State AGs Continue to Supplant Weakened CFPB on Enforcement

Financial Services Law

No CFPB, no problem? State attorneys general continue to move aggressively, as shown by the Illinois action against a “pension sale” installment lender, plus a notable settlement in New Mexico with the major card networks.

What happened

States continue to fill the void left by the neutered Consumer Financial Protection Bureau (CFPB), with attorneys general leading the charge. The most recent moves:

Washington State. Attorney General Bob Ferguson just filed a consumer protection lawsuit against a company that allegedly scammed foreclosed homeowners out of equity in the form of surplus funds from the sale. According to the complaint, the alleged scammers collected a “fee” in connection with recovery of these funds, but what the consumers were really doing was signing over rights to the remaining equity in their homes. During the period following the subprime meltdown in 2008–09, homeowners were often upside down on their mortgages, but with increasing frequency, that is no longer the case.

Illinois. Late last month, Attorney General Lisa Madigan accused a Nevada-based company of making installment loans without a license and attempting to disguise the loans as “pension sales.” Consumers, after taking out loans ranging from $2,000 to $5,000, allegedly repaid the company from their monthly pension payments. But due to high finance charges, they ended up paying back tens of thousands of dollars more than the amount they borrowed. By way of example, one consumer obtained a loan of $2,100, but repaid $16,800 as a result of making pension payments of $350 each month over four years. The loans, alleges the AG, were disguised as “pension sales” to conceal the high interest rates.

The AG’s lawsuit requests that the court void the company’s contracts and award restitution to consumers, impose a civil penalty, and prohibit the company’s marketing or offering loan services in the state without a license.

New Mexico. New Mexico settled for $3.4 million over allegations that the two largest payment card networks charged excessive interchange fees during credit and debit card transactions.

After opting out of the ongoing national class action against these networks, New Mexico filed its suit in 2014.

The action sought to disgorge gains and impose penalties for alleged anticompetitive misconduct by the two networks in setting the fees imposed on merchants each time a cardholder swipes a card to make a purchase. After multiple attempts by the defendants to dismiss the case were denied by the court, the parties reached a deal. The money will be used for “law enforcement efforts to prevent and prosecute financial fraud or unfair or deceptive acts or practices, including anti-competitive behavior, and to investigate, enforce and prosecute other illegal conduct related to financial services or consumer protection and antitrust laws,” according to the agreement.

An educational component of the deal requires the defendants to post language on their websites about interchange fees and pay a total of $5,000 to the Attorney General’s Office to cover the costs of the production and delivery of 200,000 magnets with information on consumer rights for New Mexico residents.

The Washington State AG press release may be viewed here.

To read the Illinois AG’s press release about the case, click here.

To view the settlement agreement in New Mexico v. Visa, Inc., click here.

Why it matters

As the CFPB continues to stand down, state AGs have been stepping up enforcement actions. In the absence of federal action, expect the states to maintain their aggressive stance.