Elizabeth Warren, the Harvard University law professor selected by President Barack Obama to police consumer finance, is wooing state attorneys general to act as her deputies. Warren, who is on leave from Harvard, may even seek approval to bankroll their work. The state prosecutors "are natural partners for the consumer agency," she said in an interview. "There are regulators in Washington that used to prevent state attorneys general from protecting consumers."
The Dodd-Frank regulatory reform law gives state prosecutors the right to enforce regulations written by the Consumer Financial Protection Bureau that Warren is setting up. Attorneys general can also petition the new agency to issue specific rules after it officially opens for business in July 2011.
The new geniality is a departure from the recent past. Before the law was enacted in July, AGs tangled repeatedly with the Office of the Comptroller of the Currency, which cited the doctrine of federal preemption to block states from enforcing stronger banking laws. In one example, Attorney General Andrew Cuomo, now governor-elect of New York, sued the federal government for the right to enforce state consumer-protection rules that the OCC said clashed with its own regulations. The Supreme Court ultimately decided in New York's favor in 2009. "We have had a difficult relationship with the federal banking regulators," says James Sugarman, an assistant attorney general in Washington State, "and we have great hopes that we will work as equal partners with the new bureau."
During the financial reform debate, Wall Street argued for federal preemption, saying it would prevent a morass of different rules. "We're not in favor of 50 states having enforcement, because that means it will be really hard" to service customers, JPMorgan Chase Chief Executive Officer Jamie Dimon said last December. Ed Mierzwinski, a director at U.S. PIRG, which advocates for consumers, dismisses such complaints. "There are many regulations, like tax systems, that modern companies deal with profitably across state lines," he says.
The attorneys general say they now talk with Warren regularly as she sets up the new bureau. On Nov. 30, Warren traveled to Fort Lauderdale to plot strategy at the prosecutors' winter meeting. North Carolina Attorney General Roy Cooper says she has sought the AGs' help in forming new policies for mortgages and credit cards, her priorities. "We are the initial portal of complaints from consumers, and we can react more quickly than a federal agency," says Cooper, a Democrat.
During the Florida meeting, Warren says, the state prosecutors asked if she could make federal money available to fund state enforcement efforts. She's considering the idea, which has precedent. The U.S. Health and Human Services Dept. gives states grants to finance prosecutions of Medicaid fraud, says Indiana Attorney General Greg Zoeller, a Republican. Zoeller is now working with Warren, despite worries that state AGs will get hooked on federal cash. "I fear that over the years, the bureau will dictate to the independent attorneys general how we do our job," Zoeller says.
The bottom line: Consumer finance watchdog Elizabeth Warren hopes state prosecutors will help her detect fraud and enforce new rules.