State Attorneys General Are the New Bank Regulators

Spurred by the financial crisis and its impact on their constituents, state attorneys general appear to be carving out a new role as de facto bank regulators. This trend, an unexpected fall out of the financial crisis and the passage of Dodd-Frank, may not as yet be fully appreciated. However, it seems increasingly clear that state AGs will be important arbiters of the way banks do business on a going forward basis.

Anyone who doubts this is true need only consider how state AGs are already engaged in defining bank behavior.

• The so-called "robo-signing" investigation is led by Iowa Attorney General Tom Miller. This multistate initiative seeks not only to correct errors in the foreclosure process, but to redefine mortgage servicing practices and to obtain an estimated $25 billion in relief for under water homeowners. And this proposed settlement may not be the end of the story, since attorneys general of some of our largest states are reluctant to sign on.
• The Obama administration's new financial fraud task force creates an important role for state AGs, including appointment of New York AG Schneiderman as co-chairman. This task force clearly contemplates a significant role for the state AGs in investigating and pursuing remedies against financial executives.
• The Dodd-Frank Act contains specific authorization for state AGs to enforce rules promulgated by the new Consumer Financial Protection Bureau.
• The National Association of Attorneys General has entered into a joint statement of principles with CFPB regarding enforcement of consumer protection laws.
• The Dodd-Frank Act seeks to limit the broad federal preemption provisions historically available to federally chartered institutions dealing with state law enforcement personnel. The Comptroller of the Currency has interpreted the scope of these preemption restrictions quite narrowly, but state AGs have indicated their intent to challenge the Comptroller's interpretation.