States Standing By to Fill ‘Imminent’ CFPB Enforcement Gap

By Gregory Roberts

State attorneys general are set to take up much of the slack created if and when the federal Consumer Financial Protection Bureau ramps down its vigorous enforcement activities as Republican opponents of the agency impose their will on it.

“We face an imminent consumer-protection enforcement gap,” Michigan State University law professor Mark Totten told Bloomberg BNA. “The CFPB is not going to play the role that it now plays. States are well-positioned to help fill that gap,” he said.

States have cooperated before on financial-services enforcement. In the decade before the CFPB opened for business, multistate settlements over predatory lending charges netted billions of dollars from Household Finance, Ameriquest and Countrywide Financial. Just last month, Target reached an agreement with 47 states and the District of Columbia to pay $18.5 million in a case centering on a data breach involving customer payment cards.

“Those multistate cases are common and they are growing,” Washington state Attorney General Bob Ferguson told Bloomberg BNA. Ferguson, a Democrat, has steadily increased his office’s focus on consumer protection going back even before the November election or Republican President Donald Trump, tripling the number of lawyers in that division over his four-plus years in office.

Still, there are limits to how much states can do if the CFPB withdraws from the arena in the Trump era, given how complicated coordination can be and the fact that state agencies aren’t equipped to do the same kind of rulemaking.

Cordray Under Attack

Since its inception in 2012 under the Dodd-Frank Act, the CFPB has been led by Richard Cordray, a former Democratic Ohio state attorney general appointed by President Barack Obama. He and the bureau have been the frequent targets of Republicans in Congress, who call Cordray an unaccountable autocrat and the CFPB a rogue agency guilty of regulatory overreach that stifles businesses.

The Republican-majority House is expected to pass a Dodd-Frank overhaul June 8 that would drastically curtail the scope and power of the agency, and Trump has proposed a budget that would starve it of funding — although neither of those propositions is given a good chance to become law.

Cordray so far has resisted Republican calls that he resign, and he’s protected from removal by Trump. But Cordray’s term ends in mid-2018, and Trump will name his successor.

“The CFPB runs the risk of swinging wildly from a very pro-consumer-protection agenda to the kind of regulator we saw before the crisis, which in my experience were regulators who were not only not interested in consumer protection but actually fought it in the interest of protecting the regulated entities,” University of Minnesota law professor Prentiss Cox said. The agency’s structure, with a sole director in charge rather than a bipartisan commission, exacerbates the possibility of a dramatic change in direction, Cox said.

Some state attorneys general see this coming, Ashley Taylor Jr., a former deputy attorney general in Virginia and now a partner with Troutman Sanders LLP in Richmond, said.

“They’re anticipating a regulatory vacuum at the federal level,” he said. One response is through “establishing cooperation between states in a way that allows them both to share information and share expertise quickly,” he said.

1998 Deal Created Model

The pattern for that kind of multistate cooperation, Taylor said, was set by the 1998 settlement between 46 states and the tobacco industry. That settlement provided for $206 billion in payments to the states over 25 years to compensate them for tobacco-related public health costs.

“Once the framework was created, they built on it and added expertise,” he said. “The financial crisis increased the spotlight on financial services, and consumers expected some heightened protection.”

In 2002, 46 states reached a $486 million settlement with Household Finance over charges of predatory lending. Other predatory-lending settlements followed, including a $325 million agreement between Ameriquest and 30 states in 2005 and an $8.68 billion agreement between Countrywide Financial and 11 states in 2008.

Sustaining that kind of activity “is very difficult, because it requires a high degree of coordination, and that is difficult to maintain across multiple cases,” Taylor said.

All but a few state attorneys general are elected: “Because they are political offices, the priority of the politician in that state drives resources,” Taylor said. “If you have 50 states with effectively 50 politicians, they are not all going to have the same priorities.

“They are not going to be able to coordinate on everything to the same degree as the CFPB,” he said.

Short of Federal Standard

“They are not a replacement for a robust federal public enforcer,” Totten said. “They are an important supplement, but we need a strong federal enforcer.”

And Ferguson said, “If the CFPB were to be dismantled tomorrow, that would have a negative consequence that no state or states could adequately cover.”

Ferguson said he is less concerned about a change at the top that would leave the CFPB intact and a cadre of staff attorneys in place.

“With different leadership you may have different priorities, but hundreds of lawyers is still an army, no matter how you slice it,” he said.

Many state attorneys general have the tools in hand to substitute for CFPB enforcement, in the form of state consumer protection laws. The CFPB’s authority to oversee and make rules for financial institutions may be harder for state bank supervisors to match.

“That’s an area where the states are not going to be able to simply replace what the CFPB was doing,” Totten said.

“The state equivalent to that is passing statutes, which is more difficult, less flexible, and creates more of a patchwork,” Cox said.

Case in point: The New York Department of Financial Services, a supervisory agency, sought to tighten licensing regulations for online lenders this year via a provision in a budget bill submitted to the state Legislature. The Legislature rejected the proposal.

“That‘s a concern, for the CFPB and their rulemaking role — and what happens on that moving forward,” Ferguson said.

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

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