Pennsylvania Establishes Consumer Financial Protection Unit

Pennsylvania Attorney General Josh Shapiro announced last week that he is creating a Consumer Financial Protection Unit to protect Pennsylvania consumers from financial scams. He also announced the appointment of Nicholas Smyth, who helped create the federal Consumer Financial Protection Bureau (CFPB), as Assistant Director of the Office of Attorney General’s Bureau of Consumer Protection with a dedicated focus on financial initiatives.

According to the announcment:

The effort will focus on lenders that prey on seniors, families with students, and military service members, including for-profit colleges and mortgage and student loan servicers.

The focus of consumer financial protection shows Attorney General Shapiro’s commitment to protect Pennsylvanians from scams. In recent weeks, Attorney General Shapiro filed a lawsuit with other Attorneys General against Education Secretary Betsy DeVos, after DeVos announced plans to roll back a critical student lending rule, and he also took action with colleague Attorneys General, urging the Federal Communications Commission to allow telephone companies to block illegal robocalls.

Smyth brings expertise in auto finance, student lending, debt collection and issues impacting military families. At the CFPB, Smyth led the investigation of the subprime auto lender Drivetime, which resulted in an $8 million settlement in 2014. He worked on CFPB v. ITT Educational Services, Inc., the CFPB’s first enforcement action against a for-profit college. Smyth also worked on an investigation of U.S. Bank’s MILES Program, a subprime auto finance program for military service members, which led to $6.5 million in consent orders.

Before joining the CFPB as its fourth employee, Smyth was part of a team at the U.S. Treasury Department that drafted and revised the CFPB’s enabling act, the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act).

insideARM Perspective

This action comes amidst a serious push by Republicans in Congress to eliminate -- or at a minimum restructure the CFPB, subject it to Congressional budget approval, and fire its Director, Richard Cordray.

Other states have also taken steps to double down on consumer finance laws, which has caused some to be accused of overreach. This article published in March accuses the Minnesota Department of Commerce. The article quotes a letter sent to Governor Mark Dayton by three Republican members of the Minnesota House of Representatives,

“[Court opinions and other legal filings published in the last several months] paint a disturbing picture of dubious motivation and disregard for the law, in which the good work of public servants is overshadowed by the inappropriate behavior of a few high-level officials. These conclusions come not just from adverse parties, but from state and federal judges of high regard. “

Two particular cases are mentioned as examples. Neither are debt collection related, but both are similar to arguments that have been made against the CFPB. One is a so-called consumer protection case pursued in the absence of supporting evidence; the other concerns the state’s apparent ability to collect any or as much personal data as it deems necessary to pursue an investigation.

In February, Maria Vullo, New York's Superintendent of Financial Services, sent this letter to state legislators that highlighted conflict between the Governor and the Attorney General over a proposal related to the structure of the state's financial services regulatory bodies. The Attorney General had sent a letter describing a proposal by the Governor to be,

"Wholly unnecessary overreach by the Executive that would alter the enforcement arrangement the Legislature established when creating DFS, resulting in unnecessary and harmful overlapping state enforcement authority, which could jeopardize ongoing and future investigations."

Vullo says,

"The Governor's Proposals only serve to protect New Yorkers from misconduct committed by banks and insurers, student loan servicers, and bad actors. The Proposals do not create overlapping enforcement jurisdiction. The Proposals do not alter the balance of authority between DFS and the Attorney General. And the Proposals do not require additional or duplicative funding for DFS. The Attorney General's opposition to the Proposals are based on nothing other than petty concerns over turf."

While quite a few states have had their own consumer protection laws for years, it seems that the current uncertainty at the federal level will only serve to fuel activity among states to revisit, strengthen, or augment existing laws or enforcement structures.