Republican lawmakers accuse CFPB of ‘collusion’ with state AGs

Three Republican lawmakers accused the director of the Consumer Financial Protection Bureau of “collusion” and “conspiring with state attorneys general” to bring enforcement actions against financial companies.

The allegations in a letter signed July  28 by Rep. Patrick McHenry of North Carolina, the ranking member of the House Financial Services Committee, and two other Republican lawmakers was in response to an interpretive rule that the CFPB issued in May.

In the rule, the CFPB affirmed that states can enforce the Consumer Financial Protection Act to pursue actions against a broad range of entities.

Policymakers said the allegations of collusion are an indication that Republicans are teeing up an onslaught of queries to the CFPB, which is already preparing for a deluge of congressional inquiries.

“This letter serves as a preview of the House GOP’s oversight agenda if they win control of the House this fall as expected,” said Isaac Boltansky, director of policy research at BTIG, an investment bank.

Under the Dodd-Frank Act, when a state attorney general or other state regulator intends to file an enforcement action against a wrongdoer, they are required to provide a copy of the complaint to the CFPB, essentially allowing the bureau to intercede. 

States have their own broad and powerful laws prohibiting unfair and deceptive acts and practices. Few state attorneys general ever use the federal CFPA to bring an action against a financial firm for wrongdoing, instead relying on their own state laws, lawyers said. 

Most companies also prefer that the CFPB and state agencies work together because doing so can lower litigation costs and the time spent dealing with multiple investigations. Defense attorneys said that many companies ask states to work with the CFPB — and vice versa.

In the three-page letter, McHenry, Rep. Blaine Luetkemeyer of Missouri and Rep. Tom Emmer of Minnesota told CFPB Director Rohit Chopra that Congress did not intend for the agency “to intimidate companies by conspiring with state agencies to pursue duplicative enforcement actions.”

“The effect of the May 19, 2022 interpretive rule is different from solely enforcing the law,” the lawmakers stated in the letter. “It is more akin to deputizing state attorneys general to enforce the CFPA on behalf of the CFPB — something Congress did not authorize.”

The CFPB declined to comment on the letter. 

The lawmakers said that the rule allowed the CFPB to “forum shop across the country to find friendly attorneys general willing to bring cases on behalf of the Bureau, rather than the process that Congress intended, whereby attorneys general bring a case to the CFPB when appropriate.”

The notion that the head of a federal agency cannot talk with a state government— or that doing so amounts to illegal activity — struck a number of defense lawyers as not only inaccurate but a radical interpretation of existing law. Some defense lawyers, speaking on condition of anonymity, said the allegations of collusion were preposterous and out of touch with the real world. A few even suggested that the Republican lawmakers read the Constitution and brush up on the concept of federalism.

Some agreed that Chopra is working closely with state AGs, in part, to ensure state entities can piggyback on the bureau’s authority in the future.

“There is no question that Director Chopra is doing all that he can do to encourage state agencies to enforce federal consumer financial laws,” said Lucy Morris, chair of the government investigations and enforcement practices group at the law firm Hudson Cook. “It seems that he is trying to set up states to consistently and aggressively enforce federal law, even when CFPB leadership changes at the national level.”

The lawmakers appeared to be acting on behalf of one specific company: MoneyGram International, which the CFPB and New York Attorney General Letitia James sued in April. 

MoneyGram was sued for allegedly violating rules around remittance transfers for years, with Chopra putting the firm in the category of repeat offenders. Regulators allege the Dallas-based remittance provider engaged in unfair acts or practices by failing to transfer funds and delaying refunds to customers, among other violations. 

The lawmakers cited the CFPB’s own press release in the MoneyGram lawsuit as proof that the bureau had provided information to New York’s attorney general.

“In the complaint, MoneyGram, one of the largest remittance providers in the United States, is alleged to have violated the Remittance Rule,” the letter states. “In addition to the lawsuit, you ‘authorized information sharing with MoneyGram’s state authorities to facilitate parallel actions.’ ”

The lawmakers said it was improper for the CFPB to enlist state attorneys general in its investigations.

“It is clear that state attorneys general may enforce the CFPA in cases where the CFPB has not,” the letter stated. “But the statute does not allow for a state attorney general to become a party to an existing CFPB enforcement action. It is therefore inappropriate for the CFPB to recruit a state attorney general that is not otherwise investigating a company, to pursue enforcement as a means of intimidation.”

The lawmakers asked Chopra to turn over documents and all correspondence with state attorney general offices by Aug. 12. They also asked Chopra to respond to specific questions including under what authority the CFPB can recruit state attorneys general to join existing CFPB actions. In addition, they asked what safeguards are in place to avoid duplicative state actions.