To bolster consumer financial protection efforts by the states, the CFPB has recently issued an Interpretive Rule reaffirming state authorities to initiate enforcement actions based upon violations of the federal Consumer Financial Protection Act of 2010 and other federal and state consumer financial protection statutes. The Interpretive Rule clarifies that states may maintain their own concurrent enforcement actions against companies that are already subject to an enforcement action initiated by the CFPB.
The primary consequence of issuance of the Interpretive Rule, together with greater collaboration with AGs and state consumer financial protection agencies, is an expected overall increase in both federal and state enforcement actions that are intended to protect consumers from harm and deter violations of law, though the intensity of state enforcement efforts is likely to vary by state. In announcing the new Interpretive Rule, the CFPB stated its intent to take additional steps to promote state enforcement of federal consumer financial protection law, such as by facilitating victim redress, as described in the CFPB Director’s remarks before the National Association of Attorneys General (“NAAG”) meeting in December 2021.
Against the backdrop of new and future federal and state coordination of enforcement measures, it is important for companies and service providers that are subject to the supervision and enforcement of the CFPB and to the concurrent jurisdiction of AGs and state consumer financial protection agencies to understand the legal theories and enforcement options that can be pursued and to take steps to protect against contentious actions. This Reed Smith commentary describes the key elements, context and implications of the new CFPB Interpretive Rule.
I. Key Elements of the New CFPB Interpretive Rule
The new CFPB Interpretive Rule describes the CFPB’s support of the role of states in protecting consumers from financial fraud, scams, and other wrongdoing and demonstrates the CFPB’s renewed partnership with AGs affirming that:
i. States may enforce the federal Consumer Financial Protection Act, including those provisions making it unlawful for covered persons or service providers to violate federal consumer financial protection law;
ii. States may pursue claims and actions against a broader array of entities than those that are subject to the enforcement jurisdiction of the CFPB; and
iii. States may pursue enforcement actions in parallel or separately from enforcement actions initiated by the CFPB.
The foundation of the Interpretive Rule is Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which recognizes the role that states play in overseeing and enforcing the laws that apply to covered companies and their service providers that offer or provide consumer financial products and services. Specifically, the Interpretive Rule is based upon the authority of AGs to “bring a civil action in the name of [the] State … to enforce provisions of [the federal Consumer Financial Protection Act] or regulations issued [thereunder], and to secure remedies under [federal law] or remedies otherwise provided under other law.” 12 U.S.C. § 5552(a)(1).
The Interpretive Rule explains that federal law allows the states to initiate civil enforcement actions based upon violations of federal consumer financial services laws by an entity or a service provider, including provisions of federal law that prohibit unfair, deceptive, and abusive acts and practices in connection with offering or providing consumer financial products and services or otherwise committing any act or omission in violation of federal consumer law. The Interpretive Rule provides that AGs and state regulators may bring enforcement actions even where the CFPB is pursuing a concurrent action against the same entity. Additionally, the Interpretive Rule notes that states’ authority may be broader than the CFPB’s enforcement jurisdiction because it is not subject to limitations that apply exclusively to the CFPB.
II. Context and Implications of the CFPB Interpretive Rule
The new CFPB Interpretive Rule is part of the CFPB’s continuing collaboration and coordination with AGs and state regulatory agencies in furtherance of increasing state consumer financial protection enforcement activities generally and specifically state enforcement of federal consumer financial protection laws. As discussed during the December 2021 NAAG meeting, the CFPB and many AGs expressed general consensus that enforcement of consumer financial protection laws is a top priority for the Biden Administration and an equal priority for many AGs.
During the meeting, the new President of the NAAG, Iowa Attorney General Tom Miller made clear that consumer financial protection and technology issues are top priorities in 2022 and that consumer financial protection is a unifying, bipartisan topic that merits continuing focus on issues such as scams, fraud, and price gouging. At the NAAG meeting, the CFPB Director stated that collaboration with the AGs is a priority and the Biden Administration plans to devote substantial resources to assisting AGs with increasing consumer financial protection enforcement measures.
Since the CFPB was created, federal and state sharing of supervisory and enforcement information among the CFPB, Department of Justice and other federal agencies, and with the AGs and state financial regulatory authorities has varied in scope according to the predilection of federal and state leadership. For example, in 2013, the CFPB and the Conference of State Bank Supervisors adopted a State Supervisory Coordination Framework designed to establish a process for coordinated federal and state consumer financial protection supervision and enforcement for entities that provide consumer products or services that are subject to the concurrent jurisdiction of the CFPB and one or more state regulators. Before executing the State Supervisory Coordination Framework, the CFPB sought to establish a comprehensive information-sharing memorandum of understanding (“MOU”) with the AGs “to establish a general framework to share information on consumer financial protection issues” however, only a limited number of predominantly Democratic AGs signed the MOU.
The new Interpretive Rule aligns with the CFPB’s call for enforcement and other attorneys to apply to join the CFPB in pursuing vigorous oversight of federal laws and full utilization of the CFPB’s legal authorities to “hold accountable companies that break the law and harm American consumers and small businesses during this time of incredible financial stress.” Joining forces through collaboration and coordination with AGs and state consumer financial protection agencies further augments and strengthens the CFPB’s enforcement program.
III. What's next?
Altogether, the new Interpretive Rule supporting state enforcement of federal and state consumer financial protection laws, the renewed partnership and resource support of AGs, and the planned increase in CFPB enforcement attorneys portend a significant ramping up of state and federal enforcement actions, and a potentially groundbreaking level of cooperation between the CFPB and states in pursuit of separate and joint enforcement actions. Companies that are subject to the jurisdiction of the CFPB and the states, and their service providers, should take steps to understand the legal grounds for formal and informal enforcement actions at the federal and state levels.
Client Alert 2022-145
