As federal oversight of financial institutions shifts, lenders are likely to be facing increased scrutiny from state regulators. With proposed funding cuts to the Consumer Financial Protection Bureau (CFPB) potentially reducing its enforcement and supervision capabilities, individual states are already making plans to fill the gap. This change will add to an already complex and fragmented regulatory landscape, requiring lenders to rethink their compliance strategies.
A Shift from Federal to State-Level Oversight
Since 2010, the CFPB has played a central role in overseeing financial institutions. However, the agency’s now uncertain future is causing states like New York, California, and Massachusetts to expand their regulatory reach.
“Some financial institutions may have assumed that a weakened CFPB would mean less oversight, but the reality was always going to be quite different,” said Michael Benoit, Chairman at Hudson Cook, LLP. “Nature hates a vacuum, and the prospect of more limited federal oversight is being seen as an imperative by states to step up. In fact, one of Rohit Chopra’s last acts as CFPB Director was to publish a roadmap for states looking to enforce federal obligations. Add that to efforts to increase regulation at the state level in ways that may be well-intentioned but inconsistent from state to state, and compliance becomes all the more difficult.”
New York’s Department of Financial Services (DFS) has signaled increased regulatory scrutiny and enforcement actions, particularly in areas such as cybersecurity, consumer protection, and fair lending. Other state regulators, including those in California, Illinois, and Massachusetts, have similarly stepped up enforcement efforts. As a result, lenders operating across all 50 states and Washington, D.C. must navigate a complex patchwork of regulatory frameworks—each with its own compliance requirements and enforcement priorities.
The Growing Compliance Burden for Lenders
The shift from a single federal standard to state-by-state regulation presents several challenges, including:
Varying State Regulations – Compliance requirements differ across states, requiring constant monitoring and updates.
Increased Operational Costs – Expanding compliance teams and legal resources to meet state-specific mandates adds financial strain.
Lack of Advocacy at the State Level – Many lenders focus on national trade associations but lack strong relationships with state regulators, leaving them vulnerable to enforcement actions.
How Technology Can Help Lenders Stay Ahead
With regulations shifting rapidly, lenders need a more agile approach to compliance. Many are turning to technology-driven solutions to help navigate these challenges.
“You aren’t compliant if you aren’t staying current with regulations,” added Lee Nagel, President, DataOceans. “Using DataOceans Compliance Hub+, powered by Hudson Cook, LLP, lenders can quickly apply updated regulatory language to customer letters and notices, ensuring compliance while simplifying creation and delivery.”
How lenders can benefit from DataOceans Compliance Hub+:
• Access pre-approved, attorney-produced communication templates that are regularly updated for all 50 U.S. jurisdictions and Washington DC.
• Stay ahead of regulatory changes with proactive updates that reflect the latest state laws.
• Simplify compliance workflows, reducing dependence on IT and external vendors.
• Maintain full audit trails and reporting, ensuring transparency and readiness for state regulatory reviews.
• Efficient print and multi-channel delivery process.
Waiting for state regulators to take action isn’t a strategy. Lenders that invest in customer communication compliance technology, such as Compliance Hub+ and proactively engage with state regulators will be best positioned to adapt.
