Correcting The Chopra CFPB’s “Interpretive Rule” Regarding State Enforcement Of Federal Consumer Protection Law

CFPB Director Chopra’s Departing Magic Trick:  Pulling an Elephant From a Mousehole 

As it approaches rulemaking reform, the Consumer Financial Protection Bureau (CFPB) will need to address the former Director Chopra’s misstatements of law regarding the ability of state regulators to bring claims under federal consumer financial law.

Key Findings 

• The Chopra CFPB incorrectly stated that the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) allows state regulators to bring claims under any federal consumer financial protection law.

• Because the Chopra CFPB relied on an interpretive rule, incoming CFPB leadership can correct this error relatively easily.

• The Dodd-Frank Act provides incoming CFPB leadership other tools to ensure that state regulators appropriately heed federal consumer protection law.

The Chopra CFPB incorrectly stated that the Dodd-Frank Act allows regulators to bring claims under any federal consumer financial protection law. 

During his tenure as CFPB Director, Rohit Chopra prioritized state enforcement of federal consumer protection law as a legacy issue. When he addressed the National Association of Attorneys General in 2021, the American Banker described his remarks as “a forceful plea to state attorneys general to team up with the bureau on enforcement actions or bring their own under federal law.”

He quickly followed those remarks up with an interpretive rule, issued without notice and comment in May 2022, asserting states can enforce any federal consumer financial law. (Then-Director Chopra issued many interpretive rules, a process that allowed him to exclude public notice and comment and also forego the economic impact analyses required under the Administrative Procedure Act and the Dodd Frank Act. A consequence of these shortcuts, however, is that interpretive rules are far easier to reverse.)

In January 2025, after the presidential election that ushered forthcoming change in Washington, the Chopra CFPB doubled down on its push with state regulators. The CFPB issued a report titled “Strengthening State-Level Consumer Protections,” where then CFPB-General Counsel Seth Frotman claimed that the CFPB “has ensured that state enforcement agencies can make greatest possible use of their authority to directly enforce the [Consumer Financial Protection Act of 2010].”

The report goes on to assert:

“The CFPB issued an interpretive rule explaining that States can enforce the Consumer Financial Protection Act, including the provision making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law; that States can pursue claims and actions against a broader range of entities than the CFPB; and that CFPB enforcement actions do not put a halt to state actions.” (Emphasis added.)

This, however, is not an accurate statement of the law.

The Dodd-Frank Act is clear: State attorneys general cannot enforce “any provision of federal consumer protection law.” State regulators can only bring federal consumer financial protection claims under Title X of the Dodd-Frank Act itself. 

The plain language of the Dodd-Frank Act clearly limits state regulators to provisions under “this title” (Title X of the Dodd-Frank Act, also known as the Consumer Financial Protection Act, or “CFPA”).

Section 1042 of the Dodd-Frank Act explains:

“[a] State regulator may bring a civil action or other appropriate proceeding to enforce the provisions of this title or regulations issued under this titlewith respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law (except as provided in paragraph (2)), and to secure remedies under provisions of this title or remedies otherwise provided under other provisions of law with respect to such an entity.” (Emphasis added.)

A similar provision of Dodd-Frank Act Section 1042 allows attorneys general to bring claims against national banks “to enforce a provision of this title.” (Emphasis added.)

The Chopra CFPB bent the text of the law through a guileful but legally questionable contortion to dramatically broaden the limits set by Congress in the Dodd-Frank Act:

• The Chopra CFPB argued that “another provision of the CFPA, section 1036(a)(1)(A), declares it unlawful for any ‘covered person’ or ‘service provider’ to ‘offer or provide to a consumer any financial product or service not in conformity with federal consumer financial law, or otherwise commit any act or omission in violation of a federal consumer financial law.’”

• The Chopra CFPB reasoned that Section 1036(a)(1)(A) is a “provision of [the CFPA],” which state regulators can presumably enforce.

• Thus, like a magician pulling a rabbit out of a hat, the Chopra CFPB concludes that the Dodd-Frank Act enables state regulators to enforce any federal consumer financial protection law.

Congress does not hide elephants behind mouseholes. 

The plain text of the Dodd-Frank Act is clear: State attorneys general can only bring federal consumer financial protection claims under Title X of the Dodd-Frank Act itself.

If Congress meant for state regulators to be able to enforce “any provision of federal consumer financial protection law,” it would have said so. Congress would not have pieced together a treasure hunt in the statute for regulators to parse. Then-Director Chopra’s interpretation would also read the phrases “of this title” entirely out of section 1042. Had Congress intended CFPB’s authority to be so broad to cover the 18 enumerated federal consumer finance laws, it would almost certainly have said so in section 1042.

Incoming CFPB leadership can correct this error.

Because the Chopra CFPB enacted this sweeping change to the Dodd-Frank Act via an interpretive rule, incoming CFPB leadership can do the same and correct the record without a notice-and-comment rulemaking.

The new CFPB can simply announce an intent to reconsider the interpretive rule and state that, in the meantime, private parties should not assume that those interpretations represent the Bureau’s current understanding of the law. The CFPB can then subsequently issue individualized reasoning why the interpretive rule should be rescinded or revised.

Bonus Round: The Dodd-Frank Act arms the CFPB with other tools to ensure state regulators heed the law.

Separate and apart from correcting the Chopra CFPB’s erroneous interpretive rule, the Dodd-Frank Act provides incoming CFPB leadership with other important tools to help ensure the appropriate balance between federal and state regulators.

Under Section 1042, before initiating any action in court or any other administrative or regulatory proceeding against any CFPB covered person, state actors are required to provide timely notice to the CFPB and, in the case of bank defendants, the relevant prudential regulator. The Dodd-Frank Act then allows the CFPB to intervene in the action as a party and, upon intervening, remove the action to the appropriate United States District Court and “be heard on all matters arising in the action,” including “appeal any order or judgment, to the same extent as any other party in the proceeding may.”

States will continue to be an important safeguard for consumers once the Chopra CFPB’s error is corrected. 

In crafting Title X, Congress struck a delicate balance between federal and state regulators, providing a wide range of tools that empower state regulators. As one widely-respected scholar noted shortly after the passage of the Dodd-Frank Act, Congress empowered state regulators in a number of important ways to prevent the risk that the CFPB and federal regulators ever become politically “captured” by the banks and non-banks that they regulate. Among other trade-offs:

• Title X ensures that the Dodd-Frank Act acts only a “floor,” authorizing states to adopt laws providing additional safeguards for consumers;

• As mentioned above, Title X empowers state attorneys general to enforce Title X’s statutory provisions and CFPB’s regulations; and

• Title X also imposed “significant limitations” on the preemption of state laws to national banks and federal thrifts.”

In other words, the balance struck by Congress should be and is enough: “By encouraging both cooperation and competition among CFPB and state officials, Title X will promote experimentation, innovation, and continuous reform in consumer financial protection.”

A single CFPB Director, even a notoriously clever one, cannot unilaterally supplant Congressional judgment on key issues like the balance of power between federal and state regulators.

CBA Advocacy

• To read CBA’s white paper calling for CFPB reforms to transform the CFPB into the credible, durable regulator that consumers deserve, click HERE.

• To read CBA’s “Vision for America – A Bank Policy Agenda for All,” which outlines the retail banking industry’s priorities, beliefs, and positions on a number of consumer-focused financial services policy issues, click HERE.

• CBA’s Facts Matter Blog Series has utilized the Bureau’s own data and analysis to try and reground the policy discussion around objective data and actual law.
  To learn more, visit http://www.cfpbfactcheck.com/.