More Is More: A Look at the Growing Role of State Regulators

Recently, New Jersey Attorney General Gurbir Grewal and Governor Phil Murphy announced that the state would create a “state-level CFPB” to “fill the void left by the Trump Administration’s pullback of the Consumer Financial Protection Bureau.” And the Garden State is not alone. Shortly after Office of Management and Budget Director Mick Mulvaney was appointed acting director of the CFPB, AGs from 16 states and the District of Columbia joined forces to express their concerns about the new direction in leadership, as well as reiterate their statutory authority to enforce federal and state consumer protection laws.

The states are stepping in not only because they’re concerned about the direction of the CFPB, but also because, since Dodd-Frank, the CFPB has become the “only game in town” as far as consumer protection is concerned. No other federal agency is specifically charged with protecting consumers. For example, the Federal Reserve and the Office of the Comptroller of the Currency are mostly focused on safety and soundness, and the FDIC is focused on loan-level compliance.

As has been reported, Mulvaney is shifting CFPB’s role from “regulation by enforcement” to “more formal rulemaking on which financial institutions can rely.” Under his tenure, there has been only one enforcement action so far: the $1 billion fine to Wells Fargo for home and auto infractions. In comparison, under Richard Cordray, the Bureau performed approximately 175 examinations of larger banks and non-banks, resulting in a total of 36 enforcement actions last year, four of which were mortgage-related.

Meanwhile, state regulators, in coordination with the Multi-State Mortgage Committee (MMC), Multi-State MSB Examination Taskforce (MMET), and the State Coordinating Committee (SCC), performed more than 32,000 statelevel examinations in 2017, resulting in up to 10,000 enforcement actions. California regulators, for example, have fined four of the top ten non-bank lenders more than $13 million in the last year and a half for violating their state’s per diem interest rule.

The states’ “more-is-more” approach to regulation comes with its own set of challenges for lenders and regulators. Nonbank lenders who must be licensed in all 51 jurisdictions will need to stay abreast of changes and ensure consistent application of the jurisdictional rules and regulations appropriate for each loan. For regulators, this means significant manual file reviews or, for those that have adopted electronic examinations, also known as e-exams, data stored in multiple systems and locations, incomplete data storage, and lack of technical resources—making it difficult to produce a reliable Lending Examination Format (LEF) data file. While using automated compliance technology can help lenders and regulators solve some of these challenges, it won’t stop more regulations from coming down the pike. 

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