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)
michael.ricciuti@klgates.com
Joseph A. Valenti (Pittsburgh)
joseph.valenti@klgates.com
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
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