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For immediate release - Tuesday, August 18, 2009
Contact Bob Brammer - 515-281-6699, or rbrammer@ag.state.ia.us.

State AGs Push for CFPA –
U.S. Consumer Financial Protection Agency

Attorney Generals tell Congress: “An independent federal agency combined with joint enforcement by state officials is the best option for meaningful protection” of consumers in the financial services sector.

State Attorneys General are urging Congress to create a Consumer Financial Protection Agency, saying the new agency “promises to be an effective check on the recent excesses of the financial industry”-- especially in collaboration with state consumer protection efforts.

“Working with the states, this agency will be able to prevent and root out unfair and deceptive practices by the financial services industry,” said Iowa Attorney General Tom Miller, who organized the Attorney Generals’ letter to key Members of Congress. “It’s crucial for individual consumers, and for the economy in general.”

Twenty-four State Attorneys General sent a letter Monday to leaders of the Senate Banking Committee and the House Financial Services Committee, voicing strong support for the Consumer Financial Protection Agency proposed by the Obama Administration. [Go to AGs' letter.]

“The current financial crisis, caused in part by irresponsible subprime lending and inadequate oversight, has demonstrated the need for comprehensive and effective consumer protection and enforcement at the federal level,” the Attorney Generals’ letter said.

The letter also underscored the Attorney Generals’ conviction that legislation creating the CFPA should explicitly preserve the states’ authority and ability to fight unfair and deceptive practices, and also should foster the states’ role in collaborating with the new federal agency.

“We appreciate the fact that this legislation recognizes the key role that state Attorneys General serve in spotting new frauds and abuses, responding to citizen concerns, and enforcing state laws. The preservation of our role is critical to fighting fraud in the financial marketplace and a crucial factor in our support of this legislation,” the letter said.

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More background and detail:

The letter was sent late Monday, Aug. 17, to Rep. Barney Frank, Chair of the House Financial Services Committee, and Rep. Spencer Bachus, Ranking Member of the committee; and to Sen. Christopher Dodd, Chair of the Senate Committee on Banking, Housing and Urban Affairs, and Sen. Richard C. Shelby, Ranking Member of the committee.

The AGs for 24 states and jurisdictions signed the letter: AZ, CA, CT, HI, IL, IA, LA, ME, MA, MN, MS, MO, MT, NV, NJ, NM, NC, OH, OK, OR, TN, VT, WV, and Guam.

The sign-on effort was led by Iowa Attorney General Tom Miller, North Carolina Attorney General Roy Cooper, Illinois Attorney General Lisa Madigan, Ohio Attorney General Richard Cordray, and Massachusetts Attorney General Martha Coakley.

“There is clearly a need for effective regulation of consumer financial products that crosses existing regulatory lines,” the Attorneys General wrote to the Congressional leaders.

“We look forward to forging an alliance with a federal regulator that has the protection of consumers and the promotion of sound credit practices as its central agenda,” the AGs said.

State efforts to fight unfair and deceptive financial practices:

“The proposed Consumer Financial Protection Agency will treat the State Attorneys General as equal partners in the fight against unfair and deceptive financial practices,” Miller said. “The CFPA will not preempt state law. It will allow states to continue to experiment with different approaches – we call them ‘laboratories of democracy,’” Miller said.

“Historically, states have been proven leaders in fighting unfair and deceptive practices,” the letter said.

As introduced, the CFPA legislation gives state regulators authority to enforce their consumer protection laws against federally-chartered institutions. “We urge Congress to keep this provision in the final bill,” the letter said. “We believe state consumer protection laws should apply equally to all banking and financial institutions within the states’ jurisdiction, regardless of whether they are state or federally chartered.”

The Attorneys General said they are prepared to be strong and effective collaborators with the proposed new federal agency: “Unfair and deceptive practices, by their nature, are constantly evolving. Because of our local presence, Attorneys General are well-positioned to identify new trends, and we have long served an important role in finding innovative responses and solutions to these practices.”

The letter cited the explosion of “mortgage rescue scams” as “a perfect example of the states’ lead role in combating fraud.” Mortgage rescue scams have proliferated in the wake of questionable lending practices and the economic crisis. Scam-artists induce desperate homeowners to pay thousands of dollars in up-front fees for loan modifications, but the modifications never materialize – making the consumers’ situation even worse. The AGs said 27 states have enacted laws to protect citizens from such foreclosure rescue scams. The States will be good collaborators with the CFPA, the letter said, because “the states are nimble enough to recognize and react to such new frauds.”