By Kevin Hardy, Stateline.org
Illinois state Sen. Mark Walker already was working on legislation to bolster the state’s protections for consumers. But now that President Donald Trump has attacked the federal government’s consumer watchdog, Walker said it’s even more important for Illinois to act.
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Walker, a Democrat, sponsored a bill to bolster the state’s existing bank regulator to help fill the void left by weakening of the federal Consumer Financial Protection Bureau, which Trump and billionaire Elon Musk have targeted for elimination.
Congress created the independent agency in 2010 in response to fallout of the Great Recession, when many people lost their homes, jobs or savings. It takes up individual consumer complaints, aims to protect against unfair banking practices and helps educate consumers. Weeks into Trump’s second term, the administration shuttered the bureau’s office, dropped pending cases against companies and ordered employees to stop work.
“The urgency is much higher now,” Walker said. “They apparently closed the doors and put everyone on leave. And I think it’s become critical now that we figure out exactly what we do to respond to these kinds of issues that consumers in Illinois have.”
Walker says the state attorney general and the Illinois Department of Financial and Professional Regulation have expertise in enforcing consumer protections. His bill, modeled after a previous successful effort in California, would give more authority to the state regulator to enforce state and federal consumer laws. But Illinois leaders already face a $3.2 billion budget deficit and are bracing for federal cuts to social service funding.
“It’s a matter of where it is on the set of priorities, some of which are a little bit hard to predict,” he said.
Experts say the uncertain future of the federal agency puts more pressure on state attorneys general and state financial regulators. Even though states have broad latitude in enforcing federal financial protections, advocates say they lack the might of the federal regulator. And partisan politics, along with existing budget shortfalls, means consumer enforcements will likely vary widely across the states.
The Trump administration has offered conflicting accounts about its plans for the Consumer Financial Protection Bureau.
In a court filing, the White House has said it doesn’t plan to kill the agency. But on Feb. 7, Musk posted an image of a headstone and the epitaph “CFPB RIP” on his social media platform X. Musk has expressed interest in adding a digital payment system to X — a financial product that the CFPB had said before Trump took office that it would regulate. Days after Musk’s post, the administration ordered employees to stop most work and fired dozens.
In the Oval Office on Feb. 10, Trump told reporters he planned to eliminate the bureau, which he said “was set up to destroy some very good people.”
“That was a very important thing to get rid of. And it was also a waste. I mean, number one, it was a bad group of people running it. But it was also a waste.”
Trump’s moves against the CFPB have been challenged in court, by agency employees, advocacy organizations and the city of Baltimore. In February, 23 states and the District of Columbia asked a federal judge in the Baltimore case to issue an injunction blocking the administration from defunding the bureau. Those states argue they will suffer irreparable harm by losing the CFPB’s processing of consumer complaints, data collection and distribution of money to harmed consumers.
‘A national emergency’
Since its inception, the bureau says it has returned more than $21 billion to millions of defrauded American consumers. The agency has helped consumers repair inaccuracies on credit reports, required banks to lower overdraft fees and set limits on credit card late fees.
Just months before the Great Recession began in late 2007, Elizabeth Warren, a Harvard Law professor at the time, proposed creation of a new federal agency to protect Americans from risky mortgages and overpriced credit products. Now a Democratic U.S. senator representing Massachusetts and a former presidential candidate, Warren said the agency “has been sidelined, but it is not dead.”
At a confirmation hearing, she grilled Jonathan McKernan, Trump’s pick to lead the agency. McKernan, a former member of the Federal Deposit Insurance Corp. board, said he would follow and enforce federal consumer laws, but said the agency has of late overreached its authority and is not accountable to Congress or the White House.
Warren questioned how he could effectively operate the agency if Trump wants it killed.
“It kind of feels like you’ve been lined up to be the number one horse at the glue factory,” she said.
During the hearing, news broke that the CFPB had just dropped at least four enforcement lawsuits, including one that accused Capital One of bilking customers out of more than $2 billion in interest.
An analysis by Democratic staff on the Senate Committee on Banking, Housing, and Urban Affairs found an 80% drop in the number of consumer complaints the agency directed to companies since Feb. 3, when the Trump administration initiated a stop work order and fired critical staff.
“It’s a national emergency,” Massachusetts Attorney General Andrea Joy Campbell said at a forum Warren hosted before the Senate confirmation hearing to discuss weakening of the CFPB.
Campbell, a Democrat, said her office is focused on affordability issues and consumer protections, but she said some states are “stepping away wholeheartedly” from that work.
“It’s not consistent — what we’re doing in Massachusetts — in every single state across the country,” she said. “So you will have elders and veterans and other consumers who are left out without anyone to fight for them on their behalf, with no resources and weapons to fight back.”
Conservative groups such as The Heritage Foundation have criticized not only the reach of the CFPB but also its unique funding mechanism. While other agencies such as the Securities and Exchange Commission must seek congressional spending approval, the CFPB derives its funding directly from the Federal Reserve system.
At his confirmation hearing, McKernan said the agency needs to be refocused on its mission and made more efficient and more accountable to elected officials.
He said consumers must have a way to redress bad actors in the economy, but also that the billions the agency has returned to consumers is not evidence of its achievement.
“I don’t think we should evaluate the success of the CFPB based on dollar numbers or enforcement count,” McKernan said. “That’s like evaluating an official based on the number of fouls he calls during the game.”
What states can do
Just before Trump took office, the CFPB issued guidance on how states could strengthen their own consumer protections.
In a 34-page document, the agency underscored previous guidance giving states authority to enforce federal rules. And it noted that Congress explicitly gave states power to enact more aggressive local protections — though federal rules take precedence with some regulations regarding national banks.
“Federal law should be a floor, not a ceiling, for the protection of consumers,” the report said.
In December, the nonprofit Consumer Federation of America issued a slate of 10 policy recommendations for state leaders to ensure their residents “enjoy vital protections regardless of changes in federal policy.” Those included banning so-called junk fees, prohibiting the inclusion of medical debt on credit reports and outlawing “bait-and-switch” auto sales practices in which consumers are misled about the full cost, terms or availability of cars.
“They have the power to enforce federal law. Just because federal law is not being enforced in D.C. doesn’t mean it can’t be enforced by states,” said Lauren Saunders, associate director of the National Consumer Law Center, a nonprofit consumer advocacy organization.
She said conservative states have traditionally put less emphasis on consumer protection — a partisan divide she expects to see grow as the federal government pulls back.
“States have resource limits as well,” she said. “They can’t be everywhere and can’t cover every issue. So you just tend to have a lot more uneven protection when you’re relying totally on states.”
The National Association of Attorneys General did not respond to questions by publication time. Neither did the office of Kansas Attorney General Kris Kobach, who leads the Republican Attorneys General Association.
Without a strong CFPB, banks and other financial institutions could find themselves wading through disparate state rules and enforcement efforts, said Horacio Mendez, president and CEO of the Woodstock Institute, an Illinois-based nonprofit research and advocacy group focused on fair lending and financial systems.
A former bank executive, Mendez said there are legitimate debates about the structure of CFPB. But he said tearing down the bureau is not in the best interest of consumers or businesses, which can be harmed by the abusive practices of their competitors.
Some banks may eventually pressure the federal government if they start facing various state rules and actions, he said.
“It’s really just putting the burden on states to pick up the slack, and then on national businesses to try to work within this fragmented state-by-state regulatory environment,” Mendez said. “It’s really not efficient. If anything, it actually increases costs and complexity for everybody.”
Blue states worry about resources
Without a federal backstop, Mendez said he’s “all in” on the proposed Illinois legislation to expand the authority of the financial regulators.
“We’ve got to have some cop on the beat.”
Currently, the Illinois Department of Financial and Professional Regulation is only empowered to enforce specific state rules, said spokesperson Chris Slaby. The department has relied on the federal agency for staff training, information sharing and data collection.
“While IDFPR may be able to shift some priorities, it does not have the staffing or funding to replicate the CFPB,” Slaby said in a statement.
In a statement to Stateline, California Democratic Attorney General Rob Bonta’s office said it had long taken a “complementary” approach to the federal agency’s work.
“However, the sudden gutting of the CFPB leaves no oversight over large, national banks and credit unions, guts oversight of payday lenders, the mortgage markets, and credit reporting agencies — among many others — and rapidly and substantially increases the burden on state agencies to protect consumers,” the statement said.
In 2020, California Democratic Gov. Gavin Newsom signed a dozen bills aimed at boosting consumer protections. The state added more investigators and attorneys and created the Department of Financial Protection and Innovation — characterized as California’s version of the CFPB.
State agency spokesperson Mark Leyes said the department was “steadfast” in its commitments regardless of potential changes in Washington.
But state Sen. Monique Limón, a Democrat who sponsored some of that legislation, said Californians will have one fewer option for lodging complaints if the federal agency is crippled. That will likely increase demand on the state regulator.
And while California has some of the strongest protections and is well positioned to investigate consumer complaints, she said, it does not have the resources to fill the void of the federal agency: “Even if that’s the desire, it can’t.”
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