08 Aug Mini-CFPB? Pennsylvania attorney general launches consumer financial protection unit
Pennsylvania Initiates Its Own Enforcement Unit to Protect Consumers
The State of Pennsylvania’s Attorney General recently established the Keystone State’s own Consumer Financial Protection Unit to help protect the interests of consumers against predatory lending and other types of financial fraud. Headed by attorney Nicholas Smyth, formerly an employee of the federal Consumer Financial Protection Bureau (the “CFPB”), the new division of the Pennsylvania Attorney General’s Office will seek to curb ruthless financial services lending practices. Its targets may include companies which engage in usurious financial services practices at the expense of comparatively powerless consumers.
Consumer Protection Under Fire
Paradoxically perhaps, the decision to establish a new state office to safeguard the public against improper financial services practices occurs at a time when some members of Congress have sought to close down the federal CFPB, the role model for many state consumer protection efforts. Critics of the consumer watchdog agency have found some allies within the Trump Administration, who contend its activities may depress business activities.
The federal CFPB traces its inception to the recent Great Recession. During the mortgage crisis between 2007 and 2009, many families lost their homes during a spate of foreclosures. Some consumers claimed they faced financial problems because of unscrupulous mortgage lending practices and confusing adjustable rate mortgage rules. Legislation passed Congress in 2010 seeking to reform many aspects of financial services. The Dodd-Frank Wall Street Reform and Consumer Protection Act sought to implement the CFPB as a watchdog agency to defend consumer interest from predatory lending practices. Now some members of Congress would like to weaken the provision of the protective legislation.
The New Pennsylvania CFPB
Nicholas Smyth described himself as “honored” by his selection to head the new enforcement unit. He possesses extensive experience conducting complex litigation against some well-funded financial services companies. Some of his past cases include:
- A lawsuit by CFPB against ITT Educational Services;
- An investigation of lending practices of the auto loan provider Drivetime;
- An investigation into lending practices in the MILES Program established by U.S. Bank to finance cars for members of the military.
Several of these cases resulted in multimillion dollar settlements or consent orders. Nicholas Smyth informed the news media he will emphasize protecting the public from fraudulent financial practices in Pennsylvania.
Protecting Vulnerable Consumers
Speculation still surrounds some aspects of the new Pennsylvania unit in the media. Other states, such as Minnesota and New York, during the course of implementing broader consumer protections have fostered vigorous debate among advocates and opponents of state-sponsored consumer protection . Pennsylvania’s Attorney General indicated the new unit will focus initially on predatory lending practices.
Companies engaged in lending to some of these types of customers will likely receive especially close scrutiny by regulators in Pennsylvania:
- 1. Students with student loans;
- 2. The elderly on fixed incomes;
- 3. Military service personnel.
All three types of loan services consumers for a variety of reasons may possess limited capabilities to take legal action to correct unscrupulous lending practices by financial institutions and other financial services firms. Students may lack the funds to seek legal redress individually in court, for instance. Similarly, seniors and military personnel may become targets for ruthless lending practices due to their limited ability to protest adhesion contracts on an individual basis. A state watchdog agency such as Pennsylvania’s new consumer protection unit could take action when lending practices inflict widespread harm.
A Successful Federal Role Model
The efforts of the federal CFPB will likely serve as an inspiration for consumer protection watchdogs in Pennsylvania and other states. To date, that agency reportedly has compelled lending companies to return a total of $12 billion to impacted members of the public. It maintains an impressive track record, considering its limited period of operation since the era of the Obama Administration. Despite complaints to Congress by some lenders, the financial services industry as a whole continues to enjoy thriving activity and high profit margins.
Will its new enforcement unit assist the Pennsylvania Office of the Attorney General in better protecting residents of the Keystone State from egregious lending practices? Perhaps only time will tell. Yet the relief provided by this type of pro-consumer regulatory activity will likely meet with a warm reception on the part of many residents of Pennsylvania.