Digital Transactions Authoritative, insightful and timely information for payments professionals
Will the states step into a regulatory gap left by the new Trump administration?
In February, acting Consumer Financial Protection Bureau director Russell Vought, director of the United States Office of Management and Budget, ordered the Bureau to close for a week and two senior officials resigned. The Department of Government Efficiency has also set its sights on closing the Bureau.
Perhaps recognizing what was coming, about a week before the inauguration, the CFPB (under its previous director) encouraged states to prepare to take the lead on consumer financial protection.
On Jan. 14, the Bureau released “Strengthening State-Level Consumer Protections Promoting Consumer Protection Federalism.” The report provides recommendations to states on ways to strengthen their laws and protect financial consumers.
The suggestions include:
- Banning abusive practices in state law;
- Ensuring Attorneys General have authority to investigate and make consumers whole;
- Removing requirements that plaintiffs prove individual monetary harm;
- Banning “junk fees;”
- Protecting individual data.
Some states have enacted laws and have created their own versions of the CFPB, so in many places these recommendations may already be in place. In others, new legislation and regulation may be required to accomplish these things.
Now, the problem for the payments industry is that, in a world where federal regulation cannot be used as a guidepost, compliance teams are stuck with sorting out consumer-protection laws across 50 states.
If history is any guide, these recommendations will not fall on deaf ears. The Bureau was originally designed to be immune from politics by placing its funding outside federal appropriations, giving the director a five-year term, and limiting the removal of a director to times when an administration could find cause for removal. While the Supreme Court found that its funding was Constitutional, in a separate case, it ruled that the director serves at the pleasure of the president and can be removed without cause.
Once it was clear that the first Trump administration could remove the CFPB director at will, many states moved to fill what they perceived to be a regulatory gap.
For example, in 2018, the attorney general of New Jersey announced a new head of its Division of Consumer Affairs, which, it said in a release, was built “to fill the void left by the Trump Administration’s pullback of the Consumer Financial Protection Bureau (CFPB), fulfilling one of Governor Murphy’s promises to create a ‘state-level CFPB’ in New Jersey.”
Then, in 2019, the New York Department of Financial Services created the Consumer Protection and Financial Enforcement Division, which combined the state’s previously separate Enforcement and Financial Frauds and Consumer Protection divisions.
Not to be outdone, in September 2020, California Governor Gavin Newsome signed a bill that created the Department of Financial Protection and Innovation. In a press release, California State Senator Bob Wieckowski said the bill filled a void left by then President Trump’s “weakening the federal bureau.”
This means companies need to pay more attention to what is happening in the states where they do business.
As of this writing, the CFPB remains closed, but companies should keep two things in mind. First, until they are changed, federal regulations will remain on the books, and another agency may enforce them. Second, if states launch their own efforts, companies will need to create a new compliance strategy for that reality.
Companies will also need to decide whether to roll out different products in different states, try to build products compliant in multiple states, or avoid doing business in certain states.
And providers will need to be flexible to cope with the regulatory chaos that they face in the near term.
—Ben Jackson bjackson@ipa.org
