CFPB Releases Guidance for States on Strengthening Consumer Protection Under New Administration

The Consumer Financial Protection Bureau (CFPB) issued guidance on the eve of the transition to a new administration that serves as a roadmap for state governments—especially attorneys general and, notably, private contingent fee plaintiffs’ lawyers—to supercharge consumer protection prosecutions.

As the Biden administration transitioned out, the CFPB published Guidance calling on state governments and providing a roadmap for contingent fee plaintiffs' lawyers to take on a more significant role in consumer protection efforts. This approach aligns with the priorities established under its former director and may now pose an ongoing risk to businesses, regardless of any actions taken under the Trump-Vance administration. Because of how the Guidance is crafted, it is unlikely to trigger a formal rulemaking process under the Administrative Procedures Act or constitute a violation of the Anti-Commandeering Doctrine.

Moreover, key states with a Democratic attorney general, governor, and legislature—“trifectas” in the vernacular—have been preparing for this transition. States like California, which recently appropriated $50 million for this and other adjacent purposes, as well as Colorado, Connecticut, Illinois, Massachusetts, and New York can be expected to increase their consumer-protection efforts absent a push from Washington. In addition, consumer protection is hardly a partisan issue. States such as Texas and Florida, both with Republican trifectas, are active in consumer protection, especially the prosecution of “junk fees” and other allegedly deceptive practices.

We previously predicted that the role of state attorneys general is likely to increase in the new administration,[1] that Democratic attorneys general would step in should there be an enforcement and regulatory “rollback” at the federal level. The Guidance appears to supercharge this effort.

The top-level recommendations of concern for businesses include the following:

1. Removing proof of monetary loss and other direct harm from state consumer-protection statutes, allowing for more abstract, noneconomic injuries, such as lost time and privacy, to become actionable.
2. Creating a form of qui tam action on behalf of the state, allowing private individuals to step into the shoes of the state and bring private actions not controlled by any elected or public official. While many states already have a false claims act, the recommendation here is specifically modeled on California’s Private Attorney General Act (PAGA). These laws would include damage multiples and attorney's fees.
3. Encouraging private enforcement by contingent fee plaintiff’s lawyers, notwithstanding federal and state arbitration laws. Specifically, the Guidance recommends that states amend their consumer protection statutes to allow plaintiffs to bring actions in court even where a valid arbitration clause exists in an agreement between the consumer and business.
4. Permitting state attorneys general to issue administrative subpoenas without the need for court approval.
5. Permitting state attorneys general “market monitoring authority” (e.g., the ability to issue industry-wide subpoenas to gather information, even when there is no evidence of wrongdoing).

Additionally, the Guidance recommends that states expand the definition of “consumer” to include business entities, although there is no explanation for why a business would not maintain their own tort action if, indeed, they had a provable claim against another business. This would vastly expand the definition of the term “consumer” and likely lead to an increase in litigation rather than pre-dispute resolution, as is common in business-to-business disputes.

These suggestions are not commands, and states are certainly not bound to function as the CFPB recommends. Additionally, federal and state agencies have historically exchanged ideas. However, this effort is unique in that it is issued as the formal act of a federal agency; offers the agency’s assistance to state officials in their efforts, even though the leadership of the agency will not be the same as when issued; and attempts to create a national policy structure under the guise of “cooperative federalism.”

The Guidance contains eight tranches of recommendations, which include changing standards for “fair dealing;” incorporating “abusive” practices into state law; strengthening remedies and investigative tools, eliminating the requirement to prove monetary injury; extending consumer protections to businesses; revitalizing private enforcement; enhancing consumer data and privacy rights; and creating bright-line rules for “junk fees.”

It is unclear how this would be funded, as the CFPB is funded by the Federal Reserve System, not direct annual appropriations from the US Department of the Treasury. That funding mechanism does not exist for the states, and enacting the Guidance recommendations would require funding across states and localities beyond their collective means.

TAKEAWAYS

The Guidance is not law and does not make law. However, it is a concentrated road map for states to act on and may carry significant weight in some state legislatures and before some governors.

Some of the recommendations are merely for enhanced enforcement, but others actively encourage lower burdens of proof (e.g., no requirement for proof of damages), and others actively encourage the use of private contingent fee lawyers in place of public servants funded by state legislatures.

Accordingly, affected businesses should watch for efforts to expand state authorities and funding and consult counsel on how to navigate such changes.

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