MBA Premier Member Editorial: A Diminished CFPB–How Will States Respond?

(From left: Diane Jenkins and Jonas Hoerler)

The first in a two-part series on the regulatory landscape in light of the diminished role of the Consumer Financial Protection Bureau

Jonas Hoerler is Chief Regulatory Counsel with RegCheck, Asurity’s loan compliance solution. Diane Jenkins is an attorney with Asurity and a partner at Sandler Law Group.

For mortgage lenders and servicers as well as other players in the consumer financial services industry, it may truly be the end of an era. Since its inception, the Consumer Financial Protection Bureau has been a guiding force to the financial services industry. With the current administration scaling back and refocusing the CFPB, the financial services industry is left with uncertainty as to what the future holds.

Part One of this series discusses the role of states in filling the gap left by the current administration pulling back the role of the CFPB. Part Two will discuss how the courts and the mortgage industry itself may respond to the changes at the CFPB.

Created in response to the 2008 financial crisis as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB was established to safeguard consumers from unfair, deceptive or abusive practices by the financial services industry and to level the regulatory playing field between bank and nonbank financial services companies. Throughout its operating history, the CFPB has implemented regulations addressing nearly all aspects of the mortgage lending and servicing process, regulations which were time-consuming to comply with.

While the CFPB was given primary oversight of consumer financial protection, other federal financial regulators such as the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) still have authority in this space.  Although these agencies have also experienced some reduction in staff, they do have the authority to enforce laws pertaining to the banks under their supervision. However, according to 2023 HMDA Data, independent mortgage bankers originated approximately 63% of first lien purchase mortgages and 67% of first lien refinance loans. Such entities are not typically under the purview of other federal agencies and will be significantly less regulated at a federal level with the reduction  of the CFPB.

The CFPB’s Chief Legal Officer previously issued a staff memo indicating the agency intends to focus its supervision efforts on pressing threats to consumers, particularly those that impact service members and their families as well as veterans. The memo also indicated that the agency will prioritize mortgage supervision but reduce supervisory efforts in the areas of student loans, medical debt, and digital payments.  In addition, the agency intends to “respect federalism” by focusing primarily on areas where states do not have regulatory and supervisory authority. The CFPB followed up this memo by instituting another reduction in force by laying off 90% of its staff, although this action is currently being blocked by a federal judge. Following the intended layoffs, the agency will reportedly be left with approximately 200 employees.

States Respond to Strengthen Lending Oversight

In response to the ongoing restructuring of these federal agencies, state governments and their banking agencies are expected to take decisive actions to increase oversight of consumer protections, including mortgage banking regulations, to fill the void. One of the key developments in the battle to strengthen consumer protections at the state level actually came from the CFPB during the tenure of former Director Rohit Chopra, appointed under the Biden administration. Toward the end of Chopra’s tenure, the CFPB emphasized empowering state attorneys general and state regulators to enforce federal consumer protection laws, and even went a step further to provide recommendations to states on how they could update their laws and regulations to bolster regulatory oversight.

As part of this effort to further support state-level action, the CFPB released a comprehensive report in early 2025 detailing strategies for states to effectively adapt their laws and regulations in response to new consumer protection challenges in the financial services sector. The report, titled Strengthening State-Level Consumer Protections, outlined key areas where state governments could focus their efforts to safeguard consumers, especially in the wake of reduced federal oversight.

The 2025 report highlighted several areas of concern, including the need for states to enforce stronger anti-predatory lending laws and pursue regulation against common schemes such as junk fees and other abusive lending practices. States were encouraged to enhance rules regarding loan disclosures, fees, and interest rates to ensure consumers are not subjected to unfair or abusive lending practices.

State-level banking agencies and regulators are well-positioned to act, having historically worked in tandem with federal authorities but also wielding considerable power independently. With many federal protections being impacted, these state entities are reassessing their approach to consumer protections, particularly in areas like mortgage lending, predatory loans, and transparency in financial products.

A growing number of states, particularly those with progressive legislative agendas, have begun considering stricter regulations for mortgage lenders and financial institutions operating within their borders. States like California, Massachusetts, and New York are already leading the charge by pursuing legislative initiatives that address consumer rights in the absence of strong federal oversight.

The New York FAIR Business Practices Act: A Direct Response

One of the most noteworthy pieces of legislation in this new wave of state-level consumer protection is New York’s FAIR Business Practices Act (Financial Accountability, Integrity, and Responsibility), introduced in 2024 and gaining momentum in 2025. The Act represents an effort by New York to protect its citizens from predatory business practices in the event of less federal safeguards.

The FAIR Business Practices Act (the “Act”) focuses on strengthening mortgage lending regulations, increasing transparency in lending practices, and ensuring that financial institutions in New York adhere to stringent ethical standards. A core provision of the Act mandates that all mortgage lenders operating in the state conduct a thorough and transparent assessment of a borrower’s ability to repay, a move that echoes some of the stronger elements of the Dodd-Frank regulations, particularly the “ability to repay” rule that has been under the purview of the CFPB.

While New York’s initiative represents one of the most robust state-level responses, other states are expected to follow suit. In fact, several states have already expressed interest in similar measures or have begun drafting their own legislation to shield consumers from the effects of reduced federal oversight, such as a bill in Illinois to enact the Illinois Consumer Financial Protection Law. 

State Attorneys General Taking Action

State Attorneys General, who serve as the chief legal officers in their respective states, have also become more active in pursuing enforcement actions against financial institutions that violate state and federal consumer protection laws. Former CFPB Director Chopra actively encouraged state Attorneys General to step into the breach left by a reduced federal role, including in mortgage banking. By reminding state Attorneys General of their existing authority to enforce certain federal consumer protection laws, Chopra intended for states to continue to uphold certain regulatory frameworks, including TILA and RESPA lending requirements, even as the CFPB’s role was being diminished.

With the current rollback of federal oversight, many of these Attorneys General are preparing to intensify their efforts. By taking legal action against institutions that fail to comply with both state and federal regulations, state attorneys general are positioning themselves to step in the CFPB’s shoes, especially in areas in which they were given explicit authority to enforce certain federal financial consumer protection laws, as they were under the Dodd-Frank Act and the Consumer Financial Protection Act. 

Although not specific to mortgage lending, three recent actions by state Attorneys General provide examples of heightened state enforcement. New York Attorney General Leticia James recently filed two lawsuits against payday lenders. Additionally,  New Jersey Attorney General Matthew Platkin and the Division of Civil Rights issued a Finding of Probable Cause (Finding) of violations of New Jersey’s Law Against Discrimination (LAD) through unlawful lending discrimination and unlawful employment discrimination. The Finding named a nonbank business engaged in cash advances and consumer lending.

Conclusion

While the restructuring and refocusing of the CFPB and other federal agencies presents significant challenges, state governments and banking agencies are expected to ramp up enforcement activity to ensure that the interests of their constituents remain safeguarded. The introduction of measures like the New York FAIR Business Practices Act reflects a growing recognition that, in the absence of robust federal supervision and enforcement of existing protections, state-level regulations may need to fill the gap to prevent a recurrence of the systemic abuses that led to the 2008 financial crisis.

As more states consider following New York’s lead, it is clear that a new era of state-led consumer protection may be on the horizon. With state attorneys general, regulators, and legislators taking a more aggressive stance on mortgage banking oversight and consumer rights, the future of consumer protection may very well lie in the hands of individual states—especially as federal protections continue to erode under the Trump administration’s policies.

The downturn in the market has certainly driven lenders to think creatively about how to attract borrowers. However, social media and consumer protection groups play a large role in molding market sentiment and can significantly impact a company’s reputation if they are perceived as taking advantage of consumers. While this doesn’t eliminate all bad actors, the mortgage industry certainly has significant reason to tread lightly when pulling back on processes and procedures which benefit consumers in order to retain consumer faith in the industry overall.

While it is impossible to predict the role the CFPB will play in consumer financial protection going forward and how the void will be filled, there is no doubt that the regulatory landscape for financial service providers will change significantly in the coming year. The industry has shown its ability to adapt to ever-evolving compliance requirements and will need to be prepared to accommodate the significant changes which are sure to come.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)