The CFPB has issued a new interpretative rule regarding the authority of attorneys general and state regulators (state officials) to enforce the Consumer Financial Protection Act (CFPA).
Section 1042(a) of the CFPA (12 USC Section 5552) authorizes “the attorney general (or equivalent) of any state” to bring “a civil action … to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] and to obtain remedies under the provisions of [the CFPA] or the remedies otherwise provided by another 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 obtain remedies under the provisions of [the CFPA] or the remedies otherwise provided by other provisions of law with respect to such entity. Section 1042(a) includes limits on this power, including with respect to actions against national banks and federal savings associations, and establishes conditions that a state official must meet to exercise this power, including notifying the Bureau before filing a CFPA application and providing a description of the action. It also gives the CFPB the right to intervene in the state lawsuit.
In the interpretative rule, the CFPB describes the authority of state officials under section 1042(a) of the CFPA as follows:
- Because CFPA Section 1036(a)(1)(B) prohibits a “Covered Person” or “Service Provider” from “engaging in any unfair, deceptive, or abusive act or practice” , state officials can use Section 1042(a) to bring a lawsuit against a covered person or service provider who engages in unfair, deceptive, or abusive acts or practices.
- Since CFPA Section 1036(a)(1)(A) prohibits a “Covered Person” or “Service Provider” from “offering or providing any non-compliant financial product or service to a consumer to the Federal Consumer Finance Act,” State officials may use Section 1042(a) to bring a lawsuit against a covered person or service provider for a violation of any federal consumer finance law. consumers. In addition to the CFPA, the “federal consumer finance laws” include the 18 “listed consumer laws” listed in the CFPA and their implementing regulations, such as the Truth in Lending Act, the on Equal Credit Opportunity, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Electronic Fund Transfer Act and Real Estate Settlement Procedures Act. (This authority is in addition to any enforcement authority that these laws directly grant 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 to certain classes of covered persons (e.g. automobile dealers, attorneys, persons regulated by a state insurance regulator , persons regulated by the SEC or a state securities commission), these limitations generally do not apply to government officials exercising their enforcement authority under Section 1042.
- State officials may bring (or continue) actions under Section 1042 even if the CFPB pursues a concurrent action against the same entity.
The release of the interpretative rule follows remarks made by Director Chopra in December 2021 to the National Association of State Attorneys General (NAAG) in which he urged an aggressive approach to enforcement by the CFPB and attorneys general. States. In his remarks, Director Chopra encouraged state attorneys general to bring suits under the CFPA and said the CFPB plans to “clarify the wide variety of claims States can bring under the CFPB statute.
While many state officials were likely already aware of their authority to file UDAAP claims under Section 1042, state officials often used Section 1042 to file UDAAP claims in lawsuits filed jointly with the CFPB. The interpretative 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 important: the CFPB’s message to state officials that they can use Section 1042 to bring UDAAP lawsuits against entities that the CFPB would not be able to prosecute for violations of the UDAAP (such as car dealerships in the jurisdiction of the CFPB) and to sue for violations of federal consumer finance laws. With respect to the latter, the CFPB appears to be opening the door for state officials to bring lawsuits under Section 1042 for violations of federal consumer finance laws that they could not directly enforce. For example, neither the Truth in Lending Act nor the Equal Credit Opportunity Act provides for enforcement by state officials.
We note that the CFPB’s encouragement of government officials to make greater use of Section 1042 carries some risk for the CFPB. While Section 1042 actions brought by state agents may result in rulings favorable to the CFPB, it is also possible that they will result in judicial interpretations adverse to the CFPA.
In addition to not mentioning the requirement for state officials to notify the Bureau before filing a CFPA application, the interpretative letter does not mention remedies. State officials may attempt to use Section 1042 to seek remedies under the CFPA that may not be available to them under state or federal law. consumer finance. In his remarks to the NAAG, Director Chopra suggested that a possible way for states “to make the most of the remedies available under the [CFPA]was to seek civil penalties under the CFPA. As we noted at the time, this suggestion seemed to run counter to 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 charged with the offence; or (B) the competent court has ordered such an assessment and entered judgment in favor of the Office. Nonetheless, state officials will likely attempt to invoke CFPA remedies when filing lawsuits under Section 1042.