As the Consumer Financial Protection Bureau remains in stasis, some mortgage professionals fear a new era of fragmented compliance — "50 state regulators instead of one CFPB" — but the reality is more mixed. State activity is picking up in some areas — new legislation, lawsuits and states hiring officials who departed from the CFPB — but many regulators insist they're simply continuing business as usual.

"Nothing's changing from the standpoint that state financial supervisors constantly monitor the institutions they license," said Tony Vasile, CSBS senior vice president of nonbank supervision and enforcement. "They've been on the beat, and that hasn't changed."

States fill gaps as CFPB retreats

The Trump administration is still in a fight to gut the CFPB, since it ordered the bureau in February to halt most enforcement activity. While employees have fought to keep statutorily mandated duties such as examinations moving forward, the bureau has dropped many pending and existing actions against mortgage lenders. 

The pullback prompted industry leaders to suggest that states would fill the void, particularly Democrat-led states. A common refrain has been industry commenters cautioning companies to be wary of 50 state regulators versus one CFPB. 

Some of those warnings have begun to materialize, as experts pointed to state legislative bodies that have proposed or passed laws that pertain to lenders and servicers. 

Illinois lawmakers shortly after Trump's inauguration introduced a Consumer Financial Protection Law. New York's attorney general in March advanced a FAIR Business Practices Act, focusing on unfair, deceptive and abusive practices. And last month, California and Connecticut passed laws to curb zombie mortgage foreclosures. 

A former federal regulator who spoke with National Mortgage News pointed to those laws and said states are stepping up following the CFPB's uncertainty.

"States definitely have been and they're very active, but they don't have the resources the CFBP had," they said.

States have also onboarded former CFPB staff, such as New York's hiring of the CFPB's former deputy enforcement director in March. And scattered litigation against lenders for alleged bad behavior has emerged, from a consumer lawsuit replacing a CFPB fight, to Ohio's Republican attorney general suing the industry's largest player for alleged predatory practices. 

State actions appear to be early-stage preparations to fill voids that materialize from the CFPB's outcome, said Jonathan Kolodziej, a partner at Bradley Arant Boult Cummings and a regulatory compliance expert. States may also lack surplus funds in current budgets to allocate toward new CFPB-like activity. 

"I expect that state regulators and attorneys general are mostly still in wait-and-see mode right now and are still assessing what gaps they may need to fill related to mortgages," he said in an emailed comment. 

Kolodziej referenced the bureau's advance notices of proposed rulemakings with the Office of Management and Budget, which includes a potential axing of the CFPB's Loan Officer Compensation Requirements. 

Business as usual for regulators and examiners

Idziak said state supervisors have continued to make inquiries. 

"But it's hard for me to tell whether that is just the normal ebb and flow of these types of inquiries from regulators, or if you really are seeing sort of an overall uptick," he said. 

States are already tasked with numerous oversight capabilities. That includes exams, investigations, quarterly call reports submitted to the National Multistate Licensing System, and consumer complaints, the CSBS's Vasile said. 

While the CFPB has reportedly stopped nonbank examination activity, states continue to perform the reviews. Some states are required to examine licensees within certain periods of time, while the largest companies are examined every year, Vasile explained. 

The CSBS this year also introduced One Company, One Exam, which will streamline reviews of lenders and servicers performed by the Multistate Mortgage Committee. The MMC, made up of state regulators appointed by the CSBS and the American Association of Residential Mortgage Regulators, focuses on firms operating in 10 or more states. 

"The states are always looking for ways to enhance multistate coordination," said Vasile. 

Most lenders weren't likely to be reviewed by the CFPB to begin with, said Joshua Weinberg, president of Firstline Compliance. 

"I don't think the majority of the market really has been impacted too much by the pause in CFPB exams but for maybe the largest," he said. 

What comes next for state regulation?

Weinberg predicted an increase in Community Reinvestment Act laws for independent mortgage banks. California and New Jersey are currently considering CRA bills akin to what Illinois, New York and Massachusetts already require of nonbank lenders. 

States could pick up more responses to consumer complaints, said Justin Wiseman, the Mortgage Bankers Association's vice president for residential policy and managing regulatory counsel. The bureau this spring reportedly stopped addressing the numerous complaints it typically receives.

The CFPB in the past had also served as a referee for state regulators who sought the bureau's opinion on enforcement. Idziak said mortgage firms could see more variability in the interpretations and applications of federal regulations between states. 

Wiseman lauded the role of states in mortgage regulation, but cautioned the impacts of any drifts in enforcement interpretations between states. 

"That'll be expensive and an unfortunate increase in cost of credit to the system at a time when affordability is really stretched," he said.

Suzanne Martindale, chief deputy commissioner at the California Department of Financial Protection and Innovation, told National Mortgage News her office is seeking to provide clarity for its licensees given the uncertainty at the CFPB.  The state passed a California Consumer Financial Protection Law in 2020, and industry experts often cite the Golden State as proactive in enforcement among states. 

The DFPI has been busy with the aftermath of the Los Angeles fires, agreeing with 422 licensees to commit to temporary forbearance relief and pausing foreclosures, Martindale said. It's still pursuing other enforcement however, and last week joined a multistate consent order against payment company Wise. 

"Regulatory clarity, consistency and prioritizing compliance is good for all of us," she said. "It's good for the market, it's good for the economy, it's good for consumers, it's good for licensees. And our doors are open."