March 30, 2018

CFPB Calls on States to Lead Consumer Finance Enforcement

4 min

CFPB Acting Director Mick Mulvaney recently addressed the threat of increased state-level enforcement by inviting it. Recall that last December, 17 state attorneys general (AGs) sent President Trump a letter stressing how the CFPB has been, and must remain, an "invaluable partner" in consumer finance enforcement. Perhaps most notably, the letter contained this statement: "If incoming CFPB leadership prevents the agency's professional staff from aggressively pursuing consumer abuse and financial misconduct, we will redouble our efforts at the state level to root out such misconduct and hold those responsible to account." In other words, the AGs intended to become more active in enforcement if the CFPB's enforcement activity decreased. Indeed, an overall increase in enforcement activity brought about by states and/or varied enforcement by different state regulators, which would create a need for multi-state compliance, would not be a desirable outcome for financial services companies.

At a speech before the National Association of Attorneys General (NAAG) a few weeks ago, Mulvaney stated, "we are going to be looking to the state regulators and the states' attorney general for a lot more leadership when it comes to enforcement." He cited an enforcement action that the CFPB had brought, which was opposed by the state's own attorney general. "Why we think we know better how to protect consumers in your state than you do surprises me a little bit. I don't think you'll be seeing us doing much of that anymore," Mulvaney remarked.

Mulvaney reiterated this sentiment again in a recent speech before the U.S. Chamber of Commerce when he said, "[W]e are actually going to look to [states] for more leadership, not less. If there is an action you can bring in your state, and you are not bringing it, I'm going to want to know why before we bring it." Mulvaney did recognize in his NAAG speech that in some instances, state inaction may be due to limitations such as resource constraints or inability to pursue out-of-state companies.

How Will the CFPB Evaluate and React to State Enforcement Actions?

Mulvaney's recent speeches also shed light on how the CFPB will evaluate and react to enforcement action taken by states. By way of background, state enforcement and regulatory bodies have broad authority to bring cases under the Dodd-Frank Act's 18 enumerated consumer laws (e.g., ECOA, FDCPA, TILA, RESPA, etc.) and the prohibition against unfair, deceptive, and abusive acts or practices (UDAAP). See 12 U.S.C. § 5552(a)(1). Although states also have state consumer protection laws at their disposal, there are many reasons that states find the Dodd-Frank Act to be a more effective enforcement tool. For example:

  1. The Dodd-Frank Act allows states to police a wider array of conduct than they otherwise could under state law, in that the Dodd-Frank Act's UDAAP provision prohibits "unfair, deceptive, or abusive" conduct, whereas most state analogs only prohibit "unfair or deceptive" conduct. Id. § 5531(a) (emphasis added).
  2. The Dodd-Frank Act authorizes extensive remedies that may not be authorized under state analogs. Id. § 5565.
  3. The Dodd-Frank Act empowers both state attorneys general and state regulatory bodies to sue, whereas state analogs may empower only the state attorney general to sue. Id. § 5552.

"Before initiating" an action under the Dodd-Frank Act, a state must "timely provide" the CFPB with a copy of the complete complaint to be filed and a written notice describing the lawsuit. Id. § 5552(b)(1). Thereafter, the CFPB "may" intervene in the action as a party, "be heard on all matters arising in the action," and file an appeal to the same extent as any other party to the proceeding. Id. § 5552(b)(2).

At the NAAG event, Mulvaney was asked whether the CFPB would intervene to oppose state enforcement actions brought under the Dodd-Frank Act. Mulvaney responded that he supports states' right to sue under the Dodd-Frank Act because the law allows it, this process has been functioning the way it should, the CFPB is not there to get in states' way, and if the CFPB disagrees with bringing a case, "we're happy to let [states] do it by [themselves]." He made similar remarks at the Chamber of Commerce event: "The statute allows the State AGs to enforce the federal laws. How they choose to do that is up to them. I don't think it's my role to tell the State AGs what they can and cannot do."

That said, a January 23, 2018 email from Mulvaney to CFPB staff stated that "the people we regulate should have the right to know what the rules are before being charged with breaking them. This means more formal rulemaking…and less regulation by enforcement." Accordingly, it is not entirely clear how Mulvaney would address what he perceives to be state "regulation by enforcement" under the Dodd-Frank Act. Furthermore, "consistently enforcing federal consumer financial law" is still part of the revised CFPB mission statement, and varied enforcement of federal consumer financial law by differing state actors could undermine that. Finally, as Venable previously reported, the new administration has already tried at least once to preempt a state consumer finance enforcement action.

It seems all but certain that interactions between the CFPB and the states during investigations and enforcement actions are likely to be more complicated under the new administration.