Microsoft Word - 2023.12.06 - Ltr to CFPB re National Banks (sigs.2)

TATE OF

ORK

FFICE OF THE

TTORNEY

ENERAL

ETITIA

AMES

212.416.8050

TTORNEY

ENERAL

December 6, 2023

BY EMAIL & OVERNIGHT MAIL

Rohit Chopra

Director, Consumer Financial Protection Bureau

1700 G Street N.W.

Washington, D.C. 20552

Assistance Requested: State Investigations of Federally Chartered Banks

Dear Director Chopra:

We, the undersigned twenty-one attorneys general (the “State AGs”) write to

request that the Consumer Financial Protection Bureau (the “CFPB” or “Bureau”), as a federal

regulator with supervisory authority over national banks, federal savings associations and other

federally-chartered institutions (the “Banks”), take appropriate action to make clear to the Banks

that it creates a material risk that may give rise to unfair or abusive acts or practices for any Bank

to refuse to cooperate with State AG information requests that seek to further enforcement of

applicable state laws, including enforcement of generally applicable state consumer laws.

For more than a century, the Banks participated in a dual-banking system under

which both state and federal authorities chartered, supervised, and enforced laws against both the

Banks and their state-chartered counterparts. In the early 2000s, however, the Banks began to claim

immunity from state oversight: they refused to cooperate with investigations or respond to requests

for documents or testimony. This aggressive posturing was aided by certain federal regulators who

asserted the Banks’ immunity from state law enforcement. While these assertions of immunity

were repudiated by the Supreme Court and Congress a few years later—after the worst financial

crisis since the Great Depression, which also led Congress to create the Bureau itself—the Banks’

intransigence has not abated. And while it is now well settled that the Banks are obligated to

comply with state laws of general applicability (including those laws that make up the core source

of consumer protections in the United States), a key aspect of effective state law enforcement

remains unaddressed at present: the ability of the State AGs to seek information, documents, and

testimony from the Banks in the course of enforcing indisputably applicable laws.

The result is that State AGs can enforce the law but many Banks regularly refuse

to provide the documents or testimony necessary to shed light on their practices. This is untenable

and unworkable. It forces State AGs who have reason to suspect legal violations to sue first and

ask questions later. It leaves the Banks in an adversarial posture vis-à-vis the State AGs rather than

a cooperative one, resulting in costly litigation rather than collaborative dialogue. And it leaves

consumers behind most of all, neutering state-level consumer protections and saddling consumers

with the consequences. The Banks, meanwhile, risk allowing serious violations to fester and grow,

which in turn creates real risks of them engaging in unfair or abusive acts and practices, threatening

their own reputations, safety, and soundness, undermining economic fairness, and even threatening

the stability of the economy. Given the CFPB’s role as a federal supervisory authority and its

mandate to ensure the safety and fairness of consumer financial markets, we write to request your

partnership in ensuring that state law enforcement agencies are able to investigate potential

violations of state consumer laws and hold national banks accountable for any violations.

I. BACKGROUND: STATE LAW ENFORCEMENT AND NATIONAL BANKS

We have written extensively on the pre-CFPB history of the dual-banking system,

federal and state supervision of banks, and regulatory preemption in a letter to Michael J. Hsu, the

Acting Comptroller of the Currency, on which you were copied, and thus we will not repeat that

well-known history here. Critically, however, in the late 2000s both the Supreme Court and the

United States Congress enshrined State AGs’ authority to enforce state laws against the Banks.

First, the Supreme Court held prior federal regulatory actions did not comport with the National

Bank Act.

Observing that states “have always enforced their general laws against national

banks—and have enforced their banking-related laws against national banks for at least 85 years,”

the Court held that when “a state attorney general brings suit to enforce state law against a national

bank,” the State AG is legitimately acting as a “sovereign-as-law-enforcer.”

Second, Congress

enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,

which—in

addition to creating the Bureau itself

—codified “the authority of any attorney general . . . of any

State to bring an action against a [Bank] in a court of appropriate jurisdiction to enforce an

applicable law or to seek relief as authorized” by state law.

The legislation also narrowed the

scope of federal preemption of state law,

put in place strict procedural requirements for future

preemption determinations,

and limited judicial deference to such future determinations.

Congress, through Dodd-Frank, also created the CFPB to act as the federal partner

to the State AGs in that mission, empowering the Bureau to “regulate the offering and provision

of consumer financial products or services under federal consumer financial laws.”

The CFPB,

through Dodd-Frank, can promulgate rules and regulations necessary to administer federal

Cuomo v. Clearing House Ass’n, LLC, 557 U.S. 519, 531 (2009).

Id. at 535–36.

Pub. L. No. 111-203 (2010)

12 U.S.C. § 5491.

Id. § 25b(i).

Id. § 25b(b)

Id. § 25b(b) & (c).

Id. § 25b(b)(5).

Id. § 5491(a).

consumer protection laws,

possesses supervisory authority to ensure Banks’ compliance with

those same laws,

and is authorized to investigate

and bring enforcement actions

for violations

of those laws, including the then-newly created Consumer Financial Protection Act (“CFPA”).

While empowering the CFPB, Congress also elevated the State AGs to a position of partner in the

pursuit of safe and fair consumer financial markets throughout the United States, expressly

providing State AGs concurrent authority to “bring a civil action” against the Banks “to enforce a

regulation prescribed by the [CFPB]”

and expressly disavowing any limitation on State AGs’

authority “to bring an action or other regulatory proceeding arising solely under” state law.

The CFPB itself has recognized that Congress sought to “significantly restrict[] the

ability of federal banking regulators to broadly preempt state consumer financial protections”

through enactment of Dodd-Frank.

In May of this year, the CFPB issued an interpretative rule

acknowledging Congress’s recognition of “the important role that States play in overseeing the

consumer financial marketplace.”

In addition to enforcing CFPB regulations against Banks, that

interpretive rule acknowledges State AGs’ existing authority “to enforce federal consumer

financial laws . . . . including against national banks and federal savings associations.”

II. CURRENT LIMITATIONS ON STATE LAW ENFORCEMENT

Despite Congress’s intent to empower State AGs to protect consumers—including

through enforcement of state or federal consumer protection laws as applied to the Banks—gaps

remain that effectively hobble such efforts. While subsequent regulations acknowledged the State

AG authority to enforce generally applicable state laws,

they did not address a practical reality:

since at least 2004, most Banks have simply declined to meaningfully engage with State AGs or

cooperate with state-level law enforcement investigations when they decide it is in their interest to

do so. In one recent instance, for example, a Bank’s general counsel announced that a State AG’s

inquiry into his Bank’s exposure of confidential financial data belonging to hundreds of thousands

of consumers was “inappropriate” and immediately hung up the phone. Yet notwithstanding

Cuomo and Dodd-Frank, federal supervisory guidance remains in effect that advises both State

Id. § 5512.

Id. § 5515(b).

Id. § 5562.

Id. § 5564.

Id. § 5531 et seq.

Id. § 5552(b)(2).

Id. § 5552(d)(1).

CFPB, CFPB Bolsters Enforcement Efforts by States (May 19, 2022), available at

https://www.consumerfinance.gov/about-us/newsroom/cfpb-bolsters-enforcement-efforts-by-states/.

87 Fed. Reg. 31,937, 31,940 (May 26, 2022).

Id. at 31,941. See 12 U.S.C. § 5481(12) for the enumerated list of federal consumer financial laws.

76 Fed. Reg. 43,549, 43,555 (July 21, 2011).

AGs and Banks to contact federal banking regulators “when state officials may seek information

from a national bank about its compliance with any law.”

We know that the Bureau is familiar with the harms from the hobbling of state law

enforcement, which have been and will continue threaten the safety and fairness of our economy.

Beyond the abusive mortgage practices that resulted in the financial crisis, the past few decades of

aggressive preemption of state law enforcement has resulted in an explosion of consumer debt held

by the Banks.

States have been limited in their ability to address a wide range of unfair and

deceptive practices that affect their citizens, including bait-and-switch practices and the failure to

clearly and conspicuously disclose rate changes, late fees and overdraft fees.

And although some

Banks have limited use of overdraft fees, those fees remain a tremendous source of Bank revenue

but are often not clearly understood by consumers.

Harassing and unlawful debt collection

practices likewise have proliferated.

And the limitation of active state law enforcement has

resulted in what commentators describe as a “culture of deception” in which substantive state

protections are preempted in favor of weaker disclosure requirements.

These ongoing evasions of state law enforcement are only likely to grow. State-

chartered institutions continue to steadily re-charter into federally chartered Banks,

at times

expressly to assert preemption benefits, “rent-a-bank” efforts to end-run state usury and lending

laws continue apace,

and financial technology companies have begun to seek charters from the

OCC for the express—and arguably sole—purpose of evading state law enforcement.

Office of the Comptroller Currency, Advisory Ltr. 2002-9 at 4 (Nov. 25, 2002), available at https://

www.occ.gov/news-issuances/advisory-letters/2002/advisory-letter-2002-9.pdf.

National Consumer Law Center, Restore the States’ Traditional Role as ‘First Responder’, at 14 (Sep. 2009),

available at https://www.nclc.org/images/pdf/preemption/restore-the-role-of-states-2009.pdf.

Testimony of Arthur E. Willmarth, Jr., Professor of Law, George Washington University Law School, U.S.

House of Representatives Hearing on Credit Card Practices: Current Consumer and Regulatory Issues, at 7–13

(Apr. 26, 2007), available at http://financialservices.house.gov/hearing110/htwilmarth042607.pdf.

Consumer Financial Protection Bureau, CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees

(Dec. 1, 2021), available at https://www.consumerfinance.gov/about-us/newsroom/cfpb-research-shows-banks-

deep-dependence-on-overdraft-fees/.

NCLC, Consumer Complaints about Debt Collection: Analysis of Unpublished Data from the FTC (Feb. 2019),

available at https://www.nclc.org/images/pdf/pr-reports/report-analysis-debt-coll-ftc-data.pdf.

NCLC, Restore the States’ Traditional Role, supra, at 15.

National Consumer Law Center, Restore the States’ Traditional Role as ‘First Responder’, at 22 (Sep. 2009),

available at https://www.nclc.org/images/pdf/preemption/restore-the-role-of-states-2009.pdf.

Center for Responsible Lending, Predatory Lenders’ Rent-a-Bank Scheme: What Is It and What Can We Do to

Stop It? (Jan. 14, 2020), available at https://www.responsiblelending.org/research-publication/predatory-

lenders-rent-bank-scheme-what-it-and-what-can-we-do-stop-it.

National Conference of State Legislatures, National Bank Charter for Payments Companies Would Preempt

State Authority (Oct. 28, 2020), available at https://www.ncsl.org/blog/2020/10/28/national-bank-charter-for-

payments-companies-would-preempt-state-authority.aspx.

III. CFPB ACTION IS APPROPRIATE AND NECESSARY

The CFPB is not limited in its ability to fully investigate potential violations of

consumer protection laws by the Banks. Indeed, in Dodd-Frank Congress granted the CFPB

“exclusive authority” to conduct examinations for purposes of assessing compliance with such

laws.

And the Bureau is further authorized to conduct investigations of the Banks, including

through the issuance of subpoenas and civil information demands.

These tools can and should be

used to make clear to Banks that their refusal to cooperate with State AG investigations into

violations of clearly applicable law will not go unnoticed or unchecked, for several reasons:

First, the ability to conduct investigations in the banking industry for purposes of

enforcing state law is vital to consumer protection and safety. State laws are front-line protections:

common law rules for contracts, property rights, fraud and the like, statutory regimes concerning

unfair and deceptive practices, and laws enacted to tackle specific consumer safety issues. Federal

law, in contrast, is interstitial in character, enacted against the backdrop of existing state laws.

just the last three years, the State AGs have received thousands of consumer complaints about just

the five largest Banks alone. Yet in recent years some Banks have effectively stonewalled State

AG investigations into, among other violations of law, (i) failure to follow key homeowner

protections during the early stages of the pandemic, (ii) discriminatory and otherwise improper

allocations of federal funds for distressed businesses, (iii) fraudulent solicitations directed at

vulnerable elderly populations, (iv) compliance with new state laws concerning credit card debt

collection practices, and (v) adherence to state and federal laws governing unauthorized payment

activity resulting from scams. This obstruction creates profound risk of consumer harm and

ultimately safety and soundness of the consumer financial system.

Second, the ongoing explosion of financial technology, cryptocurrency and other

revolutions in financial services requires a proactive response at all levels of government. States,

are very often the first responders to these new challenges: federal protections against identify theft

were adopted by Congress only after several states had laws on the books, California disclosure

laws for credit cards were the model for federal laws, and the federal Expedited Funds Availability

Act was enacted only after states took the lead on forcing financial institutions to stop putting long

holds on deposited checks.

And because states and the State AGs are closer to consumers, they

are in a better position to identify newly arising issues in the financial services and banking

industries, and are more likely to act quickly to prevent new abuses. Permitting Banks to sidestep

State AGs effectively removes these early warning guardrails, allowing threats to the safety and

soundness of the financial system to go unaddressed through early intervention.

Third, the status quo results in regulatory asymmetry in the country’s financial

markets, as state-chartered banks remain subject to State AG subpoena power while the Banks do

not. Given modern trends in online banking and the increased frequency of bank partnerships with

non-bank entities, state-chartered banks are equally capable of having a national footprint. There

12 U.S.C. § 5515.

Id. § 5562(b)–(c).

E.g., Watters v. Wachovia Bank, N.A., 550 U.S. 1, 23–24 (2007) (Stevens, J., dissenting).

NCLC, Restore the States’ Traditional Role, supra, at 18–19.

is no sound reason for all of these banking entities to not be subject to the same rules of the road,

and no sound reason for the Banks not to answer legitimate law enforcement inquiries.

Fourth, the Banks also will benefit by funneling state law enforcement efforts into

cooperative regulatory dialogues and away from costly and protracted litigation. Today, should a

State AG seek information and a Bank decline to cooperate, the State AG’s sole recourse is the

filing of a public action in court. Litigation is protracted and enormously costly for all sides,

particularly when compared to the efficiencies inherent in regulatory investigations. Moreover, the

filing of such suits is frequently followed by private class action litigation,

compounding the

risks and costs for the Bank. Prior financial crises have made it abundantly clear that Banks cannot

be expected to act unilaterally to address every problematic practice. There is no sound reason to

wait until the next scandal, and to put the safety and soundness of the next Bank at risk, before

taking steps to foster genuine cooperation between the State AGs and the Banks.

Finally, history teaches that a strong dual-banking system, including robust

enforcement of both state and federal law, is vital to the country’s economy and financial health.

Today’s largest Banks have existed for decades—some for centuries. They thrived, grew and

profited through the 20th century, at a time when they were both subject and responsive to state

inquiries related to enforcement of state law. Throughout this period, states acted as first

responders to protect public welfare, health, and safety in the vital arena of consumer protection,

and the financial system as a whole benefited from enhanced stability through a partnership

between state and federal oversight and law enforcement in the banking system.

We write in an effort to renew the once strong partnership between state and federal

banking regulation. The CFPB is, in its own words, the single federal agency that has “oversight

authority to make sure consumer financial markets work for all of us.”

While, as the Bureau

recently acknowledged,

State AGs often partner with the CFPB in investigations and

enforcement actions, to date there exists no formal mechanism for state law enforcement to work

with the CFPB to address instances where the State AGs are unable to fully investigate because a

non-cooperative Bank is involved. We are prepared to share the details of those circumstances, the

unaddressed harms that may be faced by consumers, and the risks that may be present to our

economy. In light of our shared commitment to the safety and fairness of consumer financial

markets, we look forward to working with you to overcome the limitations faced by state law

enforcement agencies today and to developing a plan to ensure that the Banks are fully accountable

for violations of state consumer laws.

Respectfully Submitted,

E.g., Financial Times, Bank Litigation Costs Hit $260bn—with $65bn More to Come (Aug. 23, 2015), available

at https://www.ft.com/content/c6d01d9a-47dc-11e5-af2f-4d6e0e5eda22.

Id.

CFPB, Building the CFPB, available at https://.www.consumerfinance.gov/data-research/research-

reports/building-the-cfpb.

87 Fed. Reg. 31,937, 31,940 (May 26, 2022).

LETITIA JAMES KRIS MAYES

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF NEW YORK STATE OF ARIZONA

ROB BONTA PHILIP J. WEISER

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF CALIFORNIA STATE OF COLORADO

WILLIAM TONG BRIAN L. SCHWALB

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF CONNECTICUT DISTRICT OF COLUMBIA

ANNE E. LOPEZ MANA MORIARTY

ATTORNEY GENERAL EXECUTIVE DIRECTOR

STATE OF HAWAII HAWAII OFFICE OF

CONSUMER PROTECTION

KWAME RAOUL EDWARD MANIBUSAN

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF ILLINOIS COMMONWEALTH OF THE

NORTHERN MARIANA ISLANDS

ANTHONY G. BROWN ANDREA JOY CAMPBELL

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF MARYLAND COMMONWEALTH OF MASSACHUSETTS

DANA NESSEL KEITH ELLISON

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF MICHIGAN STATE OF MINNESOTA

MATTHEW J. PLATKIN JOSHUA H. STEIN

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF NEW JERSEY STATE OF NORTH CAROLINA

ELLEN F. ROSENBLUM MICHELLE A. HENRY

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF OREGON COMMONWEALTH OF PENNSYLVANIA

PETER F. NERONHA CHARITY R. CLARK

ATTORNEY GENERAL ATTORNEY GENERAL

STATE OF RHODE ISLAND STATE OF VERMONT

ARIEL K. SMITH

ATTORNEY GENERAL

U.S. VIRGIN ISLANDS

cc (by email): Michael J. Hsu, Acting Comptroller of the Currency