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Will the CFPB use its State Official Notification Rules to prevent the fragmentation of federal law?

Posted in CFPB Rulemaking

NotificationOne of the four sets of Interim Final Rules released by the CFPB on July 28 was its “State Official Notification Rules,” which set forth the obligations of state attorneys general to notify the CFPB when the AGs bring actions to enforce the provisions of the Dodd-Frank Act.  One might wonder whether such rules are even necessary, given the close cooperation anticipated between state AGs and the CFPB. 

On a state and federal regulators’ panel that I moderated at a recent conference, one state AG representative noted that the CFPB has been busy hiring bright, energetic individuals from state AG offices across the country.  The effect of this mode of hiring is that there is a natural and personal connection between state AG offices and the CFPB—cooperation between them will frequently involve nothing more than two former colleagues talking to one another.

This informal cooperation is reinforced by the Joint Statement of Principles announced between the CFPB and the National Association of Attorneys General back in April of this year. 

But leaving the obvious aside, the real question, I think, is whether the CFPB will use the oversight powers it has over state AG actions to prevent the state-by-state fragmentation of federal law.  It’s no secret that one of the primary impacts of Dodd-Frank is to greatly increase the importance of state law and force national banks and federal thrifts to comply with a patchwork of differing laws.  But even beyond this, by giving state AGs the right to enforce Title X of Dodd-Frank and the CFPB’s regulations, Congress has raised the specter that even supposedly-uniform federal laws will be interpreted and applied differently in different states.

The release accompanying the State Official Notification Rules states that the CFPB’s objective is to maintain “consistent application of the [Dodd-Frank] Act.”  The rules give the CFPB the authority to promote consistency by intervening in cases and even removing them to federal court, but one of the most interesting things to watch as the CFPB begins to operate is whether it will meaningfully police state AG enforcement actions to achieve this goal.

A related question is whether (and how) the CFPB will “feed” cases to state Attorneys General during the time that the CFPB is limited in its enforcement authority from the lack of a confirmed Director.  Without a Director, the Bureau cannot bring actions arising from its “unfair, deceptive or abusive” enforcement authority, but state AGs can, at least with respect to state-chartered banks.  And state AGs are not limited by the $10 billion threshold applicable to the CFPB’s enforcement authority.  Thus, we may get a sneak preview of the CFPB’s views on “unfair, deceptive and abusive” through state AG actions that may arise while the CFPB awaits the confirmation of a Director.