States failed to fulfill consumer protection promise in Trump era

In late 2017, after Mick Mulvaney was tapped to lead the Consumer Financial Protection Bureau, the Democratic attorneys general in 17 states expressed outrage.

Mulvaney had previously called the CFPB “an awful example of a bureaucracy that has gone wrong” and “a joke … in a sick, sad kind of way.” The state AGs vowed that if the federal consumer agency stopped its aggressive pursuit of misconduct, they would redouble their own efforts.

But more than three years later, those promises have not borne fruit, with state enforcement actions against consumer finance companies in fact declining sharply starting in 2018.

After U.S. states brought an average of 60 such enforcement actions in 2016 and 2017, the annual average fell to just 31 over the next three years, according to a new report by the law firm Goodwin Procter.

The number of federal enforcement actions also fell precipitously during 2018 and 2019, though they did rise again last year.

“When the feds go up, the states go up. And when the feds go down, the states go down,” said Paul Nolette, a political science professor at Marquette University who has observed a similar correlation between state and federal enforcement trends in multiple industries.

He noted that when federal and state officials have closer ties, and they share more information, the result can be more enforcement cases.

Federal-state collaborations were a focus of the CFPB during the Obama administration. But during the Trump years, state officials, particularly those from Democratic-leaning states, may have been less likely to see federal officials as their allies.

“All government investigations are personality-driven,” said Tony Alexis, a partner at Goodwin Procter and a former head of the CFPB’s enforcement office.

Collaboration between federal and state officials seems likely to increase again now that the CFPB has new leadership, according to lawyers who represent financial institutions in enforcement cases. President Biden appointed Dave Uejio as acting director last month. Rohit Chopra, the president’s nominee to become the agency’s permanent director, is widely expected to renew the agency’s focus on enforcement cases.

Earlier this week, officials in New York, Virginia and Massachusetts joined the CFPB in suing a company that allegedly made false and misleading statements to mostly Spanish-speaking consumers, tricking them into paying hefty fees.

In the short term, the amount of enforcement activity is likely to stay relatively stable in most states, according to Goodwin Procter, which noted that last November’s elections did not result in a change in party control of any state attorney general’s office.

“Yet, once the [coronavirus] pandemic is in the rear-view mirror, a more aggressive federal enforcement partner may spur state action, either individually or jointly with the federal government,” the law firm’s report states.

“How companies treated consumers during the pandemic may also provide state enforcement agencies reason to launch investigations and enforcement actions, particularly in states known for aggressive enforcement such as California and New York.”

To be sure, the states did have some successes during the Trump era. In 2019, Equifax agreed to pay at least $575 million as part of a joint federal-state settlement in connection with a massive data breach two years earlier.

Last May, 34 states reached a $550 million settlement with Santander Consumer USA over its auto-lending practices. That investigation, which began in 2015, is an example of how enforcement cases can take many years to build. Some probes that were launched in recent years likely remain invisible because they have not yet resulted in a lawsuit or a settlement.

In California, efforts to beef up enforcement began during the Trump era, yielding a bigger budget and wider jurisdiction for the state’s financial services regulator, but are only now starting to produce results. The agency said in January that it had issued subpoenas to a dozen debt collection companies in connection with alleged bad practices.

Still, the overall downward trend in state enforcement cases is clear.

“There’s been less activity than expected, and less than I think a lot of those states wanted to have,” said Scott Pearson, a partner at Manatt, Phelps & Phillips.

Mortgage lending is one area where state enforcement activity has fallen off. Last year, state attorneys general initiated only six publicly announced enforcement actions involving home loans, according to the law firm’s report.

Recoveries in mortgage-related enforcement actions by federal and state authorities totaled nearly $400 million in 2015 and 2016, compared with a just $27 million in 2019 and 2020.

The recent mortgage cases have generally focused on clear-cut scams, but that could change in the coming years, as government officials are expected to pay more attention to conduct in which the consumer harm is more speculative or harder to measure.

“Once COVID-19 is behind us, we anticipate more federal and joint federal-state investigations and enforcement actions of major financial institutions’ mortgage practices,” the law firm’s report stated.

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