The Big Fifty: By What Right?

With the current planned reduction in CFPB activities, there have been robust discussions on the power of the states to enforce consumer financial protection laws. On January 14, 2025, the CFPB released a report and compendium of guidance regarding the abilities of states to enforce consumer financial protection laws. This Harvard Law Article, written by Former CFPB Director Chopra and Seth Frotman, also discusses state enforcement.

So, what powers do the states have and how might that affect credit unions? That's what we are going to explore in our new two-part blog series, The Big Fifty. Today, we will discuss the Dodd-Frank Act and its grant of authority to the states.

What Does the Act Grant?

Section 1042 of the Dodd-Frank Act authorizes states attorneys general and state financial regulators (collectively "State actors") to act independent of the CFPB in a number of areas. State actors are empowered under Section 1042 to enforce "the provisions of this title or regulations issued under this title." There has been some debate over what laws and regulations are included under this grant of authority.

Former Director Rohit Chopra and, under the 2022 CFPB Interpretive Ruling, the CFPB took the position that Section 1042 grants State actors the power to enforce any statute under Title 12 of the U.S. Code or any "regulations issued under" Title 12. This covers a wide swath of laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Truth in Savings Act, Electronic Funds Transfer Act, Real Estate Settlement Procedures Act, and other core federal consumer protection financial services statutes.

However, some have taken the position that Section 1042 grants State actors the power to enforce provisions of the Dodd-Frank/Consumer Financial Protection Act only. Practically speaking, State actors will likely continue to assert broad authority to enforce consumer financial protection laws in general. Will that survive in court? We'll have to wait and see.

One thing to note, while the CPFB issued an interpretative ruling on section 1042, interpretive rulings do not have the force and effect of a law and are not required to go through the Administrative Procedure Act's notice and comment period. As such, the CFPB can pull and issue a new interpretive ruling relatively quickly and states can also promptly ignore it.

Consultation

Under Section 1042, a State actor must notify the CFPB and any prudential regulator, if any, before initiating any action in court or other administrative/regulatory proceeding for actions initiated under Section 1042's grant of authority. However, in the case of an "emergency" where prior notice is not practicable, a State actor may "provide a copy of the complete complaint and the notice to the Bureau and the prudential regulator, if any, immediately upon instituting the action or proceeding."

CFPB Intervention

While a State actor is allowed to initiate an action, the CFPB is also permitted to intervene in the action as a party. This allows the CFPB to remove the case to a U.S. District Court (if applicable), be heard on all matters arising in the action, and appeal any order or judgment.

One thing to note, Section 1042 does not require the CFPB's intervention to be in concert with or helpful to the State actor. It is possible that a CFPB intervention could frustrate a state action or see a push by the CFPB for a more lenient outcome/settlement for the defendant. However, a CFPB intervention would not affect a state's action to the extent that state law is concerned and the CFPB would only be able to affect the outcome of an action as it pertains to federal law.

What About State Law?

Section 1042 makes clear that it does not infringe on the right of a state to pass and enforce its own laws and regulations. That means that even if a state chooses not to enforce federal law, they can and will still enforce their own consumer protection laws. For example, under a recent Executive Order President Trump limited the use of disparate impact in discrimination cases on a federal level. However, state privacy laws are generally not preempted by federal law, and a state may still pursue a credit union for discrimination based on disparate impact.

All this is to say, that even if credit unions see less action from the CFPB and other federal regulators, there is always a threat from State actors.