New York City Comptroller Brad Lander released a report titled “Standing Up for New York Consumers – How New York State and New York City can Strengthen Consumer Financial Protection in the Trump Era,” which called for the strengthening of local consumer financial protections in response to the Trump administration’s recent actions to reduce the regulatory footprint of the Consumer Financial Protection Bureau (CFPB or Bureau).
The CFPB was created as a response to the 2008 financial crisis and sought to protect consumers by “introduc[ing] landmark regulations targeting harmful practices across the consumer financial marketplace: from payday lending to overdraft and credit card fees, buy-now-pay-later products, data privacy, credit reporting, and prepaid accounts.” The Bureau’s enforcement activities have been significantly retracted as the Trump administration has sought to withdraw a wide swath of existing rules and guidance, and substantially reduced the headcount of its staff. Lander criticized the dismantling of the CFPB, asserting that it “protect[ed] millions from unchecked wrongdoing after decades of predatory lending and abusive business practices that created one of the worst economic crises in living memory.”
Lander’s report provides five areas that the state and local government can take action to fill the void left by the CFPB’s reduced oversight capabilities:
1. Regulatory and Enforcement Gaps
In contrast to many states that prohibit both abusive or deceptive acts or practices, New York’s consumer protection statutes currently only prohibit deceptive practices. Due to the elimination of the CFPB, Lander encourages state and local government to expand prohibited actions and develop new methods to support consumers, such as:
- Enacting the Fostering Affordability and Integrity through Reasonable Business Practices Act (A8427);
- Funding the attorney general’s office, the state’s Department of Financial Services (DFS), and the city’s Department of Consumer and Worker Protection (DCWP) to support increased enforcement; and
- Developing a “Consumer Protection Restitution Fund” to support those harmed by consumer protection violations.
2. Banking Access and Affordability
Lander supports expanding access to banking because some New York households do not utilize banks due to various fees, such as overdraft fees. The report encourages the New York legislature to introduce legislation aimed at increasing access to banking by:
- Adopting DFS’s proposed rules to limit fees at state banks by classifying certain overdraft fees and nonsufficient funds as unfair or deceptive and limiting such fees;
- Introducing and enacting legislation to increase banking access; and
- Increasing allocated funds for banking programs.
3. Nonbank Financial Products
Newly developed financial products remain a concern for Lander as these products are not required to strictly comply with regulations that are otherwise generally applicable to traditional consumer lending arrangements. According to Lander, the lack of regulation of nonbank financial products results in predatory lending practices. Lander suggested ways to protect New Yorkers, such as:
- Passing the End Loansharking Act (A4918/S1726) which would expand the attorney general’s authority and reclassify many nonbank financial products; and
- Requiring clear fee disclosures and prohibiting deceptive pricing methods.
4. Consumer Rights
In his report, Lander suggests that New York does not have legislation like other states, such as California and Oregon, which dictate how financial companies can use a consumer’s data. To protect consumer data rights amidst the CFPB’s plans of nullifying its data privacy rules, the report suggests:
- Improving privacy laws within the state to increase consumer data privacy rights; and
- Removing exemptions from having to comply with privacy protections for financial institutions.
5. Consumer Outreach and Engagement
Lander suggests that regulators and state and local government need to engage with and educate communities to ensure they are aware of state banking programs by:
- Developing a public consumer complaint database; and
- Developing outreach techniques to increase the public’s knowledge about more affordable banking options.
Why It Matters
State and local governments are reacting to the CFPB’s recent shift away from its last four years of aggressive oversight and enforcement of federal consumer protection laws, which has resulted in state-level action to strengthen enforcement powers. Companies doing business in New York now may face increased legal challenges at the state level, given heightened regulatory scrutiny and political pressure to increase oversight and bolster protections, especially as to emerging financial products (e.g., earned wage access and income share agreements), higher APRs, or involve small business lending. At this time, it is prudent for companies involved in nonbank lending and consumer financial services to implement enhanced consumer protection measures and focus resources into compliance systems. Companies should also anticipate increased scrutiny in other states as they follow the lead of New York and be ready to adapt business practices accordingly. With the likelihood of increased enforcement at the state level, it is crucial for companies to stay informed and prepared for potential changes in a complex legal landscape.