Buckle Up: CFPB Rolls Back State Enforcement Powers in Major Regulatory Shift

The Consumer Financial Protection Bureau (CFPB) has significantly curtailed states' ability to enforce federal consumer financial protection laws, marking a dramatic reversal from the Biden administration's approach to state-federal cooperation. On May 15, 2025, Acting Director Russell Vought rescinded a key 2022 interpretive rule that had expanded state enforcement authority under Section 1042 of the Consumer Financial Protection Act.

The Rescission Explained

The rescinded rule had allowed states to broadly enforce federal consumer protection laws such as the Truth in Lending Act and Fair Credit Reporting Act, effectively deputizing state attorneys general as federal enforcers. Under the previous interpretation, states could pursue claims against financial institutions for violations of any "enumerated consumer laws" enforced by the CFPB.

The new CFPB leadership argued that the 2022 rule was an overreach that misread statutory authority. The Bureau identified three core problems with the prior interpretation: it expanded Section 1042's reach beyond what Congress intended, disregarded statutory limitations on enforcement authority, and encouraged duplicative enforcement actions.

Critically, the rescission restores limits that prevent states from pursuing enforcement actions against entities like merchants and motor vehicle dealers that fall outside the CFPB's own jurisdiction. It also eliminates the provision allowing states to pursue concurrent actions with the Bureau against the same entity, instead encouraging joint actions where states notify the CFPB and the Bureau may intervene.

Immediate Impact on Consumer Protection

The practical effect is substantial. States can no longer broadly enforce violations of federal consumer protection laws and must focus primarily on the Consumer Financial Protection Act itself. This represents a significant reduction in state enforcement tools at a time when federal oversight is simultaneously being scaled back.

The CFPB has also withdrawn 67 other regulatory guidance documents and announced plans to reduce enforcement activities, focusing only on areas statutorily required. This creates what experts describe as an enforcement gap in consumer financial protection.

State Response: Legal Challenges and Alternative Strategies

Some states are already mounting a vigorous response. State attorneys general, particularly in California, Massachusetts, and New York, are expected to challenge Vought's rescission of the rule. A coalition of 23 attorneys general, led by New York's Letitia James and California's Rob Bonta, has already filed multiple amicus briefs defending the CFPB and challenging the Trump administration's broader efforts to dismantle the agency. These rescissions are likely viewed as part of the overall strategy.

Legal experts predict states will argue that courts should defer to the original 2022 interpretation. As noted by consumer advocates, "Courts have already considered this issue and agreed with the CFPB's reasoning in 2022 — and courts, not current CFPB leadership, will ultimately decide how Congress's words should be interpreted".

Predicting State Strategies

States are likely to pursue several parallel strategies in response to this federal retreat:

·       Enhanced State Law Enforcement: With federal enforcement constrained, states may shift focus to their own consumer protection statutes. State attorneys general are already positioning themselves to fill enforcement voids left by reduced federal priorities, with some states explicitly announcing plans to enforce federal laws like the Foreign Corrupt Practices Act using state unfair competition laws.

·       Multistate Coordination: States will continue coordinating in multistate initiatives and pursue wide-reaching investigations, particularly where federal enforcement may wane. This approach allows smaller states to leverage resources while maintaining pressure on national financial institutions.

·       Direct Legal Challenges: Beyond defending the CFPB, states will likely challenge the rescission itself in federal court, arguing that the new interpretation contradicts established precedent and congressional intent.

The ultimate resolution may depend on judicial interpretation, as some state regulators are anticipated to continue adhering to the view set forth in the now-withdrawn interpretive rule, potentially leading to litigation in enforcement actions between state attorneys general and enforcement targets.

This regulatory rollback sets up a fundamental conflict over consumer protection priorities, with states increasingly serving as the primary bulwark against financial misconduct as federal oversight retreats.