Attorney General as your Regulator?
We've all heard about the CFPB, but what about state attorneys general? What will your state's AG be doing with its new consumer financial protection powers? Here's some thoughts from us ... anyone have anything to add?
Congress reacted to the 2008 housing crisis with massive amounts of legislation. They put a lot of power in the hands of the Consumer Financial Protection Bureau, but that wasn't all. Congress also increased the powers that the attorney generals in individual states have to police financial services institutions.
In this way, state attorneys general were considered "big winners" under the Dodd-Frank Act's shakeup of the consumer protection business.
With the Illinois AG becoming the first to flex its new-found Dodd-Frank powers, we here at Spillane Consulting thought it was a good time to discuss how exactly state AGs were affected by Dodd Frank.
General
The Dodd-Frank Act generally gives state attorneys general power to enforce statutes and regulations through means of civil action. Your state AG is still not going to be bringing action to the administrative law judge at HUD.
Before an AG steps in to its new shoes in such a case, it will normally need to give your regulator a chance to step in. If you are regulated by the FDIC, your state AG would have to notify the FDIC before bringing the action unless it is considered an emergency. In this example, the FDIC would be allowed to intervene and become a part of the action.
Enforcement of Statutes and Regulations
With national banks, state AGs generally cannot enforce federal consumer statutes directly--they can only do so if the statute itself gives the AG the right to do so. However, AGs have essentially free range to enforce regulations (that implement statutes). In other words, state AGs are held in check with national banks because they can only enforce the law as interpreted and written by regulators (i.e. enforcing regulations), rather than adopting their own versions of what the authors of a law passed by Congress meant.
Reminder
Regulations = rules written by regulator, pursuant to statute
Statutes = laws written by Congress
Exceptions
Here are some statutes where AGs are given the right to enforce directly (even against national banks):
Ability to repay
Loan officer compensation (anti-steering)
High-cost limitations
Some of the new servicing requirements
These are statutes the AGs can enforce directly. Therefore, they may adopt different interpretations of these requirements than has, say, the CFPB. State AGs may argue for their own definitions of ability- to-repay in court!
For everyone else (all institutions other than national banks), state AGs have pretty much free range to enforce both federal consumer protection statutes directly and the implementing regulations.
Significance?
Maybe you're asking ... who cares?
Well, first--a rule is only worth so much as it can actually be enforced. And this gives a greater number of people (AGs in 50 states) the power to enforce the rules, so the rule itself becomes more important. If an AG is investigating a bank on another matter and finds violations with LO comp, ATR/QM, high-cost mortgages, it can enforce those itself. Someday, if Congress finds a way to cut the CFPB's budget, AGs would still be able to enforce the CFPB's rules.
AGs may use their power to go where the CFPB cannot. They could use the UDAAP power to punish auto dealers, where the CFPB does not have authority ... or simply against banks under the $10 billion threshold for CFPB enforcement jurisdiction.
Most importantly, however, is that AGs may choose to go beyond what the regulators have done and push for harsher standards for financial institutions--this may make our industry more susceptible to ideological or political pressures. Like it or not, our industry is insulated from politics by the regulatory rulemaking process. It takes years, mountains of paperwork, and thousands of hours of debates and public comments to implement a new regulation. Imagine if an AG could accomplish the same task with a snap of the fingers? Where the AG enforces a statute directly, its interpretation of that requirement may differ from how a regulator has interpreted and thus written regulations to implement it. And here's probably the best example of where this could arise:
UDAAP Powers
The best example is with the extremely vague and therein extremely dangerous power to regulate practices that are unfair, deceptive, or abusive. The NCLC (working for consumer justice and economic security for low-income and other disadvantaged people since 1969) finds it "especially helpful" that state AGs have this power.
Here is the important part:
State AGs cannot enforce this general statute against national banks
... instead, it could only enforce specific regulations implemented by the CFPB (remember the explanation above?).
But for all other regulated institutions (non-depositories and state- chartered banks), state AGs have the power to enforce violations of what they consider to be unfair, deceptive, or abusive. They can do anything the CFPB can't, or won't do. Conceivably, a state AG may have a much different interpretation of what is unfair, deceptive, or abusive, than a regulator has previously put in writing. And remember--the AG's opinion doesn't go through the CFPB's formal rulemaking process, with public comments, or anything else.
Attorneys' Fees--Winner Keeps All
Don't forget ... a State AG has the same power to collect attorneys' fees if it wins a case as does the CFPB. This adds insult to injury. After all, the CFPB or AG won't pay your lawyer bills if you happen to win in court.
Looking for more information? This summary by State attorneys general might be a good place to start.
In other news:
These banking cartoons have led to a few smiles here at our office, maybe they will at yours
CFPB complaints (received by, not received about) were up 80% in 2013
Could you use Google Maps to prevent redlining, as a mapping tool to diagnose where your business is coming from?
A memorial fund has been established for the two Boston firefighters we lost....donations can be made at www.bosfirecu.com.
We all know how helpful the others have been .... but for what it's worth, the CFPB's small entity compliance guide for the integrated disclosures is now available
You're hosting a business meeting. Half of the people want hot coffee, half iced. You won't make anyone happy by splitting the difference and serving lukewarm coffee. How often do you serve lukewarm leadership by trying to make everyone happy?
If you wait for all the lights to turn green, you'll never leave the driveway. - John Maxwell
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**