An op-ed that was published in yesterday’s American Banker and was written by a research institute reinforced what we have all been thinking and saying during the past few months with respect to the aftershocks reverberating around the country as the Consumer Financial Protection Bureau retreats from its role as the industry’s primary regulator. The article, “Out of One, Many” was written by the head of the Southwest Public Policy Institute.
Why it matters: The CFPB’s retreat is creating a regulatory vacuum. And instead of fewer rules, the gap is being filled by a patchwork of state-level actions—turning one heavyweight regulator into 50 (or more) eager enforcers.
The big picture:
- The Bureau is shrinking after multiple workforce cuts.
- States are stepping into the void, each developing their own consumer-finance mandates.
- That shift is accelerating fragmentation, raising compliance costs, and leaving smaller institutions struggling to keep up.
Driving the news:
- At least 16 states have enacted new consumer-finance statutes in the past year.
- These include broader “junk fee” definitions, expanded disclosure mandates, and new state-level UDAAP liability theories.
- Examples:
- New York’s FAIR Business Practices Act greatly expands the attorney general’s authority.
- Illinois added “all-in pricing” rules.
- Texas restricted small-business finance.
- States moved quickly to replicate the CFPB’s medical-debt reporting ban after it was vacated in federal court.
The problem: Compliance teams now face conflicting obligations. What’s permitted in Texas may be banned in New York. A fintech app might have to refund scam victims in one jurisdiction but not another. Even interface design is under scrutiny—illustrated by New York’s lawsuit against Zelle’s parent.
Between the lines:
- Larger banks can manage the maze with deep legal and compliance budgets.
- Smaller banks, credit unions, and fintechs cannot—and may be forced to either raise prices nationally or exit tough states entirely.
- That leaves consumers with fewer choices, higher fees, and slower innovation.
The irony: Many in the industry long argued the CFPB was too aggressive. But at least it was one regulator with one rulebook. Now, companies face dozens of attorneys general, each pursuing their own theory of what’s “unfair” or “abusive.”
What’s next: The op-ed calls for Congress to act:
- Create a national framework that emphasizes transparency, fraud prevention, and measurable consumer outcomes.
- Provide safe harbors tied to auditable best practices.
- Preempt duplicative state mandates that are fueling today’s regulatory balkanization.
The bottom line:
