Federal banking regulators have long kept state officials at arm's length, but the Consumer Financial Protection Bureau is forging a close relationship with state attorneys general to enforce consumer-banking laws.
The Dodd-Frank Act opened the door for information sharing and consultation between state and federal officials, encouraging the two to work together to pursue banks and nonbanks that engaged in abusive practices.
In April, the CFPB and state AGs made it official, releasing a joint statement of principles that said they would coordinate investigations and identify mutual enforcement priorities.
Their efforts to work together were also underscored by the nomination of Richard Cordray, a former Ohio attorney general and the bureau's enforcement chief, to be the CFPB's first director.
Observers say it's no accident that Cordray was chosen as the bureau's first enforcement chief. He's regarded as one of the most aggressive AGs in recent memory, and he made his name going after large mortgage servicers for their foreclosure practices well before the robo-signing scandal vaulted the issue to a national stage.
He also has the experience and the connections to build a relationship with the state AGs.
"I think that on a number of levels," Cordray's nomination "sends a pretty important message … that it's going to be a meaningful partnership," says Kevin Petrasic, a partner with Paul Hastings Janofsky & Walker.
The earliest evidence of that partnership is the bureau's involvement in the mortgage servicer settlement negotiations.
Critics have complained that the bureau, and early architect Elizabeth Warren in particular, improperly influenced the negotiations by offering their own analysis and opinions on the settlement terms and amount. The bureau has maintained that it provided advice only when asked.
Appropriate or not, the interactions revealed through documents and emails between the bureau and state officials show the two sides wasted no time joining forces to leverage their power, industry observers say.
"One could argue that you can't move any faster than warp speed, and the relationship between the bureau and the state attorneys general was warp speed," says L. Richard Fischer, a partner with the law firm Morrison & Foerster. "You can't have any more aggressive or active partner in an enforcement action, despite all the denials from the bureau. I think everything that has come out has demonstrated that it was a very, very active involvement."
After years of tension between state officials and federal bank regulators, Democratic lawmakers sought to restore the balance of power in the Dodd-Frank Act, particularly when it comes to federal preemption.
Under Dodd-Frank, the Office of the Comptroller of the Currency must consult on questions of federal preemption with the CFPB, which is expected to take a more sympathetic view of states' rights.
