As Federal Policy Shifts, States Assert Regulatory Authority Over Financial Services

Feb 7, 2018 | News

Over the past few months, Mick Mulvaney, interim director of the Consumer Financial Protection Bureau (CFPB), has quickly shifted the consumer agency’s policies from aggressive regulation by enforcement to a more measured and data driven approach to financial services oversight. In doing so, Mulvaney has garnered praise from some of his peers and hostility from others.


With such moves as abandoning legal actions, reconsidering recently published rules, and scaling back investigations, state attorneys general and financial regulatory bodies are stepping in to continue the legacy of former CFPB Director Richard Cordray. Shortly after CFPB Deputy Director Leandra English challenged the temporary appointment of Mick Mulvaney as head of the agency, a collection of mostly Democratic state attorneys general filed a brief with the court in support of English’s position, vowing to press forward with the aggressive enforcement agenda developed by Cordray.


This promise is beginning to manifest itself in regulatory activity. Following the massive security breach at credit bureau Equifax over the summer that caused sensitive information for almost 150 million Americans to leak, reports surfaced this week that Mulvaney was dragging the agency’s feet on investigating, and ultimately punishing, the credit bureau for the cybersecurity failure.


In response, Secretary of the Treasury Steve Mnuchin has agreed to “discuss” the investigative roadblock with Mulvaney, but states are not waiting for federal officials to act. Instead, the state of Massachusetts brought suit against Equifax for the breach.


The Office of the Comptroller of the Currency’s (OCC) proposal to charter special purpose banks for FinTech applications has also caught the attention of state regulators that traditionally have managed growing innovation in financial services. In response to the OCC’s FinTech charter proposal, a group of seven states announced that they would be streamlining the licensing process for FinTech companies. New York sued the OCC over the FinTech charters, but a federal judge recently tossed out the case as speculative, considering the federal bank regulator has yet to finalize the program or even issue a single FinTech charter yet.


New York has no plans on backing down. The New York Department of Financial Services issued a press release late last month vowing to “safeguard the financial services industry” and “continue to lead and take action to fill the increasing number of regulatory voids created by the federal government.” As federal policies toward financial service providers rapidly evolve under the new administration, states are shifting resources to financial services regulation and enforcement.

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