The Great Deregulation Reset: Why U.S. States Regulators May Become the New Consumer Financial Protection Bureau

A Shifting Consumer Protection Landscape

The current structure of consumer protection enforcement in the United States largely took shape in 2010 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although many consumer protection laws already existed, they were not consistently enforced, and most federal regulators focused primarily on safety and soundness. Before the 2008 financial crisis, consumer protection was often seen as a secondary risk-based consideration, not a core examination priority.

That changed when the crisis revealed the cost of that gap in oversight. Millions of Americans entered into complex loan agreements and financial products they did not fully understand, and regulators were not positioned to intervene in time. Dodd-Frank aimed to correct that by: 

• Creating the Consumer Financial Protection Bureau (CFPB) as a centralized federal consumer watchdog.
• Expanding the authority of state attorneys general and regulators to act when federal enforcement fell short.
• Limiting the use of federal preemption by banks to sidestep state consumer laws.

Over the following decade, financial institutions experienced a significant increase in both state and federal oversight, which many in the industry, including the American Bankers Association, viewed as burdensome. But now, under a new wave of deregulatory policy, we are seeing that framework begin to shift again.

Recent actions by the Trump administration suggest a move to reduce the federal footprint and empower states to take the lead in consumer protection enforcement. This shift, combined with efforts to promote innovation in fintech and digital assets, could fundamentally reshape who oversees consumer protection and how it is enforced in the years ahead.

Deregulation Reshaping Financial Services and Moving Consumer Protection Oversight to the States

Could the current wave of deregulation be transforming the financial services landscape, accelerating the rise of fintechs and digital assets, and gradually transferring consumer protection oversight from federal to state regulators? That is the critical question many are now asking as the Trump administration doubles down on efforts to reduce federal regulatory influence and promote innovation in financial services.

Early in his second term, President Trump issued two major executive orders that have set the tone for his administration’s regulatory agenda. 

The first, Executive Order 14192: Unleashing Prosperity Through Deregulation, limits federal agencies’ rulemaking authority by requiring that for every new regulation proposed, at least ten existing ones must be repealed. 

The second, Executive Order 14178: Strengthening American Leadership in Digital Financial Technology, signals strong support for the growth of digital assets, blockchain and financial innovation, placing an emphasis on “responsible” development across all sectors of the economy.

Although these actions align with the President’s campaign promises to champion free markets and economic competitiveness, the scope and speed of deregulation have surprised even seasoned industry leaders. Unlike more gradual approaches seen in previous administrations, this one is moving quickly to dismantle regulatory structures, especially those put in place during the Biden era.

In financial services specifically, there has been a flurry of changes since the start of 2025. These include a rollback of several consumer protection and financial crime rules, a dramatic restructuring of the Consumer Financial Protection Bureau (CFPB), and public statements from prudential regulators that appear to prioritize innovation over enforcement. 

All of this has raised a key concern regarding whether the administration is aiming not just to lighten the federal regulatory load, but also to shift primary consumer protection responsibilities to the states.

This line of thinking is not farfetched. The administration has been vocal about returning other areas, such as education, to state control. It now seems that financial services regulation, particularly consumer protection, could be on a similar path. If so, a patchwork of state-led regulatory frameworks may soon emerge, just as fintechs and digital assets become more deeply embedded in the banking ecosystem.

In short, the administration’s deregulatory push may be doing more than streamlining oversight; it may be rewriting the rules of who is ultimately responsible for protecting consumers.

A New Era of Consumer Protection Enforcement

The shift toward deregulation is already reshaping how consumer protection is enforced. A leaked internal memo from April, sent by CFPB chief legal officer Mark Paoletta, suggests the agency is actively stepping back from certain enforcement areas to give states more authority. The memo emphasizes a commitment to federalism, noting the CFPB will deprioritize overlapping enforcement efforts where states already have strong regulatory and supervisory frameworks. Key focus areas where supervision is being scaled back include digital payments, peer-to-peer (P2P) platforms, consumer data privacy, medical debt, student loans and remittances.

Instead, the CFPB is now concentrating on more traditional consumer risks, particularly those affecting service members and their families, and is shifting supervision efforts toward depository institutions rather than fintechs or nonbanks. This pivot not only reflects a philosophical change in how the CFPB sees its role, it also signals an openness to innovation by reducing regulatory pressure on emerging financial technologies.

This hands-off approach aligns with broader Trump administration priorities and seemingly confirms speculation that the federal government is creating space for fintech and cryptocurrency growth by removing compliance friction. Back in January 2025, then CFPB director Rohit Chopra anticipated this shift in his “Strengthening State Level Consumer Protections” report. He outlined a framework that states could adopt to step into the enforcement gap, including sample legislative text to address junk fees, abusive lending practices and data privacy concerns using authority granted under the Dodd-Frank Act.

But this raises an important question: Are state regulators truly stepping up as a temporary bridge until the pendulum swings back, or are we witnessing a long-term transfer of enforcement power to the states? 

Although that answer is still unfolding, and there are many things left to consider such as preemption, it is clear that some states, such as New York, are not waiting for clarity. New York attorney general Letitia James proposed the FAIR (Fostering Affordability and Integrity through Reasonable) Business Practices Act, designed to create stronger consumer protections at the state level, especially for small businesses and underserved communities, which passed in June 2025.

Meanwhile, as predicted, President Trump has set his sights on restructuring the CFPB itself. Acting directors Scott Bessent and Russell Vought have significantly scaled back the bureau’s workforce, paused pending rules, dropped enforcement actions and suspended effective dates for final regulations. These moves have weakened the agency’s enforcement capabilities and redirected attention away from emerging financial technologies, creating a more permissive environment for fintech innovation.

This brings us full circle. With federal enforcement scaled back and state-level legislation still developing, is this regulatory vacuum clearing the path for fintechs and cryptocurrencies to embed more deeply into the mainstream financial system? That is the next frontier where innovation meets opportunity, and the rules of the road are still being written.

Digital Asset Regulation: A New Gateway for Fintechs and Cryptocurrencies

As federal agencies scale back traditional consumer protection enforcement and encourage state-level leadership, another transformation is quietly unfolding: the U.S. is laying the groundwork for fintechs that use technology to offer or enhance financial services and digital assets to move from the margins into the heart of the banking system. This shift is not accidental; it is a deliberate strategy driven by Executive Order 14178, Strengthening American Leadership in Digital Financial Technology, issued on day three of President Trump’s second term.

The order aims to establish a unified federal regulatory framework that supports innovation while easing the path for digital asset firms and fintech companies to enter the U.S. banking system. Days before the executive order was issued, the Securities and Exchange Commission’s (SEC) acting chairman, Mark Uyeda, formed a crypto task force to start defining clear regulatory boundaries, and the Senate Committee on Banking launched a new Subcommittee on Digital Assets to accelerate legislative clarity.

The message from Washington is clear: it is no longer a matter of if, but when digital assets and fintechs will become an integral part of the regulated financial landscape. Despite their disruptive impact offering decentralized services, instant payments and novel lending models, fintechs and cryptocurrencies have long operated in a gray area, lacking consistent regulatory support. That has started to change. The Office of the Comptroller of the Currency (OCC) has taken critical steps in recent years to welcome these innovators into the fold.

One landmark moment came in 2021, when Anchorage Digital Bank became the first federally chartered digital asset bank, after it was granted a national trust bank charter that allowed it to operate under one regulatory umbrella rather than a patchwork of state rules. 

Soon after, SoFi received a full national bank charter, signaling the federal government’s willingness to bring established fintechs into the traditional system. These moves were seen as breakthroughs, but then momentum stalled, primarily due to fintechs viewing the process as cumbersome and lengthy. 

In the four years since Anchorage’s charter, few others have followed. Digital asset firms argue that the bureaucracy of traditional banking oversight has slowed innovation, while some Republican senators have accused federal agencies of “debanking” crypto by discouraging banks from doing business with them. 

Responding to these concerns, regulators have taken steps to reassure the industry. One significant change includes the removal of reputational risk as a factor in supervisory examinations, a long-standing concern for banks working with crypto clients.

More recently, in March 2025, the OCC doubled down by issuing updated guidance, Interpretive Letter 1183, confirming that national banks and federal savings associations can engage in a broad range of crypto-related activities, including custody of digital assets and certain stablecoin transactions without needing prior approval. Interpretive Letter 1183 frames this shift as a way to “reduce burden, encourage responsible innovation, and enhance transparency.” That same month, fintech firm SmartBiz Loans received conditional approval to acquire CenTrust Bank, making it one of the latest examples of a fintech gaining a foothold in traditional banking.

However, as promising as these developments are, they raise a critical question: will fintechs and digital asset firms be held to the same standards as traditional banks? Or, will the current regulatory approach fueled by deregulatory executive orders and internal CFPB policies deprioritizing oversight create an uneven playing field?

So, why does this matter to traditional banks or digital asset companies?

In short, because the rules of engagement in financial services are being rewritten. For banks, it means adapting to a market where fintechs can gain competitive advantages with lighter-touch regulation, faster product rollout, and more consumer protection enforcement from states. For digital asset firms, it is a potential golden window, one that opens the door to legitimacy, scale and access to the broader U.S. financial system; however, a window that comes with increased scrutiny and expectations in a heavily regulated industry.

The Shift Toward State-Led Consumer Protection Enforcement

As federal regulators recalibrate their priorities under a second Trump administration, a noticeable shift is underway: state governments are stepping into the consumer protection void. With the federal government increasingly embracing deregulatory policies, states are responding in two distinct but complementary ways: by creating their own consumer-focused laws and regulations; and by challenging federal rollbacks through litigation and political advocacy.

Proactive State Regulation: Filling the Federal Gap

States such as New York, California and Massachusetts are leading the charge with aggressive consumer protection agendas. These states are not just reacting, they are setting new standards:

• New York has proposed sweeping rules in 2025 targeting overdraft and non-sufficient funds (NSF) fees, algorithmic price discrimination and “junk fees” associated with buy now, pay later (BNPL) products and AI tools used in lending.
• Massachusetts has enacted robust regulations that ban junk fees and deceptive billing practices.
• California passed 18 consumer-focused laws in late 2024 covering everything from hidden fees and auto-renewing subscriptions to removing medical debt from credit reports.

These efforts reflect a broader trend that is also being seen in other states such as Illinois, Pennsylvania and Maryland: as federal regulators pull back, states are stepping up to enforce consumer protection through legislation tailored to the needs and risks of their local populations. 

New York, in particular, appears positioned to become a de facto national standard-setter in this emerging decentralized regulatory landscape. New York has a very active attorney general’s office that has enforced existing consumer protection laws, proposed new legislation, and taken legal action against businesses engaging in unfair or deceptive practices. The Fostering Affordability and Integrity through Reasonable Business Practices Act (FAIR Business Practices Act) has passed this year which will protect New Yorkers from unfair and abusive business acts. The New York State Department of Financial Services (NYDFS) has the manpower to enforce consumer protection laws and it recently hired a former deputy enforcement director.

Reactive State Litigation: Pushing Back on Deregulation

In addition to passing new laws, states are taking a stand through coordinated legal action. Attorneys general from multiple states are challenging what they view as the dismantling of federal consumer protection frameworks, especially the weakening of the CFPB.

• In early 2025, a coalition of 23 state attorneys general filed amicus briefs in support of preserving the CFPB’s role, warning that eliminating it could leave consumers vulnerable to fraud, abuse and a lack of recourse.
• These efforts are not just symbolic. States are pressing Congress to preserve federal protections, such as the CFPB’s overdraft fee rule, and are signaling their willingness to litigate where necessary to fill the gap.

Although it is still unclear as to whether these legal actions will succeed in court, they represent a new model of state-federal friction, where states become the primary defenders of consumer rights in a deregulated environment.

What This Means for Financial Services

The regulatory landscape is shifting from a centralized federal model to a more fragmented, state-driven one. For traditional banks, this shift introduces complexity: compliance teams will need to monitor and adapt to a growing patchwork of state-level laws, regulations and enforcement priorities. What was once a streamlined national approach could now resemble a mosaic of overlapping requirements, increasing both compliance risk and operational burden. This fragmented supervision model could also result in a new layer of regulatory burden with regard to launching new products and innovation for traditional banks. As more states issue legislation on innovative topics like BNPL, artificial intelligence, digital assets, and open banking, rather than a national approach to these topics, banks will have to ensure compliance with each state within their footprint.

For fintechs and digital asset companies, the implications are nuanced. The current deregulatory environment may offer more flexibility, particularly in areas such as innovation and product development. However, that flexibility comes with a new kind of risk: inconsistent oversight across jurisdictions and an unpredictable enforcement landscape.

As consumer protection enforcement begins to fragment, financial institutions, whether traditional banks or digital-first platforms, must prepare for a world where state-level regulation becomes the new frontline. Those that build adaptable compliance frameworks, invest in regulatory intelligence, and engage proactively with state regulators will be best positioned to thrive in this evolving landscape.

Key States Positioning to Be Mini CFPB: Recent Consumer Protection Related Activity