On May 15, the Consumer Financial Protection Bureau (CFPB or Bureau) officially rescinded its May 2022 interpretive rule concerning the scope of state enforcement authority under § 1042 of the Consumer Financial Protection Act of 2010 (CFPA). According to the CFPB, this decision restores statutory limits on states’ authority and aligns enforcement actions with the original legislative intent of the CFPA. By restoring statutory limits and promoting joint actions, the Bureau seeks to streamline enforcement processes and ensure that both federal and state authorities operate within their designated boundaries.
Background
The CFPB, as the primary federal regulator of consumer financial products and services, issued the 2022 interpretive rule to clarify state enforcement powers under § 1042 (Preservation of Enforcement Powers of States) of the CFPA (discussed here). The interpretive rule served as a reminder to states that: (i) states can enforce all statutes and regulations under the CFPA, even without the CFPB; (ii) states can pursue claims and actions against a broad range of legal entities; and (iii) CFPB enforcement actions do not put a halt to state actions.
Then-CFPB Director Rohit Chopra described the action as “promoting state enforcement, not suffocating it.” The interpretive rule openly invited states to exercise their authority under § 1042 to not only bring lawsuits in federal court for unfair and deceptive acts and practices (UDAAP) violations under the CFPA, but also bring federal actions for any violations of the “enumerated consumer laws” enforced by the CFPB. The CFPB stated that while some states had joined the Bureau in alleging violations of enumerated federal consumer financial laws, few had pursued non-UDAAP claims in their own CFPA actions. Hence the need for the interpretive rule.
Key Changes in the Rescission
- Restoring Statutory Limits to States’ Authority Under § 1042: The rescission reaffirms that state authority under § 1042 is limited to enforcing the CFPA and its regulations, not any federal consumer financial protection law. This interpretation aligns with the statutory language, emphasizing that Congress did not intend for states to have broader enforcement powers beyond the CFPA.
- Preserving Limits on Enforcement Authorities: The CFPB’s rescission clarifies that states’ enforcement authority under § 1042 is subject to the same limitations as the Bureau’s authority under §§ 1027 and 1029. These sections restrict the Bureau’s enforcement power over certain entities, such as merchants and motor vehicle dealers, and the rescission ensures that states are similarly constrained.
- Aligning State Action with Statutory Limitations: The rescission eliminates the provision allowing states to pursue concurrent actions with the Bureau against the same entity. Instead, it encourages joint actions, where states notify the Bureau of proceedings, and the Bureau may intervene as a party. The rescission does not affect states’ ability to undertake independent enforcement actions when the Bureau has not initiated its own action, however. This approach aims to reduce regulatory and compliance burdens and prevent duplicative enforcement activities.
Our Take
Although the CFPB is withdrawing its prior expansive interpretation of § 1042, we anticipate that some state regulators will continue to adhere to the view set forth in the now-withdrawn interpretive rule. Ultimately, this issue may be litigated in enforcement actions between state attorneys general and enforcement targets. We will be watching to see if this occurs and how the courts come out on this issue.
