Enforcing consumer protection law has long been a partnership between state and federal governments, with states often taking the lead. As markets have evolved and corporate influence has become more concentrated, the ability of states to uphold consumer protections has, in some cases, been outpaced.
To address this, the Consumer Financial Protection Bureau has compiled and released a comprehensive report on how state-level consumer protections can be strengthened, complete with specific recommendations.
According to the report, new and complex forms of financial abuse and exploitative business practices cropping up on a regular basis can be countered with revisions to states’ Unfair and Deceptive Acts and Practices (UDAP) laws.
The report also recommended updating fair dealing standards, including banning abusive practices, enhancing the authority of Attorneys General, removing evidentiary barriers for consumers, protecting businesses under consumer law, allowing private enforcement in forced arbitration cases, and banning schemes like junk fees and misuse of personal data.
A history of federal/state collaboration
Over the decades, states have created laws to ensure fair economic practices and protect consumers. The Tenth Amendment gives states the authority to regulate commerce, allowing them to address issues like debt, buyer rights, and fraud, often more effectively than the federal government.
Federal consumer protection started with the Federal Trade Commission (FTC) Act in 1914, which aimed to prevent unfair competition. After the Great Depression, federal protections increased to support consumer interests, continuing through World War II with new agencies and laws.
Congress focused on establishing general standards for “fair dealing” rather than listing specific unfair practices, prompting states to develop their own measures. In 1938, New York proposed a state-level consumer department. States adopted model laws like the Printer’s Ink statute to combat false advertising and the Uniform Small Loans Law for small loans. The 1950s saw efforts to create a general consumer protection statute, and in 1964, the Uniform Law Commission introduced the Uniform Deceptive Trade Practices Act, which many states were encouraged to adopt.
However, the FTC faced challenges in enforcing regulations across state lines. To assist states in creating consumer protection laws, the FTC set up a special office and collaborated with other organizations to release the Consumer Protection Act in 1967, leading to its adoption by 36 states by 1971. Congress also introduced consumer financial protection laws, granting state attorneys general more powers against unfair practices.
By the mid-1970s, most states had adopted the FTC’s model act. However, the FTC faced opposition from business interests, which hindered further regulatory actions. The Savings & Loan crisis in the 1980s revealed the risks of inadequate regulation, resulting in significant financial losses and prompting Congress to revise the financial system.
To prevent such crises, the Consumer Financial Protection Act was passed, creating the Consumer Financial Protection Bureau and enhancing state enforcement of federal consumer laws, emphasizing the importance of cooperation between federal and state governments for effective consumer protection.
The CFPB report argued that consumer protection laws from the 1960s and 70s need updates to stay effective due to changes in case law, the economy, and technology that pose a threat to consumers. It also noted a growing concern about power concentration among wealthy firms which can lead to lower wages and reduced competition, allowing large companies to set high prices and offer low-quality services.
Where can states go from here?
To address the situation state and federal regulators now find themselves in, the CFPB report posed a number of actionable recommendations:
- Incorporate “abuse” into state law – The CFPB recommended states consider incorporating legal language drawn from the Consumer Financial Protection Act (CFPA) into their statutes to define and prohibit abusive business practices.
- Stronger remedies and tools for investigation and enforcement – Under the report’s recommendation, state-level enforcers could be granted the authority to obtain civil money penalties similar to those the CFPB can seek under 12 U.S.C. § 5565(c) and create a civil money penalty fund that can compensate harmed consumers in cases where defendants are insolvent, among other powers.
- Eliminate requirement to prove monetary injuries – The CFPB recommended states consider amending their state prohibitions on unfair, deceptive, and/or abusive acts or practices in regard to legal burden of proof to lower the threshold an enforcer must meet before establishing a claim.
- Revitalize private enforcement – The CFPB recommended states consider supplementing public enforcement resources with private enforcement that can be effective against companies that use arbitration clauses.
- Provide strong and enforceable consumer data and privacy rights – The CFPB recommended states consider doing the following, where appropriate: require companies to only collect the minimum data necessary to provide their product or service; prohibit use of collected data for reasons other than providing the consumer a product or service they have requested; and prohibit the sale or transfer of personal data to third parties (including data brokers) that are unrelated to the provision of a requested product or service, with limited exceptions like credit bureaus.