N.Y. regulators sue Condor Capital, accusing it of withholding refunds

New York state regulators sued Condor Capital Corp., a subprime auto lender in Hauppauge, N.Y., which they accused of withholding refunds that should have been paid to customers.

The New York Department of Financial Services is asking the court to bar the lender from making any new loans.

Besides failing to make required refunds, Condor Capital was careless with customer records and suffered from a “complete lack of policies, procedures and controls,” the state said its examiners found.

The state said in court documents that Condor has more than $300 million in outstanding loans nationwide, including more than 7,000 loans to New York residents. Besides New York, the subprime lender does business with franchised and independent dealers in 29 other states, according to the company’s Web site.

The company did not respond to a request for comment.

Cutting account access

Specifically, the state alleged that Condor Capital held onto refunds that were due consumers unless the borrower specifically asked for them. In addition, the state alleged the lender made it next to impossible for customers to find out whether they were due a refund by shutting down customer access to their accounts as soon as a loan was paid off.

According to the state, refunds could occur if a customer accidentally overpaid, or if an insurance settlement or a trade-in resulted in a positive balance that should have been paid out to the customer. The state said refunds could amount to “millions of dollars” owed to consumers.

“Condor has for years knowingly and systematically hidden the existence of positive balances and retained them for itself,” the state said in its complaint.

A new tool

The state filed its complaint Wednesday April 23 in U.S. District Court against Condor Capital and its owner, Stephen Baron.

Benjamin M. Lawsky, the New York superintendent of financial services, said in a written statement that the complaint is unusual because state regulators cited the federal Dodd-Frank consumer protection law of 2010 in filing the complaint. Until now, Dodd-Frank has been used by federal prosecutors, but rarely, if ever, by state regulators.

Attorney Alan Kaplinsky, chairman of the consumer financial services group at Ballard Spahr in Philadelphia, said Lawsky’s complaint was the first example he knew of in which state regulators cited the section of Dodd-Frank that prohibits “unfair, deceptive or abusive acts or practices.”

Kaplinsky said that typically, a state regulator would cite state law instead of federal law, or ask the state attorney general to sue.