On May 15, the Consumer Financial Protection Bureau (CFPB) released an interpretive rule that reverses a previous interpretation from May 2022 concerning states’ enforcement authority under Section 1042 of the Consumer Financial Protection Act (CFPA). The CFPB described the prior interpretations as “improper” and clarified that states can only initiate civil actions and related proceedings under the CFPA, not under other federal consumer financial laws such as the Truth in Lending Act (TILA), the Equal Credit Opportunity Act, or the Fair Credit Reporting Act.
The new rule outlines a narrower scope for state enforcement of federal law. Section 1042 of the CFPA allows state attorneys general and regulators to enforce provisions within “this title,” referring solely to the CFPA. The Biden administration’s CFPB had previously expanded this scope, allowing states to address violations of any federal consumer financial laws by covered persons or service providers. However, the current CFPB rejected this interpretation, emphasizing that states may only enforce CFPA-related regulations.
The CFPB also noted that rescinding the May 2022 rule does not alter states’ authority to act under separate state or federal laws.
The former interpretive rule allowed broader state authority over entities like merchants and retailers. The new rule corrects this position, asserting that both CFPB and states are limited by Sections 1027 and 1029 of the CFPA when it comes to certain activities and entities, including those regulated by the Securities and Exchange Commission.
Regarding concurrent actions, while previous rules permitted parallel enforcement actions by state attorneys general alongside CFPB efforts, the new interpretive rule discourages such duplication to eliminate unnecessary regulatory activity.
The withdrawal aligns with CFPB’s intention to narrow its statutory interpretations and reduce its regulatory activities. As a result, states might focus more on enforcing their own consumer protection statutes. However, challenges against this withdrawal are expected in court due to recent case law allowing state attorneys general to bring TILA claims without CFPB intervention.
States’ responses to these changes will be closely monitored.
