States Push For Consumer Protection Laws As Trump’s CFPB Recedes

Financial protections available to consumers will increasingly depend on where they live after President Donald Trump all but eliminated the federal CFPB.

At least 16 states have enacted measures this year seeking to boost consumer financial protections and limit hidden or unexpected “junk” fees, according to a Bloomberg Law review. Dozens more considered bills that didn’t make it over the finish line but could be revived in future legislative sessions.

While blue states are leading the legislative push, some proposals fell short in areas that the Biden-era Consumer Financial Protection Bureau sought to regulate. Several red states are also ramping up enforcement under existing consumer protection laws, but not nearly enough to make up for the sudden dropoff at the CFPB.

As a result, financial companies must now contend with a hodgepodge of different rules and enforcement practices without a federal baseline.

“We fully expect to see this sort of patchwork of state enforcement and state action that’s only going to benefit some Americans,” said Whitney Barkley-Denney, deputy director of state policy at the Center for Responsible Lending.

Individual states can’t fully replicate what the CFPB does in scale or national impact, she added.

State Action

During Trump’s first term, state attorneys general and lawmakers were aggressive in filling the gap left by the CFPB’s initial retreat, which left them better prepared to handle the current situation, said Anastasia Caton, a Hudson Cook LLP partner whose practice focuses on consumer financial services.

New York, California, and Pennsylvania had already advanced consumer protection legislation and dialed up enforcement, and they’ve been active once again, Caton said.

But it’s not just the usual suspects stepping up, she said, citing more aggressive action emanating also from states such as Texas.

“This time around, they were ready,” Caton said.

Maryland enacted a measure in April seeking to prevent medical bills from upending consumers’ credit reports. The state is one of six that have enacted similar legislation since January and among 15 in total that have passed such laws in the past two years, according to the Consumer Federation of America.

The new law, sponsored by Sen. Clarence Lam (D), a physician, and Rep. Julie Palakovich Carr (D), generally prohibits health providers and debt collectors from reporting medical debt to consumer credit reporting companies.

No one should be penalized for medical costs incurred for their health or that of their loved ones—expenses consumers don’t typically plan to take on, the Maryland lawmakers said.

The medical debt bill was previously paused when the CFPB under former President Joe Biden signaled national action, Palakovich Carr said. But the agency under Trump elected not to defend its Biden-era rule barring medical debt from consumer reports, and a federal judge in Texas has now vacated the rule—one of several struck down in recent months.

“Very soon after the November 2024 election, I was like, ‘I think it’s time to dust this proposal off and put it in for the 2025 session,’” Palakovich Carr said.

Abusive Acts, Junk Fees

New York lawmakers passed a measure to give their state’s attorney general the power to bring claims that a service provider engaged in unfair or abusive acts and practices, expanding on the office’s power to pursue claims over deceptive practices. That law has yet to be transmitted to Gov. Kathy Hochul (D), who may seek revisions following complaints from New York’s business community.

Meanwhile, Illinois has taken aim at hidden charges consumers sometimes pay on products or services they already purchased. Rep. Bob Morgan (D), who sponsored the state’s Junk Fee Ban Act, said he was driven by mounting constituent complaints following the pandemic.

More than 30 states have moved to enact transparency or junk fee laws this year, dovetailing with a Biden administration push to curb the fees nationally, data from the National Conference of State Legislatures shows.

Illinois is going it alone on junk fees and many other issues, Morgan said, adding that volatility and lack of predictability from the federal government is nothing new.

“When you’re firing hundreds of federal employees whose sole job is to protect us from things like junk fees, the state of Illinois has to step in,” Morgan said.

Defying Partisanship

Protections have fractured along state lines, but tightening rules on consumer finance providers isn’t strictly partisan. Even some blue states didn’t go as far as consumers would’ve liked.

Maryland, for instance, enacted a law in May that stops short of treating earned-wage access cash advances as loans subject to stricter rules, drawing criticism from consumer advocates.

Meanwhile, Texas lawmakers enacted tight restrictions on merchant cash advance companies that provide funding to small businesses in exchange for a percentage of sales.

And several red states are using existing laws to bring consumer-focused enforcement actions, as seen in suits over the past year from Arkansas, Indiana, and Texas alleging General Motors Co. and its subsidiary OnStar LLC deceived consumers about selling their driver data to third-party brokers.

“It is not necessarily a red-state, blue-state issue,” Barkley-Denney said.

Uneven Enforcement

Varied enforcement laws across states is nothing new, said Marci Kawski, who leads Husch Blackwell LLP’s consumer financial services practice.

Companies have always had to comply with a dual federal-state system, including different regulatory regimes in different states, she added.

If enough states enact their own legislation, industry leaders will eventually push Congress for uniform standards, said Lam, the Maryland state senator.

For now, he said, the burden of consumer financial protection rests largely on the efforts of states.

“When you see the CFPB being gutted with repeated efforts to eliminate its budget or hamstring its director or employees, it’s clear that much of the consumer protection efforts need to be focused on the state and local level at this point,” he said.