New CFPB Interpretive Rule Outlines Broad State CFPA Enforcement Authority
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- 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.
The CFPB has issued a new interpretive rule regarding the authority of state attorneys general and state regulators (State Officials) to enforce the Consumer Financial Protection Act (CFPA).
CFPA Section 1042(a) (12 U.S.C. Section 5552) authorizes "the attorney general (or the equivalent thereof) of any State" to bring "a civil action…to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other law." It also authorizes "[a] state regulator" to bring "a civil action or other appropriate proceeding to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] with respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law…and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other provisions of law with respect to such an entity." Section 1042(a) includes limits on such authority, including with respect to actions against national banks and federal savings associations, and establishes conditions that a State Official must satisfy to exercise such authority, including notifying the Bureau before filing a CFPA claim and providing a description of the action. It also gives the CFPB a right to intervene in the state's lawsuit.
In the interpretive rule, the CFPB describes 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. 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. (This authority is supplemental to any enforcement authority such laws give directly to State Officials or that State Officials have under state law.)
- 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.
The issuance of the interpretive rule follows remarks given by Director Chopra in December 2021 to the National Association of State Attorneys General (NAAG) in which he promoted an aggressive approach to enforcement by both the CFPB and state attorneys general. In his remarks, Director Chopra encouraged state AGs to bring actions under the CFPA and indicated that the CFPB planned to "clarify the wide variety of claims that states can bring under the CFPB's statute."
While many State Officials were likely already aware of their authority to bring UDAAP claims under Section 1042, State Officials have often used Section 1042 to bring UDAAP claims in lawsuits filed jointly with the CFPB. The interpretive rule could encourage greater use of Section 1042 by State Officials to bring UDAAP claims in enforcement actions to which the CFPB is not a party.
Two other aspects of the interpretive rule are potentially even more significant: the CFPB's message to State Officials that they can use Section 1042 to bring UDAAP claims against entities that the CFPB would not be able to pursue for UDAAP violations (such as auto dealers carved out of the CFPB's jurisdiction) and to bring claims for violations of Federal consumer financial laws. With regard to the latter, the CFPB appears to be opening the door for State Officials to bring Section 1042 actions for violations of Federal consumer financial laws that they could not enforce directly. For example, neither the Truth in Lending Act nor the Equal Credit Opportunity Act provide for enforcement by State Officials.
We note that the CFPB's encouragement to State Officials to make greater use of Section 1042 carries some risk for the CFPB. While Section 1042 actions brought by State Officials could result in decisions that are favorable to the CFPB, it is also possible they could result in unfavorable court interpretations of the CFPA.
In addition to not mentioning the requirement for State Officials to notify the Bureau before filing a CFPA claim, the interpretive letter does not mention remedies. State Officials are likely to attempt to use Section 1042 to seek remedies under the CFPA that might not be available to them under state law or under a Federal consumer financial law. In his remarks to the NAAG, Director Chopra suggested that a possible way for states "to get more out of the remedies available under the [CFPA]" was to seek civil penalties under the CFPA. As we noted at the time, that suggestion appeared to fly in the face of the plain language of the CFPA, which limits civil monetary penalties to scenarios where "(A) the Bureau gives notice and an opportunity for a hearing to the person accused of the violation; or (B) the appropriate court has ordered such assessment and entered judgment in favor of the Bureau." Nevertheless, State Officials will likely attempt to invoke CFPA remedies when bringing Section 1042 actions.
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