for the Southern District of New York against the lender alleging that the lender engaged in unfair, deceptive and abusive acts or practices in violation of the Dodd-Frank Act, as well as having made misrepresentations in violation of the New York Financial Services Law and the New York Banking Law. DFS alleged that the auto lender unlawfully retained customers’ positive credit balances, took “active steps to conceal such balances from the customers and regulators” and maintained a policy of refusing and failing to refund such balances to customers absent a specific request. In particular, according to DFS, the lender shut down customers’ access to loan accounts once the loans were repaid, even if there was a positive credit balance, and submitted falsified reports, or no reports at all, to regulators which represented that there were no unrefunded customer credit balances. The complaint also alleged that the lender endangered the security of its customers’ personally identifiable information by, among other things, leaving consumer loan files out in common areas and by failing to adopt policies, procedures and controls to ensure that information technology systems were secure. DFS is seeking to permanently enjoin the lender for continuing its operations, disgorgement or compensation of unjust enrichment, appointment of an equity receiver pursuant to the Dodd-Frank Act and refunds of all positive credit balances (greater than $1.00). This is the first such action by a state regulator using authority under Section 1042 of the Dodd-Frank Act, which allows state regulators to bring civil actions for violations of the Dodd-Frank Act’s prohibition on unfair, deceptive or deceptive acts or practices.

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