Opinion: Delivering better consumer financial protection for New Yorkers

New York urgently needs new legislation to “muscle up” its laws that protect consumers. Following the 2008 financial crisis which led to the Great Recession, Congress created the U.S. Consumer Financial Protection Bureau and gave it broad powers to combat “unfair, deceptive, or abusive” conduct. In the years since, the CFPB has clawed back and returned billions of dollars to customers from financial institutions that cheated them.

These widespread harms to consumers can take various forms. The CFPB’s first enforcement actions returned hundreds of millions of dollars to consumers who opened new credit card accounts and were charged useless “add-on” fees in the process of signing up for them. 

Another notorious action exposed Wells Fargo for signing people up to fake bank accounts they had not requested, which padded the numbers for awarding bonuses to employees. In yet another major action, the CFPB joined 49 state attorneys general in ordering Ocwen Financial to repay $2 billion to homeowners for rampant legal violations in servicing their home mortgages. In many other cases, as in Ocwen, the CFPB has teamed up with New York and other states to get meaningful relief for those hurt by illegal and predatory practices.

But the Trump administration is now backing away. Elon Musk wants to “delete” the CFPB, and his minions are working to gravely weaken it, including by dropping major law enforcement actions against financial companies for harming consumers. And who are the consumers now at risk? They are our families, our friends, ourselves – everyone who uses basic consumer financial products like mortgages, credit cards, auto loans and student loans. 

The gutting of protections at the federal level sounds the alarm for state officials who care about consumers and who can do more to protect them. A key piece of legislation to modernize New York’s core consumer protection laws is thankfully being advanced by state Attorney General Letitia James. The bill is the Fostering Affordability and Integrity through Reasonable (FAIR) Business Practices Act, and it will be sponsored by state Sen. Leroy Comrie and Assembly Member Micah Lasher, both of whom are ardent supporters and sponsors of consumer protection legislation.

How will this bill matter? Let’s step back for a moment and look at the bigger picture. Our American system of federalism provides for dual levels of responsive governments – one national authority and many state governments designed to be closer to the people – to better ensure liberty and security to each citizen. 

For over two centuries, this system has proved durable and yet flexible enough to meet localized needs in different regions of our country. Authority has ebbed and flowed, especially when it comes to economic matters. Sometimes the federal government has stepped in with new programs and initiatives. More often, state and local leaders have paved the way for new expansion and development – be it by digging the Erie Canal or building the subway system for New York City.

Often these parallel layers reinforce one another, as they do in constructing a workable network of roads and rail transportation or in financing and administering our vast system of higher education. Federalism also allows state leaders to move forward even when the federal government retreats, as the Trump administration is now rapidly doing on consumer protection. 

In fact, for most of our history, state and local governments served as the front line of protection against fraudulent and deceptive practices by financial institutions. In recent years, the states have continued their vital work alongside and in conjunction with federal officials. But with Musk’s aggressive new chokehold on the CFPB, state law enforcement authorities, including the New York attorney general’s office, are already moving to pick up the slack.

New York, however, is working with a law passed generations ago that – unlike many other state laws and their federal counterparts – only prohibits “deceptive” practices, but does not reach either “unfair” or “abusive” practices. As long as the cops were on the beat at the national level, this narrower approach was less consequential. But now that the feds are standing down, New Yorkers are exposed.

The markets for consumer products have become increasingly complex. Bad actors are using powerful new technologies and computer algorithms to fleece consumers in ways both large and small. By adding extra fees or complicated contract terms, often buried deep in the fine print, they can harm consumers using methods that go beyond merely tricking or deceiving them. A stronger response is needed to protect New Yorkers more effectively.

One thing we can count on is that the lawbreakers are endlessly creative and imaginative. New York needs the more robust tools provided in the proposed legislation to keep pace with these novel schemes. The federal government has identified the needed tools but now has lost its will. New York officials have the will and the know-how to protect consumers, but they need these better tools to do the job properly. The time is now for a strong push to pass the FAIR Business Practices Act as soon as possible.