Two former regulators are urging states to build dedicated supervision policy offices inside their existing financial regulators, arguing that federal retrenchment has opened a gap in oversight of consumer financial markets.
The proposal was released last week via a memorandum from Protect Borrowers written by Lorelei Salas, a senior fellow at the group and former director of supervision at the Consumer Financial Protection Bureau, and Winston Berkman-Breen, the group’s legal director and former director of consumer advocacy at the New York State Department of Financial Services.
The memo says that as of August 2026 the CFPB is barely standing after what the authors call an all-out attack by the Trump administration. It cites other federal regulators scaling back supervision of for-profit institutions, inflation at record highs, and national household debt approaching $20 trillion. Buy now, pay later lenders, payroll advance providers and merchant cash advance companies are flooding the marketplace while escaping federal oversight, the authors write.
States already hold broad supervisory authority through bank chartering and non-bank licensing regimes covering installment lenders, money transmitters, loan servicers and debt collectors, according to the memo, including power to review data from regulated entities without a subpoena. In practice, the authors say, that authority has been distilled into two tools: periodic examinations and annual reports. Exams are typically onsite, backward looking and resource intensive, and state-regulated non-bank entities can go years without one.
The proposed office would be housed in the supervision department, report to supervision leadership and remain independent of examination staff while playing an advisory role during exams. Staffing would pair senior and junior attorneys with technologists specializing in product design, artificial intelligence and consumer behavior. Those staff would conduct product testing, recreate credit decisioning models and draft examiner checklists probing dark patterns and fair lending models.
The memo says such offices could be funded through industry assessments and licensing fees rather than legislative appropriations, and that states without dedicated funding could hire contractors using other than personnel services dollars.
It outlines six functions for the office: inventorying the agency’s legal authorities, designing a prioritization process that produces a six-month exam calendar drawn from complaint databases and news monitoring, selecting among supervisory methods including surveys, ad hoc data requests and rapid response protocols, developing UDAAP legal theories to support examiner findings, publishing anonymized supervisory highlights and guidance, and building relationships with legal services groups and local officials.
