State Officials Urge No Preemption in CFPA Legislation

Early next week, when the House Financial Services Committee resumes its consideration of amendments to the proposed Consumer Financial Protection Agency Act (CFPA), it is particularly important that they resist intense pressure from the banking industry to “preempt” the ability of states and local governments to protect their own citizens.

Whatever consumer protection rules are established by the CFPA should provide a regulatory floor rather than a ceiling – that is, they should allow states to enact stronger protections in response to emerging local problems or to repair weaknesses in the federal rules.  In addition, state attorneys general should regain the power to enforce both federal and state standards on national banks that operate within their borders.  We’ve recently blogged on this issue here and here.

Among the most persuasive voices raised against industry’s push for preemption are those of state and local regulators on the front lines in the struggles against predatory lending practices.  The Banking Commissioner of North Carolina and the Superintendent of Banks of New York State (Richard Neiman and Joseph Smith) jointly authored a recent letter to the editor of the Wall Street Journal pointing out the costs of excessive preemption of state authority during the last decade.  Jonathan Mintz, Commissioner of the New York City Department of Consumer Affairs, explains in a blog post how CFPA legislation that “voids local regulations and enforcement powers could unwittingly do more harm than good.”

And Illinois Attorney General Lisa Madigan emphasized at a press conference on Wednesday that

It is absolutely critical that states be allowed to continue to investigate abusive practices by major players in the financial services industry, regardless of whether these institutions have a state or national charter; and to enforce our state consumer protection laws against all lenders doing business within our borders.

(Photo: Aaron Jacobs)