The Situation: Since being confirmed as Director of the Consumer Financial Protection Bureau ("CFPB") last year, Rohit Chopra has urged state attorneys general to work with his agency to enforce federal consumer protection laws, and has sought to expand their ability to enforce the federal Consumer Financial Protection Act and other consumer protection laws by issuing an interpretive rule published in May of this year.
The Action: The CFPB's actions have drawn criticism from Republican lawmakers and business interests that argue the CFPB has misinterpreted federal law and overextended its authority. Despite this criticism, the CFPB continues to push for increased collaboration with state AGs and is sticking by its interpretive rule encouraging state AGs to enforce federal consumer protection laws.
Looking Ahead: The two sides are unlikely to reach a resolution without intervention from the courts, and the coming dispute could have a huge impact on both the reach of the CFPB and the scope of authority state attorneys general have to enforce federal consumer protection laws.
Shortly after being confirmed as Director of the CFPB, at a meeting of the National Association of Attorneys General ("NAAG") late last year, Rohit Chopra implored state attorneys general to work with his agency to increase collaboration and enforcement of consumer financial protection laws. Among other things, Chopra encouraged AGs to bring enforcement actions under the federal Consumer Financial Protection Act ("CFPA") and promised to take steps "to promote enforcement of federal consumer financial protection laws by state AGs."
In May, Chopra made good on that promise when the CFPB issued a new interpretive rule describing its views on states' ability to enforce federal consumer protection laws. Section 1042 of the CFPA explicitly provides that state attorneys general may bring actions to enforce the CFPA and regulations promulgated thereunder. But the CFPB's interpretive rule expands on that express statutory language by, among other things, positing that states can: (i) enforce not only the CFPA, but also other "enumerated" federal consumer protection laws (such as the Truth in Lending Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act) and "any rule or order prescribed by the CFPB under the [CFPA]"; (ii) pursue actions against entities that are not "covered persons" under the CFPA, resulting in the possibility of enforcement actions against a "broader cross-section" of entities over which the CFPB's jurisdiction is more limited, such as car dealers, attorneys, insurance companies, and entities regulated by the SEC; and (iii) bring enforcement actions independently of, and concurrently with, separate actions brought by the CFPB.
To be sure, collaboration between state and federal regulators is not new. What is new is the method by which the CFPB is attempting to increase enforcement actions by states, provoking strong reactions from critics. For example, the interpretive rule, and the CFPB's actions and enforcement priorities under Chopra more generally, have drawn the attention of Congressional Republicans on the House Financial Services Committee. In late July, those lawmakers sent the CFPB an open letter criticizing the interpretive rule and the agency's attempts to "collude[e]" with states to expand the reach of the CFPA and other federal consumer protection laws. The lawmakers dispute the CFPB's interpretation that Congress intentionally left open the possibility of concurrent actions under the CFPA, explaining that Congress "did not intend for the CFPB to intimidate companies by conspiring with state agencies to pursue duplicative enforcement actions." Nor did Congress permit the CFPB to "deputiz[e] state attorneys general to enforce the CFPA on behalf of the CFPB" where the CFPB itself has not already taken enforcement action.
On September 12, 2022, Senate Republicans on the Banking Committee joined their colleagues in the House by writing another open letter to Director Chopra. Although the letter from the Republicans on the Banking Committee did not call out the CFPB's interpretive rule or its efforts to increase collaboration with state AGs, it drew on similar themes by criticizing the CFPB as pursuing a "highly-politicized agenda unbounded by statutory limits," and described it as exhibiting "an arrogant regulatory ethos: the CFPB can do whatever it wants."
Despite this pressure, the CFPB has so far given no indication that it intends to change course. In early August, at another NAAG conference, Chopra reiterated his call for AGs to work with his agency and to take action to enforce violations of the CFPA. So far the Director has ignored, at least publicly, the Republican lawmakers' claims as to the limits of the CFPA. Most state AGs have yet to weigh in on this dispute, but if they choose to do so, expect Republican AGs to echo the concerns of Republicans in Congress, even if doing so might result in limits to their own consumer protection enforcement powers.
What Does This Mean for Companies Subject to the CFPA?
Collaboration With State AGs is Crucial to Chopra's CFPB. The CFPB and Director Chopra see the states as playing an important role in achieving the CFPB's mission of protecting consumers. In particular, cooperation and collaboration with state AGs allows the CFPB to:
- Expand its reach and leverage the resources of other state and federal regulators, ensuring the CFPA is enforced broadly, including against international conglomerates.
- Share information and cut down on "regulatory arbitrage." Chopra's CFPB has given states access to its Victim Relief Fund as an incentive for states to share information and provide the CFPB with notice before taking action to enforce the CFPA. Chopra has also said that in its own investigations the CFPB will be looking at parallel orders from states and other agencies, and will be reporting any failures to comply with such orders to the issuing agency.
- Increase the stakes for companies that have allegedly violated consumer protection laws by potentially subjecting them to multiple enforcement actions from different regulators relating to the same underlying conduct.
- Focus on bigger targets, since partnering with states and other regulators should increase the breadth of enforcement actions under the CFPA and free up limited internal resources to tackle larger and more complex investigations and pursue landmark litigation.
A Showdown Is Probably Coming. The tension between the CFPB and those hoping to "rein in" its power isn't likely to resolve on its own. Rather, business interests and those sympathetic to the Republican lawmakers' positions are probably already looking for ways to challenge the CFPB's interpretive rule and limit the authority of states to pursue the types of actions it contemplates. The most likely venue for such a challenge is the courts, but if the balance of power shifts as a result of this year's midterm elections, Congressional Republicans on either the House Financial Services Committee or Senate Banking Committee could potentially pursue legislative strategies as well. Among other things, a showdown between the CFPB and its opponents could test:
- Whether states can enforce the CFPA against entities that the CFPB cannot due to its own jurisdictional limitations;
- Whether the CFPA can be fairly interpreted to permit states to enforce not only the CFPA itself, but also the 18 other "enumerated consumer laws" listed in the CFPA, as well as orders and regulations promulgated by the CFPB; and
- Whether the CFPA permits states to pursue separate and/or concurrent actions, even in cases where the CFPB is already pursuing enforcement against a particular entity for the same underlying conduct.
The outcome of any such challenges could be monumental. If the CFPB's interpretation of the CFPA is vindicated by the courts, companies subject to the CFPA (and even entities that are not "covered persons") could see an expansion in both multijurisdictional enforcement actions and the amount of penalties sought thereby.
What Can Companies Do to Stay Ahead of These Issues?
Corporate compliance officers and in-house legal personnel looking to get ahead of CFPB investigations touching on these issues can do a few things:
- Increase intra-company coordination: The best way to address increased collaboration among different enforcement authorities is to increase coordination within your own company. The more that relevant stakeholders are aware of potential pitfalls and challenges associated with different points of contact from different state AG offices and the CFPB, the easier it will be to respond comprehensively and consistently.
- Push for uniformity in practices (and consent orders, if necessary) to avoid cross-jurisdictional inconsistencies: The greatest challenge from increased collaboration will come for companies that are subject to different standards in different jurisdictions. To the extent compliance officers can work toward uniformity in what is required of their companies, they will be better off.
- Be wary of inquiries from the CFPB and state AGs—even seemingly innocuous ones—and consult with counsel early and often: Company stakeholders should be mindful that the CFPB and other state AGs are looking to make trophy cases. Engaging with counsel experienced in dealing with state AGs and the CFPB can help avoid early miscues that might lead to big messes later on.
- If targeted, companies should consider challenging actions taken by the states and/or the CFPB that could be viewed as exceeding the statutory limits set out by the CFPA.
Three Key Takeaways
1. The CFPB is seeking to increase collaboration with state AGs and other regulators, and has taken several concrete steps toward doing so, including publishing an expansive interpretive rule earlier this year and repeatedly engaging with state AGs directly.
2. Republican lawmakers and business interests have taken notice, and are seeking to rein-in the CFPB's alleged attempts to expand the ability of state and federal regulators to enforce federal consumer protection laws beyond statutorily prescribed limits.
3. While waiting for the dust to settle in this consequential dispute, companies should expect increased collaboration and information sharing among states and the CFPB, and should consult with counsel to take steps to reduce their risks and protect themselves against such coordinated action by increasing intra-company coordination, pushing for uniformity in standards and practices, and being cautious when responding to inquiries from state and federal regulators.