In response to a shifting regulatory landscape, the Consumer Financial Protection Bureau (CFPB) has recently issued guidance recommending that states enhance their consumer protection laws. This comes amid anticipation of scalebacks in federal oversight under the current administration, including significant budget cuts and layoffs at the CFPB.
The CFPB’s report traces a long history of cooperation between state and federal governments aimed at safeguarding consumers. It highlights lessons from past economic hardships, such as the savings and loan crisis of the 1980s and the 2007-2008 mortgage crisis, stressing the need for vigilant oversight. To this end, the bureau has recommended key updates and enhancements to state laws to bolster consumer rights.
States have traditionally wielded their authority to regulate local commerce and ensure consumer protections, often bridging gaps in federal oversight. Since the inception of the Federal Trade Commission in 1914, which initially tackled unfair competition practices, states have increasingly legislated against consumer abuses. Furthermore, federal laws like the Truth in Lending Act have roots in such state-level statutes.
Despite these protections, the CFPB has pointed out several modern challenges that necessitate an overhaul of existing laws. For instance, the report identifies issues like increased economic concentration, misuse of consumer data, rampant “junk fees,” and the inadequacy of current online contract regulations, which often leave consumers vulnerable to exploitation.
One of the more significant CFPB recommendations is the incorporation of the term “abusive” in state legislations. This shift aims to address complex modern-day tactics that businesses use to exploit consumers, such as imperceptible pop-ups and misleading online transaction processes. The term “abusive” is seen as more fitting than “deceptive” for capturing such practices that don’t necessarily need to show consumer injury to establish liability.
Moreover, the bureau suggests that states equip themselves with stronger investigative and enforcement tools. This includes granting greater authority to state attorneys general, such as issuing subpoenas without needing court approval, and allowing cities and municipalities to initiate consumer protection cases.
The recommendations extend to proposals for redefining who is considered a “consumer” to include businesses potentially harmed by unfair practices, strengthening private right of action allowing for more robust individual and class lawsuits, and ensuring comprehensive data privacy rights for individuals.
Highlighting the broader implications of these suggestions, the increase in private legal actions and adjustments to what qualifies as consumer harm could lead to notable shifts in legal risks and financial liabilities for businesses. Historically, similar initiatives have led to significant legal settlements; for instance, California’s Private Attorneys General Act resulted in over $378 million in judgements from 2019 to 2022.
While these changes portend more stringent regulatory environments for financial institutions and other businesses, the pace at which states will adopt these recommendations remains uncertain. However, movements in states like New York, which has proposed capping certain banking fees, show a trend towards stricter consumer protection measures.
Going forward, financial entities and other impacted sectors may need to prepare for a landscape where both the regulatory environment and consumer expectations are evolving more rapidly than seen in recent decades.
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