As CFPB retreats, the new danger is a jumble of state-level mandates

Frank Gargano

The Consumer Financial Protection Bureau is shrinking. After years of portraying itself as the top-dog financial regulator, the bureau has begun another round of workforce reductions. But fewer federal enforcers does not mean less regulation. In practice, it means something worse: the rise of 50 smaller regulators eager to fill the vacuum.

Make that 51 if you count the District of Columbia, and 52 for Puerto Rico.

We already foresaw this dynamic with the push for state-level swipe fee caps. When states began pursuing piecemeal price controls on interchange fees, we warned that the result would be higher consumer costs, diminished rewards programs and a balkanized payments system. That same logic now applies across the broader field of consumer finance, and the trend is accelerating.

Over the past year, at least 16 states have enacted new consumer-finance statutes. These measures expand "junk fee" definitions, tighten disclosure mandates, and create novel liability theories under state-level "unfair, deceptive or abusive acts or practices," or UDAAP, frameworks modeled on the CFPB's own. New York's FAIR Business Practices Act broadens the attorney general's reach far beyond deception. Illinois has layered on "all-in pricing" rules. Texas has restricted small-business finance. And when a federal judge vacated the CFPB's medical-debt reporting rule, states rushed to impose their own prohibitions on how those debts appear in credit files.

The result is a fragmented regulatory map. What qualifies as lawful in Texas may be prohibited in New York and subject to different disclosures in Illinois. A peer-to-peer payments platform could be forced to reimburse scams in one jurisdiction but not in another. Even design choices are now enforcement targets, as demonstrated by New York Attorney General Letitia James' lawsuit against Zelle's parent company.

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These state-by-state regimes don't just create headaches for compliance teams. They raise consumer costs and reduce competition. Firms cannot maintain 50 versions of a product to meet conflicting mandates. Instead, they will either raise prices nationally or exit the most restrictive states. The largest banks can absorb the costs with legal armies and compliance budgets; smaller institutions and fintechs cannot. Consumers will be left with fewer choices, higher fees and slower innovation.

Ironically, many industry leaders once complained that the CFPB was too aggressive, too expansive, too eager to test the limits of its authority — myself included. But at least the bureau provided a single playbook. One flawed regulator is still more predictable than 50 ambitious attorneys general, each advancing their own theory of "abuse" or "unfairness."

The policy solution is not to empower state enforcers further. It is for Congress to provide a coherent national framework — focused narrowly on transparency, fraud prevention and measurable consumer outcomes. Federal safe harbors tied to auditable best practices would encourage compliance without dictating business models. At the same time, lawmakers should preempt duplicative or conflicting state mandates that turn financial regulation into a patchwork of overlapping burdens.

The founders inscribed "E pluribus unum" on the national seal, meaning "out of many, one." In financial regulation today, we are experiencing the reverse. Out of one, many. A single, if heavy-handed, regulator is splintering into dozens. Unless Congress steps in, the next four years will be remembered not for better consumer protection, but for the most fragmented, punitive and innovation-stifling regime in modern financial history. And every American household will pay the price.