Consumer Financial Protection Bureau Director Rohit Chopra made a forceful plea to state attorneys general to team up with the bureau on enforcement actions or bring their own under federal law.
Speaking Monday at the National Association of Attorneys General, Chopra said he is considering changes that would allow states to access the CFPB’s multimillion-dollar Civil Penalty Fund to direct more relief to consumers in state actions.
State attorneys general often are the first line of defense in protecting consumers and they should be using the federal prohibition on “unfair, deceptive or abusive acts or practices,” known as UDAAP, when filing enforcement actions against bad actors, he said.
“Rather than discouraging or obstructing or preempting state enforcement or stronger state laws, the CFPB is going to be taking steps to promote enforcement of our laws by you,” Chopra said. “We encourage each of you to bring actions under our law, the Consumer Financial Protection Act, particularly when federal protections are stronger than your own state statutes.”
The only requirement for states to pursue actions under federal law is for them to give notice to the CFPB before filing a complaint. Chopra said he has directed the CFPB’s staff to explore ways for states to get more out of the remedies available under the act.
“We want to make clear that state agencies and regulators can enforce a range of federal prohibitions,” he said. “One way to further your enforcement tools is by clarifying the wide variety of claims that states can bring under the CFPB statute.”
The agency’s Civil Penalty Fund currently has a balance of $476 million, according to the CFPB’s financial
“To provide that expanded access I’m considering changes to our rules so states do not need the CFPB to formally join suits in order for victims to access these relief funds,” he said. “We're committed to reviewing expeditiously notifications from states so we can join actions where appropriate, and this will allow all of you to access the funds on behalf of violated consumers.”
The CFPB also plans to work with state attorneys general to crack down on repeat offenders. Chopra said he is concerned that corporate recidivism has become normalized and that many companies simply calculate fines as a cost of doing business.
“When it comes to large institutions and well-connected companies that violate the law over and over and over again, they pay a fine and then send out their press release,” he said. “This is not working and we need to work together to stop repeat offenders, especially those that violate agency and court orders entered at the federal and state level.”
Consumers end up subsidizing bad corporate behavior, he said. As a result, the CFPB is exploring new ways to address the underlying issues that drive repeat offenders including remedies directed at senior management and executives as well as structural reforms to reshape business incentives.
“Executives and managers should know that they will face repercussions for illegal acts that they direct when they were well informed that it was ordered,” Chopra said. “Recidivism not only deprives consumers of protections in the marketplace, but it also saddles them with the direct and downstream costs of noncompliance.”
Some of Chopra’s sharpest words were reserved for leaders of the Office of the Comptroller of the Currency in the years preceding the 2007-08 subprime mortgage crisis, which drove down home prices and sent millions of homeowners into foreclosure. Chopra described a meeting in Washington in 2001 in which a longtime OCC official warned state attorneys general that “ 'the OCC would quash you, if you persisted in attempting to safeguard consumers in your states.' "
He cited several agencies spanning multiple administrations including the OCC and now-defunct Office of Thrift Supervision that actively sought to undermine states seeking to protect their own consumers.
Federal preemption of state consumer protections led to disastrous consequences in the lead-up to the mortgage crisis, he said. Some banks dropped their state banking charters for national charters because doing so allowed them to evade state oversight. Chopra vowed that such actions would not happen on his watch.
"Many in Washington will always be tempted to hit delete on strong state laws that protect the public, whether it's consumer financial products or privacy. We hear it over and over again, and I think this is fundamentally wrong,” Chopra said.
