Lawmakers Seek Clarity on CFPB’s Rule to Expand States’ Enforcement Authority

States Enforcement Authority In a letter to CFPB Director Rohit Chopra, GOP lawmakers on the House Financial Services Committee question the reach of the bureau’s interpretive rule on states’ enforcement authority—adding to concerns on the bureau’s recent approach from both sides of the aisle.

08/04/2022 9:15 A.M.

5 minute read

Lawmakers on the House Financial Services Committee are seeking answers from Consumer Financial Protection Bureau Director Rohit Chopra on why the bureau enacted an interpretive rule to expand the authority of states to pursue and enforce violations of federal consumer protection law.

The interpretive rule in question was published in the Federal Register on May 26 and took effect that day, ACA International previously reported.

According to a news release from the CFPB, the interpretive rule “describes states’ authorities to pursue lawbreaking companies and individuals that violate the provisions of federal consumer financial protection law. Because of the crucial role states play in protecting consumers, the Consumer Financial Protection Act grants their consumer protection enforcers the authority to protect their citizens and otherwise pursue lawbreakers.”

However, in a letter to Chopra, U.S. Reps. Blaine Luetkemeyer, R-Mo., Patrick McHenry, R-N.C., ranking member of the House Financial Services Committee, and Tom Emmer, R-Minn., said, “While Congress intended for the CFPB to enforce federal consumer financial laws and protect consumers in the marketplace, it did not intend for the CFPB to intimidate companies by conspiring with state agencies to pursue duplicative enforcement actions. The Dodd-Frank Act limits the attorney general in bringing a federal enforcement action.”

The letter continues:

“It is clear that state attorneys general may enforce the [Consumer Financial Protection Act] in cases where the CFPB has not. But the statute does not allow for a state attorney general to become a party to an existing CFPB enforcement action. It is therefore inappropriate for the CFPB to recruit a state attorney general that is not otherwise investigating a company, to pursue enforcement as a means of intimidation.”

The lawmakers also note that Chopra has spoken with state attorneys general throughout the country on 23 occasions between Oct. 12, 2021, and April 30, 2022.

“On Dec. 7, 2021, you addressed the National Association of Attorneys General, during which time you encouraged state attorneys general to bring actions under the ‘Consumer Financial Protection Act, particularly when federal protections are stronger than state statutes,’” according to the letter.

The lawmakers overall argue that the effect of the May interpretive rule is different from solely enforcing the law, stating, “it is more akin to deputizing state attorneys general to enforce the CFPA on behalf of the CFPB—something Congress did not authorize. Furthermore, under the May 19, 2022, interpretive rule, the CFPB can forum shop across the country to find friendly attorneys general willing to bring cases on behalf of the [b]ureau, rather than the process that Congress intended, whereby attorneys general bring a case to the CFPB when appropriate.”

Document requests and questions included in the letter to assist the committee in understanding the CFPB’s relationship with state attorneys general and the CFPB’s broad interpretation of the CFPA include:

  • Under what authority can the CFPB recruit state attorneys general to join existing CFPB actions?
  • What safeguards does the CFPB have in place to avoid redundant and duplicative state actions?
  • All documents and communications between and among Rohit Chopra, CFPB staff, and any employee from the office of a state attorney general.
  • All internal CFPB communications referring or relating to Rohit Chopra’s meetings with any state attorneys general.

The issues highlighted by the lawmakers’ letter align with stakeholders’ concerns about the CFPB’s actions in recent months, which have deprived stakeholders from involvement in the process. This has led to the CFPB failing to follow the Administrative Procedure Act and has abandoned any attempt at data-driven decision-making.

“It calls into question the CFPB’s role to protect consumers and in order to do that, work with regulated entities and stakeholders like ACA’s members,” said ACA CEO Scott Purcell. “ACA encourages Congress to ensure the CFPB operates as intended to create a fair, transparent, and competitive marketplace and appreciates these efforts to rein in this overreach. People can lose faith in a system when societal rules are ignored.  The community needs to be able to count on leaders to do the right thing consistently.”

Other CFPB Practices in the Spotlight

Chopra presented the bureau’s semiannual report to Congress to the House Financial Services Committee in April.

During the hearing, committee members focused on the bureau’s approach to cost-benefit analysis for rulemakings; the bureau’s renewed focus on examining nonbank companies; and “regulation by press release,” among other topics, ACA previously reported.

U.S. Rep. Alex Mooney, R-W-Va., said the bureau’s rulemaking doesn’t consider what the U.S. Small Business Administration Office of Advocacy said would increase burdens on small businesses and the cost of credit.

Mooney introduced legislation, co-sponsored by 13 Republicans on the committee, to enhance the rulemaking requirements for the bureau to include cost-benefit analysis.

U.S. Rep. Josh Gottheimer, D-N.J., also addressed the bureau’s rulemaking process and related legislation he has introduced in remarks at about 3:31 (in hours) into the April hearing.

“An ongoing concern of mine has been how government bureaucracy comes up with new rules that contradict other rules and layers on new ones without actually getting rid of old, out-of-date rules,” Gottheimer said. “Year after year, these outdated rules pile up … which is very tough for businesses and startups who must comply with all these outdated rules. I introduced legislation that would create an independent bipartisan commission that would cut outdated rules and unnecessarily burdensome red tape and help streamline government, so it moves faster and supports our small businesses … while continuing to protect families and consumers.”

During the hearing, Gottheimer asked Chopra if he thought a bipartisan commission that modernizes regulation guardrails is a good idea.

“In spirit I am in total agreement. We want to make sure that small players and startups are able to challenge the dominant incumbents,” Chopra said. “The way our economy has prospered in so many sectors, whether it’s the life sciences, whether it’s communications [or] financial services, is when small entities can break in and challenge the system and to be able to make sure that we can have competition. The rules should not be designed in order to only benefit the big players who have all of the legal resources to be able to use those rules and comply with those rules.”

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