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NY Dept of Financial Services becomes first state regulator to bring Dodd-Frank UDAAP action

Posted in UDAAP

Earlier this week, Benjamin Lawsky, the Superintendent of the New York Department of Financial Services (DFS), became the first state regulator to use his authority under Dodd-Frank Section 1042 to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).  Similar to most other states’ laws prohibiting unfair or deceptive acts or practices (UDAP), New York’s General Business Law only allows UDAP actions to be filed by the state’s attorney general.   By allowing the DFS and other state regulators to bring UDAAP claims, Dodd-Frank gave state regulators a potent new weapon.  

Just last month, Lisa Madigan, Illinois Attorney General, became the first state attorney general to file a state court lawsuit under Dodd-Frank Section 1042.  Given Mr. Lawsky’s past statements encouraging other state regulators to adopt a harder line against the industry, it comes as no surprise that the DFS was the first regulator to take advantage of this weapon.  We expect to see many additional lawsuits being brought by state attorneys general and regulators predicated on federal law. 

The DFS’ complaint, which was filed in New York federal court against a large subprime auto lender and its CEO and president, alleged that the defendants “systematically hid from its customers the fact that they have refundable positive credit balances and then failed to refund those balances unless specifically requested.”  The complaint also asserted that the defendants lacked basic information security measures, placing at risk consumers’ sensitive personally identifiable information.  For more on the lawsuit, see our legal alert.