An Excerpt From: K&L Gates Global Government Solutions ® 2011: Mid-Year Outlook July 2011 Financial Services Dodd-Frank and State Enforcement of Consumer Financial Laws Over the last several years, the federal government has sought to expand the role of state regulators in enforcing federal law and protecting federal programs. For instance, in the Deficit Reduction Act of 2006, the federal government provided a financial incentive for states to enact state-law versions of the federal False Claims Act and thereby enlist state regulators in the effort to combat Medicaid fraud. This trend of expanding the authority of state regulators continues in the recently-enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or “the Act”). In addition to creating a new federal agency, the Consumer Financial Protection Bureau (“CFPB”), and providing it with significant powers to protect consumers, Dodd-Frank also invests state attorneys general with the power to enforce certain parts of the Act and its corresponding regulations. The CFPB is empowered to enforce certain federal statutes governing consumeroriented products and services. Among the products regulated by the CFPB are home mortgages, student loans, credit cards, prepaid debit cards, reloadable gift cards, personal banking services, check-cashing services, real-estate appraisals, electronic payment processing, credit counseling, credit reporting, and debt collection. With some exceptions, entities that provide financial products or services to consumers for personal, family, or household use will be subject to the CFPB, including brokering, offering and servicing loans, debt collection, and check-cashing businesses. State consumer protection regulation in these areas is neither new nor significantly changed by Dodd-Frank. Dodd-Frank preserves the traditional power of states to enforce their consumer protection laws. Further, the Act expressly does not preempt state laws unless they are inconsistent with Dodd-Frank, and state laws that provide greater consumer protections than Dodd-Frank are not to be considered “inconsistent” solely because they are more protective. More importantly, the Act affirmatively authorizes state attorneys general to bring civil actions to enforce Dodd-Frank in federal court with regard to entities licensed or chartered under state law and, under certain circumstances, against national banks or federal savings and loan associations, thus supplementing the CFPB’s enforcement authority. The CFPB has embraced the idea of coordinating with state authorities. CFPB’s enforcement division will be led by former Ohio Attorney General Richard Cordray, and the CFPB has begun working with the National Association of Attorneys General (“NAAG”), the organization of state attorneys general. The CFPB and NAAG have issued a joint statement of principles to ensure coordination, including the use of joint investigations and coordinated enforcement actions. The CFPB will be promulgating regulations to provide guidance to state attorneys general. By statute, state attorneys general seeking to enforce Dodd-Frank requirements must coordinate with the CFPB. Absent an emergency, prior to filing such a complaint, a state attorney general must provide a copy to the CFPB, along with various background information, and the CFPB may intervene in the action, remove it to federal court, or participate in the trial and subsequent appeals. relief, and civil penalties. Although punitive damages are prohibited, civil penalties are allowed and accrue daily for continuing violations, up to $1,000,000 per day. States also may recover their costs from defendants when their attorneys general succeed in enforcement litigation. Additionally, Dodd-Frank mandates that the CFPB refer evidence of criminal violations of federal law to the Department of Justice. State attorneys general, also, are often empowered to bring or refer for action potential state criminal proceedings. State enforcement under Dodd-Frank adds a potent weapon to the federal government’s enforcement arsenal—the numerous lawyers and investigators in state attorneys general offices around the country. Companies subject to CFPB regulation would be well-advised to prepare for a higher level of scrutiny from state enforcers. Michael D. Ricciuti (Boston) [email protected] Joseph A. Valenti (Pittsburgh) [email protected] Dodd-Frank empowers courts hearing civil enforcement actions to provide several forms of relief, including rescission, reformation, or specific performance of contracts, restitution, disgorgement of profits, monetary damages, injunctive K&L Gates Global Government Solutions ® 2011 Mid-Year Outlook 9 Anchorage Austin Beijing Berlin Boston Brussels Charlotte Chicago Dallas Doha Dubai Fort Worth Frankfurt Harrisburg Hong Kong London Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco Seattle Shanghai Singapore Spokane/Coeur d’Alene Taipei Tokyo Warsaw Washington, D.C. K&L Gates includes lawyers practicing out of 38 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information about K&L Gates or its locations and registrations, visit www.klgates.com. This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. ©2011 K&L Gates LLP. All Rights Reserved.