Two years ago, Congress passed, and the president signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. A response to the financial meltdown in 2008, Dodd-Frank initiated one of the most significant restructurings of financial regulations since the Great Depression, and a great deal of the reforms hinged on states’ relationships and regulatory authority over financial institutions. Now, with the law in effect and the federal rule-making process well under way, some states are using their new authorities in unpredicted—and unprecedented—ways.

A settlement between U.S. states and the nation’s largest mortgage lenders over foreclosure abuses is a go as every state but one—Oklahoma—has signed on to the deal. The settlement is described by U.S. Attorney General Eric Holder as the “largest joint federal-state civil settlement in the history of this nation."  The settlement is between 49 state attorneys general, the Justice Department, the U.S. Department of Housing and five major banks. The exact value of the settlement is unclear, but could range from $26 billion to upwards of $39 billion. 

The Southern Legislative Conference has released its latest Regional Resource - Municipal Bonds: Trends in 2011. The Resource examines how the municipal bond market fared in 2011, if fears expressed by certain experts regarding widespread bond defaults were realized, if investors shed their holdings in municipal bonds and fled to other asset categories and a number of related topics.

Rates of foreclosure are at levels not seen the 1930s, and some communities in the Midwest have been particularly hard hit by a rise in the number of blighted properties. States are responding with new measures and investigations designed to help troubled communities and homeowners.

President Barack Obama on Sept. 8 addressed a joint session of Congress to roll out the American Jobs Act. In the wake of a still stagnant recovery, the bill includes a combination of tax breaks and new spending designed to give the economy a booster shot and hopefully put more people back to work.  If passed by Congress, the bill would provide more than $35 billion to state and local governments to retain or rehire teachers and public safety officials. The tax measures used to pay for the bill, however, may ultimately come back to bite the very state and local governments it is designed to support.

July 21, 2011 marked one year since Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, the most significant retooling of the financial system since the Great Depression.  This policy brief considers states’ regulatory role under Dodd-Frank, with attention to two issues:  1) the standard governing federal preemption of state consumer finance laws, and 2) state oversight of mid-sized investment advisors.  Each is an example of how Dodd-Frank sought to “reset” the balance between state and federal financial regulators, and to preserve states’ regulatory authority in the financial services industry.      

Some observers claim federal preemption of state predatory lending laws disrupted the mortgage market and precipitated the 2008 financial crisis.  Efforts to reform the financial system emphasized preservation of States’ regulatory authority over state and national banks.  However, a federal agency recently proposed regulations that would continue to preempt state consumer financial protection laws, prompting criticism from the Treasury Department, members of Congress, and advocates of state bank supervision.        

As the chief legal officers of the states, commonwealths and territories of the United States, attorneys general serve as counselors to state government agencies and legislatures, and as representatives of the public interest. A large group of new state attorneys general were sworn in at the beginning of 2011, following the November 2010 elections. This year will bring a continued effort to fight financial fraud but attorneys general now have expanded enforcement authority under a new federal law. The National Association of Attorneys General (NAAG) is also making a priority of providing the highest quality legal training for those in state government service.