States Face Limits in Stepping Up as CFPB Retreats

By Evan Weinberger

Democratic-led states have vowed to fill the void as the Consumer Financial Protection Bureau dials back its enforcement efforts, but state attorneys general say their powers are limited.

While attorneys general have state consumer protection laws at their disposal, they lack the CFPB’s ability to examine banks and other financial firms to spot problematic behavior. The Dodd-Frank Act gave state attorneys general the power to enforce federal consumer protection laws, but that authority remains untested eight years after enactment. State attorneys general also face limited resources and a long list of competing priorities outside of the consumer finance space.

Having a federal watchdog oversee the marketplace for mortgages, credit cards, debt collection, student and payday loans, and other financial products also eliminates jurisdictional issues that states frequently encounter, Pennsylvania Attorney General Josh Shapiro told Bloomberg Law in an April 10 phone interview.

But that won’t stop state attorneys general from trying to step in when the CFPB and the federal government steps back, he said.

“Make no mistake, if they walk away from their legal obligations, I’ll fill the breach here in Pennsylvania. But it would be far better to have a strong federal partner,” Shapiro said.

States Create Mini-CFPBs

Since President Donald Trump took office, several states, including Pennsylvania, have created what they call their own state-level CFPBs.

The Pennsylvania attorney general noted that his office had not focused on consumer financial protection issues in the past, but that it was a major theme of his election campaign in 2016.

“So rather than wait for the CFPB to be gutted and play catch-up, I decided to launch the first-ever consumer financial protection unit within the Office of Attorney General to focus on the kind of work that, frankly, we should be collaborating with the federal regulators on,” Shapiro said.

Shapiro tapped Nick Smyth to lead the Pennsylvania unit last July. Smyth, a former Reed Smith LLP attorney, was part of the team at the Treasury Department that helped organize and launch the CFPB in 2011. He later became an enforcement lawyer at the bureau.

Another state that has taken on a bigger consumer protection portfolio is New Jersey.

Democrat Phil Murphy made consumer protection issues a part of his victorious gubernatorial campaign last year, promising to create a state-level CFPB. Murphy’s choice for attorney general, Gurbir S. Grewal, has already moved forward on some of Murphy’s promises.

Grewal recruited an aide to New York City Mayor Bill de Blasio, Paul R. Rodriguez, to lead his office’s Division of Consumer Affairs.

“If the CFPB and the federal government are going to take a step back from protecting consumers I think it’s going to be left up to the state attorneys general to fill that void and stand up for consumers,” Grewal told Bloomberg Law in an April 25 phone interview.

Strain on Resources

Grewal said that while his office is going to bring a new energy to policing student loan, mortgage, and online payday lending products, the consumer finance sector is just one of many responsibilities of the office’s 7,700 staff members.

The New Jersey attorney general’s office has 13 divisions, and has oversight over gambling, alcohol, and horse racing operations in the state, oversight of the state police and county prosecutors’ offices, and a host of other responsibilities.

“It’s going to put a stress on us,” Grewal said.

One way that state attorneys general can relieve that stress is to coordinate with colleagues in other states, something that has been common across party lines in the past. That’s something that Grewal expects to continue in the future.

“We’ve come together on these issues before, and we’ll continue to come together on these issues,” he said.

Beyond the resource issue, state attorneys general don’t have the same reach that the CFPB does.

Limits on Investigative Powers

The bureau has the authority to supervise national banks and other regulated firms, giving them access to banks’ records to find patterns of problematic behaviors.

Mulvaney in January asked for public comments on a potential overhaul of the CFPB’s procedures for issuing civil investigative demands to companies. A coalition of 16 Democratic attorneys general sent a letter to the CFPB April 26 warning against any changes that could hamper the bureau’s information collection activities.

State attorneys general don’t have that power, making it harder for them to get information they need to bring enforcement cases.

“There are significant limitations,” Melanie Brody, a partner in Mayer Brown LLP consumer financial services group in Washington, told Bloomberg Law on April 9.

Despite those constraints, the Dodd-Frank Act gave state attorneys general the power to enforce federal consumer protection laws. But state attorneys general have not used that authority, in part because they already had successful partnerships with the CFPB during former Director Richard Cordray’s tenure, and because of the limited additional benefits the states got from deploying federal powers, former Maryland Attorney General Douglas Gansler told Bloomberg Law on March 15.

“The sole advantage of the federal Dodd-Frank authority seems to me to be higher penalties would be available to the states. There hasn’t been a history of doing that, and I would not expect that to change much,” Gansler, now a partner at Buckley Sandler LLP, said in a phone interview.

Dodd-Frank also mandated that state attorneys general notify the CFPB when they plan to use that federal enforcement power. While the CFPB could not stop a state from bringing a claim, the Trump-era bureau could intervene in a case and argue against an attorney general’s theory of the litigation.

Mick Mulvaney, the CFPB’s acting director, told a meeting of the National Association of Attorneys General in March that the bureau will be relying on states for enforcement efforts more than in the past. To date, the CFPB under Mulvaney has completed just one enforcement action, the $1 billion penalty assessed to Wells Fargo & Co. in conjunction with the Office of the Comptroller of the Currency for alleged improper loan charges to consumers.

“If we think it’s a good case, we’ll bring it. If not, we’re happy to get out of the way and let you all bring it yourselves,” Mulvaney said in response to a question from Shapiro at the March meeting.

Consumer Advocates Worried

Those words did not placate consumer advocates.

“The question is going to be, how aggressive is the new CFPB going to be in actually quashing consumer protection actions?” Lauren Saunders, the associate director of the National Consumer Law Center, told Bloomberg Law. “If issues of interpretation of the law come up, they could take the industry side of the question.”

But even if the CFPB doesn’t move to hold states back from enforcement efforts, having the states take the lead will leave a gap, Saunders said.

“There’s no substitute for a strong federal consumer protector,” she said.

To contact the reporter on this story: Evan Weinberger at

To contact the editor responsible for this story: Michael Ferullo at

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