States Encouraged by CFPB to Enforce Federal Consumer Finance Law – Financial Services

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The Consumer Financial Protection Bureau (Bureau or CFPB) published a Interpretation rule– which is exempt from the notice and comment requirements of the Administrative Procedure Act – which sets out its views on the power of states to bring enforcement actions under the federal Consumer Financial Protection Act ( CFPA). It should be noted that, under the CFPA Office’s interpretation, states can enforce consent orders issued by the Office, and applicable limits on the Office’s enforcement power do not apply to states. The interpretative rule may also signal the Bureau’s apparent comfort with state regulators and state attorneys general initiating specific enforcement actions under the CFPA without first consulting the CFPB.

The CFPB also announced that it will propose additional ways to promote the state attorney general’s enforcement of the federal consumer finance law and ways to facilitate redress for victims. The announcements are part of efforts by CFPB Director Rohit Chopra to support state law enforcement activities.

The interpretative rule provides the following:

  • States can enforce the CFPA, including (1) the Generic Prohibition of Unfair, Deceptive, or Abusive Conduct (UDAAP), (2) the provision prohibiting covered persons or service providers from violating any of 18 federal statutes on consumer finances listed in the CFPA, such as the Truth in Lending Act and the Fair Debt Collection Practices Act, (3) any regulations it promulgates under the CFPA, subject to certain exceptions, and (4) Consent orders and other final orders made by the Bureau under Sections 1053 and 1055 of the CFPA.

  • Unlike the limits imposed by the CFPA on the Bureau, states are not bound by the limits and therefore can sue real estate brokers; prefabricated or modular home retailers; accountants and tax preparers; lawyers practicing the profession of lawyer; persons regulated by a government insurance regulator; products or services related to specified compensation and benefit plans; persons regulated by a state securities commission; persons regulated by the Securities and Exchange Commission; persons regulated by the Commodity Futures Trading Commission; persons regulated by the Farm Credit Administration; and activities related to charitable contributions.

  • CFPB enforcement actions do not stop state actions. Nothing in the CFPA precludes complementary enforcement of federal consumer finance law by state regulators or state attorneys general.

Not mentioned in the interpretative rule are CFPA notification requirements about when state officials may act under the CFPA, the CFPB’s ability to intervene, and whether CFPA remedies are available to states. By taking this step, the CFPB appears to be laying the groundwork for states to intervene as first responders to alleged violations of the law to fill gaps in federal enforcement. Although not decisive, any future challenge to state authority may require a court to consider with deference the Office’s interpretation of its organizational status.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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