The Dodd-Frank Act's expansion of state authority to protect consumers of financial services.

INTRODUCTION II. FEDERAL BANKING AGENCIES FAILED TO PROTECT CONSUMERS DURING THE HOUSING BOOM AND PREVENTED THE STATES FROM DOING SO A. The FRB Failed to Exercise Its Authority under HOEPA to Stop Predatory Lending B. The FRB Failed to Regulate Nonprime Lenders That Were Subsidiaries of Bank Holding Companies C. Federal Banking Agencies Issued Weak and Inadequate Guidance on nonprime Mortgages D. Federal Regulators Failed to Stop Predatory Lending Because of Their Belief in Deregulation and "Pushback" from the Financial Services Industry 1. The FRB, the OTS and the OCC Followed Deregulatory Policies During the Nonprime Lending Boom 2. The Financial Services Industry Strongly Resisted Efforts by Federal Regulators to Restrict Nonprime Mortgage Lending E. The OTS and the OCC Preempted Initiatives by the States to Stop Predatory Lending, Thereby Aggravating the Severity of the Financial Crisis 1. Many States Adopted Laws and Brought Enforcement Actions to Stop Predatory Lending 2. The OTS and the OCC Preempted State APL Laws and State Enforcement Efforts 3. The Industry-Based Funding for the OTS and OCC Created a Conflict of Interest Between Their Supervisory Duties and Their Budgetary Concerns 4. OTS and OCC Preemption Helped Federal Thrifts and National Banks to Establish Leading Positions as Subprime and Alt-A Mortgage Lenders 5. The OTS, the OCC, and the FRB Failed to Prevent the Failures of Several Major Financial Institutions That Were Heavily Engaged in Originating and Securitizing Nonprime Mortgages III. TITLE X OF DODD-FRANK GRANTS SUPPLEMENTAL LAWMAKING AND LAW ENFORCEMENT POWERS TO THE STATES AND IMPOSES SIGNIFICANT RESTRICTIONS ON THE OCC'S AUTHORITY TO PREEMPT STATE LAWS A. Title X Establishes a Federal "Floor" of Protection for Consumers of Financial Services B. Title X Empowers the States to Adopt Laws Providing Additional Protection to Consumers of Financial Services C. Title X Enables State Attorneys General to Enforce the CFP Act and the CFPB's Regulations D. Dodd-Frank Limits the Preemptive Authority of the OCC with Respect to National Banks and Federal Thrifts 1. Dodd-Frank Establishes New Preemption Standards That Govern the Application of State Consumer Financial Laws to National Banks and Federal Thrifts 2. Dodd-Frank's New Standards Significantly Limit the OCC's Authority to Preempt State Consumer Financial Laws a. Under Dodd-Frank, the OCC May Preempt a State Consumer Financial Law Only If That Law Prevents or Significantly Interferes With a National Bank's Exercise of Its Powers b. Dodd-Frank Requires the OCC to Act on a Case-by-Case Basis, to Show Substantial Evidence for Its Preemptive Determinations, and to Publish and Review Its Determinations Periodically c. Dodd-Frank Confirms that the NBA Is Governed by Conflict Preemption Rules, and that OCC Preemption Determinations Are Not Entitled to Chevron Deference d. Dodd-Frank Denies Preemptive Immunity to Most Subsidiaries, Affiliates and Agents of National Banks 3. Dodd-Frank Requires the OCC to Rescind or Modify Its Existing Preemption Rules Except for the Regulation Governing the Charging of "Interest" under 12 U.S.C. [section] 85 a. The OCC's Preemption Test Conflicts with the Barnett Bank Preemption Standard Incorporated by Dodd-Frank b. The OCC's Blanket Preemption Rules Are No Longer Valid in View of Dodd-Frank's Mandate for "Case-by-Case" Determinations Supported by "Substantial Evidence" c. The OCC's Preemptive Rule for Operating Subsidiaries Conflicts with Dodd-Frank d. The OCC's Existing Preemption Rules Must Conform to Dodd-Frank by July 21, 2011 4. Dodd-Frank Affirms the Authority of State AGs to Enforce Applicable Laws Against National Banks 5. Dodd-Frank Establishes Preemption Standards under HOLA That Are Equivalent to Those Embodied in the NBA 6. Dodd-Frank Does Not Address State Laws of General Application, But Those Laws Should Presumptively Apply to National Banks under Existing Judicial Precedents IV. TITLE X OF DODD-FRANK CREATES A REGIME OF INTERACTIVE FEDERALISM THAT WILL PROVIDE BETTER SAFEGUARDS FOR CONSUMERS OF FINANCIAL SERVICES A. Title X Will Promote Beneficial Cooperation, Competition, and Innovation by CFPB and State Officials B. Title X Reduces the Risk that CFPB Might Be Captured by the Financial Services Industry V. CONCLUSION I. INTRODUCTION

On July 21, 2010, President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). (1) The statute's preamble states that one of Dodd-Frank's purposes is "to protect consumers from abusive financial services practices." (2) When President Obama signed Dodd-Frank into law, he declared that the statute would create "the strongest consumer financial protections in history." (3)

In order to implement and enforce Dodd-Frank's new protections for consumers, Congress created the Bureau of Consumer Financial Protection (CFPB) as an "independent bureau" within the Federal Reserve System (Fed). (4) President Obama explained that CFPB will operate as "a new consumer watchdog with just one job: looking out for people--not big banks, not lenders, not investment houses--looking out for people as they interact with the financial system." (5) Similarly, the Senate committee report on Dodd-Frank explained that CFPB's mission is to "help protect consumers from unfair, deceptive, and abusive acts that so often trap them in unaffordable financial products." (6)

Thus, Congress gave CFPB "the Herculean task of regulating the financial services industry to protect consumers." (7) Congress sought to increase CFPB's "accountability" for that mission by delegating to CFPB the combined authority of seven federal agencies that were previously responsible for protecting consumers of financial services. (8) Congress determined that a single federal authority dedicated to protecting consumers of financial services was needed in light of "the spectacular failure of the [federal] prudential regulators to protect average American homeowners from risky, unaffordable" mortgages during the housing boom that led to the financial crisis of 2007 to 2009. (9) As stated in the Senate report, and as further explained in Part II of this Article, federal banking agencies "routinely sacrificed consumer protection" while adopting policies that promoted the "short-term profitability" of large banks, nonbank mortgage lenders and Wall Street securities firms. (10) The Senate report concluded that "the failure by the prudential regulators to give sufficient consideration to consumer protection ... helped bring the financial system down." (11)

To provide additional safeguards to consumers, Dodd-Frank enables the states to supplement CFPB's rulemaking and enforcement efforts. Congress realized that many states attempted to stop abusive mortgage lending practices during the housing boom by adopting and enforcing state laws. (12) However, "rather than supporting these anti-predatory lending laws, federal regulators preempted them." (13) As explained in the Senate report and as further discussed in Part II.E of this Article, two federal banking agencies--the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS)--"actively created an environment where abusive mortgage lending could flourish without State control." (14)

To correct the problems created by federal preemption, Dodd-Frank enlarges both the lawmaking and law enforcement functions of the states in the area of consumer financial protection. As described in Part III of this article, Title X of Dodd-Frank empowers CFPB to issue regulations that establish a federal "floor" of consumer protection and authorizes the states to adopt additional substantive rules that provide greater safeguards to consumers. Dodd-Frank also allows state officials to enforce the statutory provisions of Title X as well as CFPB's regulations and applicable state laws. The Senate report endorsed these grants of enhanced authority to the states, noting that "States are much closer to [financial] abuses and are able to move more quickly when necessary to address them." (15)

Moreover, Dodd-Frank abolishes the OTS, limits the preemptive authority of the OCC, and clarifies the states' authority to apply and enforce their consumer financial protection laws against national banks and federally-chartered savings associations (federal thrifts). Under the new preemption standards established by Title X of Dodd-Frank, (i) state consumer financial laws will apply to national banks and federal thrifts unless they prevent or significantly interfere with the exercise of national bank powers; (ii) the OCC will have authority to preempt state laws only on a case-by-case basis and only if its preemption determinations are supported by substantial evidence; (iii) state laws will generally apply to the subsidiaries, affiliates and agents of national banks and federal thrifts; and (iv) state attorneys general will have authority to enforce applicable laws--including non-preempted state laws and CFPB's regulations--against national banks and federal thrifts through judicial enforcement proceedings.

Part IV of this Article situates Title X of Dodd-Frank within contemporary debates about the proper role of state lawmaking and state enforcement in the area of consumer protection. By enabling states to construct additional safety measures on top of the federal "floor" of consumer financial protections, Title X of Dodd-Frank affirms the longstanding role of states as "laboratories of regulatory experimentation" in identifying emerging threats to consumer welfare and designing new legal rules to counteract those threats. (16) In addition, the supplemental enforcement powers granted to states under Title X enables state officials to act as "normative entrepreneurs" in protecting their citizens from unfair, deceptive, or abusive financial practices in circumstances where CFPB or other federal agencies might fail to...