Three Republican House members sent a letter last week to CFPB Director Chopra raising questions about the Bureau’s relationship with state attorneys general and its interpretive rule issued in May 2022 regarding the authority of state attorneys general and state regulators (State Officials) to enforce the Consumer Financial Protection Act (CFPA).

In the interpretive rule, the CFPB described the authority of State Officials under CFPA Section 1042(a) as follows:

• Because CFPA Section 1036(a)(1)(B) makes it unlawful for a “covered person” or “service provider” to “engage in any unfair, deceptive, or abusive act or practice,” State Officials can use Section 1042(a) to bring an enforcement action against a covered person or service provider that engages in unfair, deceptive, or abusive acts or practices.
• Because CFPA Section 1036(a)(1)(A) makes it unlawful for a “covered person” or “service provider” to “offer or provide to any consumer any financial product or service not in conformity with Federal consumer financial law,” State Officials can use Section 1042(a) to bring an enforcement action against a covered person or service provider for a violation of any Federal consumer financial law even if they cannot enforce such laws directly.  In addition to the CFPA, “Federal consumer financial laws” include the 18 “enumerated consumer laws” listed in the CFPA and their implementing regulations, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, and the Real Estate Settlement Procedures Act. 
• Although the CFPA (in Sections 1027 and 1029) limits the CFPB’s enforcement authority as to certain categories of covered persons (e.g. motor vehicle dealers, attorneys, persons regulated by a state insurance regulator, persons regulated by the SEC or a state securities commission), those limitations generally do not apply to State Officials exercising their enforcement authority under Section 1042.
• State Officials can bring (or continue) actions under Section 1042 even if the CFPB is pursuing a concurrent action against the same entity.

In their letter, the lawmakers stated that it has come to their attention that the CFPB “may be colluding with states contrary to the [CFPA].”  They asserted that while “state attorneys general may enforce the CFPA in cases where the CFPB has not,” the CFPA “does not allow for a state attorney general to become a party to an existing CFPB enforcement action.”  According to the lawmakers,”[i]t 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 asserted that the effect of the interpretive rule is “different from solely enforcing the law” and instead “is more akin to deputizing state attorneys general to enforce the CFPA on behalf of the CFPB—something Congress did not authorize.”  They also asserted that the interpretative rule allows the CFPB to “forum shop across the country to find friendly attorneys general willing to bring cases on behalf of the Bureau, rather than the process that Congress intended, whereby attorneys general bring a case to the CFPB when appropriate.”  The lawmakers’ letter includes a series of questions to which they request responses by August 12.

In our view, the interpretive rule has the practical effects of allowing the CFPB to expand its enforcement staff and increasing the burden on an investigation target, both in terms of document production and the production of witnesses, who may be required to testify in more than one proceeding.  (Both the states and the CFPB routinely ask for copies of deposition transcripts in other enforcement matters, which creates the potential for a witness to be impeached with prior testimony on the same subject matter.)  Beyond allowing the CFPB to add State Officials to its enforcement staff, the interpretive rule can further expand the CFPB’s resources to include organizations that have a close relationship with State Officials.  For example, the Consumer Protection Division of the Massachusetts Attorney General’s Office has a close relationship with the Harvard Legal Aid Bureau. Finally, the interpretive rule allows states to inquire into areas where the CFPB has no enforcement authority, thereby attempting to ensure that even where the CFPA has limited the CFPB, enforcement activity nevertheless will occur.

On the other hand, the interpretive rule may lead to some unintended consequences.  By encouraging State Officials to conduct parallel investigations, and to the extent those investigations lead to litigation, the CFPB is inviting litigation by different agencies that may pursue different litigation priorities and achieve different and inconsistent results in court.  Further, parallel investigations may make global resolution—including any state conducting an investigation—an imperative, to avoid the overpayment that would occur by settling sequentially with the CFPB and then the states.

Given that collaboration between the CFPB and State Officials can be expected to increase, it is imperative that companies facing potential enforcement activity consult counsel with the experience needed to navigate both the CFPB and the offices of State Officials.  

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