by Jeff Sovern
The Dodd-Frank Act, in section 1031, authorizes the CFPB to bring actions to prevent abusive, deceptive, and unfair practices. Section 1042 gives states the power to enforce Dodd-Frank provisions as well. Accordingly, as reported here, here, and here, on Wednesday New York’s Department of Financial Services, led by Ben Lawsky, brought what has been described as the first such state action. I suspect that state officials who believe in protecting consumers will find Dodd-Frank a valuable aid. For example, while the New York statutes give its attorney general the power to pursue deceptive practices and repeated fraudulent or illegal acts, they don’t extend to unfair or abusive practices that are not deceptive or otherwise illegal. In other words, Dodd-Frank enables state consumer protection offices to bring cases that they might not otherwise be able to bring when consumers are being treated unfairly or abusively. Some states, unlike New York, already give their attorneys general the power to bring cases when they find unfair practices, so in such states the Dodd- Frank statute may be less significant.
It is quite common for federal consumer protection statutes to give states enforcement powers, and for good reason. Federal regulators have limited budgets and so can’t bring every meritorious case. State consumer protection agencies might have a better sense of what is going on locally than federal regulators. Finally, sometimes government agencies are captured by the industry they are supposed to regulate. For example, former President Bush appointed a bank lobbyist to head a key bank regulatory agency, the Office of the Comptroller of the Currency. That agency later declared state anti-predatory lending laws inapplicable to national banks, thus protecting the banks rather than consumers. If the Consumer Financial Protection Bureau is ever captured by the financial industry, and so stops enforcing the Dodd-Frank Act, the states will be able to pick up the slack.
