New York’s top financial regulator appears to be the first state financial regulator and the second state regulator overall to take advantage of a newly granted power to enforce consumer protections under the Dodd-Frank financial overhaul law. The office of Benjamin M. Lawsky, the state’s superintendent of financial services, recently filed a lawsuit accusing a subprime auto lender of violating certain provisions of Dodd-Frank.

“The authority is clearly there, but it’s never been used by a state regulator before,” said Alan S. Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group. “Once Lawsky does it, other state regulators are going to look at it.”

Enacted after the financial crisis, Dodd-Frank contains provisions that prohibit unfair, deceptive, or abusive practices by financial companies. It also allows state regulators to enforce those provisions and grants them broader authority than they would have under state law.

In March, Illinois Attorney General Lisa Madigan used Dodd-Frank to sue a payday lender she accused of intentionally deceiving borrowers.

Before the financial crisis, state regulations had fewer options to pursue banks and other financial companies because enforcement was largely left to federal agencies. The federal government had an interest in expanding the states’ power after the crisis, however.

“It was a reaction to the feeling at the time that the federal government has largely run roughshod over the rights of states when it came to dealing with the mortgage crisis,” Mr. Kaplinsky said. “This was a way of leveling the playing field and for getting support from the various states for the enactment of Dodd-Frank.”

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Consumer Financial Services