Elizabeth Warren, the Harvard University law professor deputized by President Obama to police consumer finance, is recruiting 50 state prosecutors to help. She may even bankroll their work.
“The state attorneys general are natural partners for the consumer agency,” Warren, 61, said in an interview. “There are regulators in Washington that used to prevent state attorneys general from protecting consumers.”
The attorneys general say they are now invited to the nation’s capital and talk with Warren by telephone almost weekly as she sets up the Bureau of Consumer Financial Protection. On Nov. 30, Warren traveled to Fort Lauderdale, Florida, to plot strategy at the prosecutors’ winter meeting.
Bernard Nash, a law partner at Dickstein Shapiro LLP in Washington, said Warren’s alliance with state prosecutors will strengthen both her hand and theirs. It will also antagonize banks, who opposed the creation of the consumer bureau.
“There are going to be major consequences here,” said Nash, who leads his firm’s state attorneys general practice. “Instead of one enforcement arm, there are going to be 50 of them.”
The Dodd-Frank financial overhaul that became law in July revamped the relationship between federal agencies and state enforcers, and Warren has seized on that change.
The law gives state attorneys general the authority to enforce regulations written by the new bureau in court, and allows the agency to take part in the case. A vote by a majority of the states can force the bureau to consider adopting a new regulation.
Dodd-Frank also curbed the ability of national regulators, primarily the Office of the Comptroller of the Currency, to block state consumer protection actions. That’s one reason large banks including JPMorgan Chase & Co. opposed the bill.
“We’re not in favor of 50 states having enforcement, because that means it will be really hard to service you the customer,” JPMorgan Chief Executive Officer Jamie Dimon said in a conference call last December. “If we do something like that, the customer will pay the price, not JPMorgan.”
Ed Mierzwinski, director of the consumer program at US PIRG, said banks opposed the creation of the new agency because they preferred the status quo.
“There are many regulations, like tax systems, that modern companies deal with profitably across state lines,” said Mierzwinski, whose Washington-based group supports the consumer bureau. “The real reason industry does not want 50 strong state laws is because they prefer one weak federal law.”
Enlisting state attorneys general is part of Warren’s strategy of making common cause with people who believe in the agency’s new mission and can support it for the long term, she said.
“A long-term way to anchor the agency in consumer protection -- as opposed to bank protection -- is to anchor it to the state attorneys general,” said Prentiss Cox, a former assistant attorney general in Minnesota and now a professor at the University of Minnesota law school.
Roy Cooper, the attorney general of North Carolina, said Warren has told them she wants states to help formulate new policies around mortgages and credit cards, her two top priorities. Last month, Cooper formed a group of attorneys general from Washington, Indiana, Illinois and Iowa to work with Warren on those issues and others.
‘Portal of Complaints’
“We are the initial portal of complaints from consumers, and we can react more quickly than a federal agency,” said Cooper, a Democrat who heads the National Association of Attorneys General. “But it will be interesting to see how nimble this new bureau will be.”
The state AGs may help the bureau spot national trends more quickly, allowing faster enforcement, Cooper said.
“By leveraging our resources, we can make the whole greater than the parts,” Warren said.
On financial issues, the OCC has long restrained state efforts to regulate or enforce standards on nationally chartered banks, said Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending in Durham, North Carolina.
“The attorneys general see a chance to finally have a seat at the table in Washington,” Kukla said.
A key goal of state attorneys general in forging a close relationship with Warren is to influence regulations on “preemption,” the legal doctrine that allows federal law to trump state law when they conflict, Cooper said.
“One of the reasons we are getting in early is to have a say on what these regulations say regarding preemption,” Cooper said.
The American Bankers Association, which represents major banks, has placed a high priority on maintaining federal preemption for state actions, and downplays the role of state attorneys general.
“Ultimately, it is the court’s decision on preemption, before as after Dodd-Frank,” said Kenneth Clayton, senior vice- president and general counsel for card policy at the ABA.
During this week’s Florida meeting, Warren said state attorneys general asked whether she could make federal money available to fund state enforcement efforts. She was non- committal: “It’s one of the ideas on the table, but it’s early in the game,” Warren said.
The idea has precedent. For instance, the U.S. Department of Health and Human Services gives states grants to finance prosecutions of Medicaid fraud, said Greg Zoeller, the attorney general of Indiana.
Although Zoeller lobbied the Indiana congressional delegation to oppose the creation of the consumer bureau, he’s now working with Warren on enforcement issues.
All the same, he worries that the state AGs could end up being “contractors” for Washington.
“I fear that over the years, the bureau will dictate to the independent attorneys general how we do our job,” Zoeller said.
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