As a new and permanent director lingers in Congressional limbo, acting director Mick Mulvaney continues to pick apart the Consumer Financial Protection Bureau and its mandate.

Mulvaney, President Trump’s stopgap nominee, is vocal in promoting his philosophy that the Bureau is over-funded, groomed as anti-business, and a harmful speed bump to GOP plans to incubate capital markets.

He also wants states to own enforcement actions as the federal government takes a more hands-off approach.

On Sept. 14, Pennsylvania Attorney General Josh Shapiro led a coalition of 21 of his peers to formally oppose Department of Education Secretary Betsy DeVos’ plan to eliminate the Gainful Employment Rule, which requires colleges to provide information about their programs’ costs, debt load, success rate, expected earnings, and other critical information so students and families can make informed choices.

“DeVos and the Trump Administration’s move to eliminate the Gainful Employment Rule is another attempt to prioritize deceptive, for-profit colleges over students working to earn an education,” said Shapiro.  “The Gainful Employment Rule shields students from fraudulent education programs that leave them buried under debt they are unable to repay.”

Earlier this year, New Jersey Attorney General Gurbir Grewal announced the nomination of Paul R. Rodriguez to serve as the Director of the New Jersey Division of Consumer Affairs, the lead state agency charged with protecting consumers’ rights, regulating the securities industry, and overseeing 47 professional boards. 

Rodriguez’s selection highlights the effort to fill the void left by the Trump Administration’s pullback of the CFPB, fulfilling gubernatorial promises to create a “state-level CFPB” in New Jersey. 

The Division of Consumer Affairs is responsible for enforcing laws designed to ensure the fairness and integrity in New Jersey’s commercial and investment marketplaces, and for assisting consumers with complaints or questions about particular professionals, businesses, vendors, or service providers. 

The Division includes the Office of Consumer Protection, which enforces the Consumer Fraud Act, one of the nation’s strongest consumer protection statutes, and the Bureau of Securities, which regulates the securities industry in New Jersey. In total, the Division is composed of approximately 530 employees, of which nearly 150 are investigators.

Pennsylvania’s “mini-CFPB,” the Consumer Financial Protection Unit, was launched earlier this year with similar goals. It was created to “better protect Pennsylvania consumers from financial scams.”

It will “focus on lenders that prey on seniors, families with students, and military service members, including for-profit colleges and mortgage and student loan servicers.”

Nicholas Smyth takes over the state agency with federal experience. Before joining the CFPB as its fourth employee, Smyth was part of a team at the U.S. Treasury Department that drafted and revised the CFPB’s enabling act, the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act).

At the CFPB, Smyth led the investigation of the subprime auto lender Drivetime, which resulted in an $8 million settlement in 2014. He worked on CFPB v. ITT Educational Services, the Bureau’s first enforcement action against a for-profit college.  He previously worked on an investigation of U.S. Bank’s MILES Program, a subprime auto finance program for military service members, which led to $6.5 million in consent orders.

The trend of growing state involvement has been slow, but steady, says Allison Schoenthal, partner at Hogan Lovells and head of their consumer finance litigation practice. 

“I’ve been watching this space and thought it was an interesting concept that there are going to be mini-CFPBs,” she says. “I think, for sure, you will see a rise of the states for many reasons.”

A potential distraction, she says, is that state agencies, like the CFPB itself, face budget and resource dilemmas. Their primary tasks, bank examinations, are complex and budget busting. 

Allyson Baker, a partner with Venable, represents banks and nonbanks subject to law enforcement actions and investigations, especially those initiated by the CFPB.

“One of the things we saw a real uptick in after the 2016 election and into 2018, was that a certain number of state attorneys general were clearly ramping up their efforts to enforce consumer finance laws, specifically as an analog of the Unfair or Deceptive Acts or Practices under the Federal Trade Commission or Consumer Financial Protection Act,” she says. 

“There is a perception that the CFPB is going to be pursuing its enforcement regime less aggressively,” she added.

Baker notes that, in the current political environment, there are no “absolutes.”

 “It is not like we are going to wake up tomorrow and there is not going to be enforcement or that the Bureau has gone to sleep for three years,” she says. “That’s not going to happen. It is also not as if tomorrow you are going to wake to find that one state AG has filed 17 lawsuits that he or she would not have otherwise filed.”

Baker expects “a more gradated and more nuanced, but perceptible change.”