Stepping in to fill a perceived regulatory and enforcement void at the federal level, the governor of New York and his acting superintendent of the New York Department of Financial Services (DFS) have created a division within DFS that amounts to a mini-(federal) Consumer Financial Protection Bureau (CFPB). Because there are few major financial institutions that do not have significant business contacts with New York, the new division will have broad-based authority over large volumes and many types of financial consumer transactions, and its impact will not be held back by the current federal administration’s commitment to “regulatory rollback.”

The new division will combine the previously separate Enforcement and Financial Frauds divisions under the aegis of an experienced financial services lawyer and will bring to bear the full weight of a state agency that has significant resources and broad-based authority to enforce, as well as the plain inclination to exercise its powers to the fullest extent possible.

The precise impact of the new division remains to be seen. While its creation is not accompanied by any additional legislative or regulatory powers, in many ways it does not need those. There appears to be a spirit of collaboration between the New York Attorney General and the new superintendent that was not evident in prior years. When DFS’s new division is combined with the vast authority of the New York Attorney General, who also has the authority to enforce key CFPB federal authorities if she wishes, we can find little comfort for financial services institutions looking for relief from the CFPB’s more relaxed regimen under this administration’s policies.

Both bank and non-bank financial institutions that may be subject to DFS authority should carefully review and adjust their conduct not only in light of federal, but state, especially New York, efforts.