Excerpted from a JDSUPRA Blog
On Saturday, February 1, Rohit Chopra was dismissed as Director of the Consumer Financial Protection Bureau (CFPB), with Secretary Scott Bessent appointed as Acting Director. The following weekend, Office of Management and Budget director Russell Vought was named the Acting Director and ordered the Bureau to halt virtually all supervisory, enforcement and litigation activity while new leadership reevaluates priorities.
With the CFPB on pause for now, below, we explore key questions about how the consumer financial services regulatory landscape appears to be shifting, and how the states may use their powers and set priorities.
What Is the Administration Signaling with These Changes?
Permanent leadership and priorities at the CFPB remain undecided, but the Trump administration and Congress have said numerous times they want to curtail the Bureau’s efforts. Acting Director Vought has stated that the Bureau will not be drawing additional funds from the Federal Reserve because it is not “reasonably necessary” and that its current reserves of $711.6 million are “excessive,” signaling that leadership intends to reduce the agency’s funding and activities.
How Will the States Respond?
As the CFPB undergoes a significant transition, certain state financial regulators and attorneys general appear poised to step into the Bureau’s shoes. States have a number of powers at their disposal, including the statutory ability to enforce federal consumer protection law. In fact, just a few days before President Trump’s second inauguration, the CFPB under now-former Director Chopra published a roadmap for recommended state priorities.
What Powers Do States Have Under Dodd-Frank?
The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the states additional powers to enforce certain federal financial consumer protection laws. This includes theConsumer Financial Protection Act and 18 enumerated consumer laws. They can bring suit in federal or state courts against any “covered person or service provider.” In addition, Dodd-Frank does not modify states’ preexisting authority to enforce federal consumer protection laws or their own state unfair and deceptive trade practices act laws.
What Limitations Do States Face?
States are not authorized to bring suits against national banks and federal savings associations to enforce the CFPA, which can limit the scope of state enforcement efforts against federally-chartered financial institutions. In addition, states must consult with the CFPB and an institution’s prudential regulator before initiating certain enforcement actions, which could slow down state actions.
What Guidance Did Outgoing CFPB Leadership Provide to States?
In January, the CFPB released a report titled “Strengthening State-Level Consumer Protections,” suggesting that states: 1) adopt the prohibition of “abusive” practices into state law, 2) enhance investigatory powers and remedies, 3) eliminate the need to prove monetary harm in order to bring claims, 4) extend protections to business-to-business transactions, 5) enhance private enforcement mechanisms even when there are arbitration clauses, 6) strengthen data privacy protections and 7) create bright-line prohibitions of “junk fees.” These proposals, if adopted by states, could significantly alter the regulatory landscape for financial service providers, necessitating adjustments in compliance strategies and operational practices to align with strengthened consumer protection laws.
How Will States Will Move Into the CFPB’s Space?
States are staffing up and increasing coordination and multistate efforts. The California and New York financial regulators are hiring for a number of roles in anticipation of increasing regulatory and enforcement activity. And states are increasingly collaborating through working groups, joint investigations and examinations and litigation – enhancing their ability to tackle complex consumer protection issues and minimize barriers to acting alone.
How Will State Consumer Protection Laws Evolve?
Many states have their own consumer protection laws, which they can enforce independently of federal regulations. These laws vary in scope, but all generally have prohibitions on unfair and deceptive acts, requirements for financial disclosures and other items similar to federal law.
How Will CFPB Information Sharing Impact States’ Ability to Act?
At least until new leadership took over, the CFPB was sharing its investigative information with states. Thus, it is likely that many states currently have information regarding CFPB investigations, which they can leverage to move forward with their own investigatory and enforcement actions.
How Can Companies Prepare to Respond?
With the CFPB’s current pause, states may assert more authority in consumer protection, creating a more decentralized but equally rigorous enforcement environment. Regardless of how this plays out, recent trends in multi-state enforcement actions suggest that preparing for greater state enforcement activity is a prudent approach.
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