Democratic wave gives state AGs more enforcement sway

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• Key insight: The midterm elections reshaped state attorney-general offices, with Democrats now commanding a 29-to-22 majority.
• Forward look: State AGs are expected to aggressively target big-tech companies, algorithmic-pricing schemes and AI privacy risks. 

After flipping five Republican seats in Tuesday’s election, Democratic attorneys general are entrenching themselves in the role they started filling last year: serving as a counterweight to hollowed-out federal enforcement under President Trump.

The trend could be especially noticeable in the consumer-protection realm, where Democrats see a particular void. During the second Trump administration, the Consumer Financial Protection Bureau has been shedding staff and conducting almost no enforcement of the relevant laws, experts say.

Starting early next year, Democrats will hold a 29-to-22 majority in AG offices for the 50 states and the District of Columbia. On Tuesday, they captured Republican-held seats in Georgia, Ohio, Texas, Iowa and Kansas, defeating GOP incumbents in the latter two states. 

Incoming AGs are already looking to build their leadership teams and consumer-protection units — even recruiting former CFPB enforcement attorneys to bolster their ranks. 

“They’re going to ramp up fairly quickly,” Michael Yaghi, a litigation partner at Troutman Pepper Locke who specializes in state attorneys general and regulations, told American Banker. 

“There’s going to be a lot of pressure on all 29 of these Democratic AGs to continue to push back against the Trump administration,” said Sarah Mercer, a lawyer and lobbyist at Brownstein Hyatt Farber Schreck, speaking on a webinar Thursday.

Democratic AGs are expected to heed the will of voters by focusing on pocketbook issues, including price gouging, hidden fees and algorithmic pricing, which is sometimes called dynamic pricing.

Several states, including Maryland, Connecticut and New Jersey, have passed new laws to restrict “surveillance pricing” — where companies use personal data to set individualized prices.

In the financial-services realm, lenders could face more pressure to provide consumers with clear disclosures, so they understand the all-in price of what they are financing.

Former Sen. Mark Pryor, a Democrat who also served as Arkansas’ attorney general from 1999 to 2003, said the states will be looking for ways to address pocketbook issues.

“One area where I think [the states] have been very directly involved in affordability in the last year is dynamic pricing,” Pryor said Thursday, speaking on a webinar focused on the changeover in state AG offices.

Pryor also pointed to artificial intelligence as an area of keen interest.

“I think you’ll continue to see the attorneys general look at AI issues, especially around children and also around consumer protection,” he said. 

State AGs will likely be scrutinizing how companies deploy AI, as well as their automated pricing algorithms, to ensure that digital tools don’t obscure true costs from consumers. Another area of potential AI-related scrutiny: the rapid expansion of data centers that have drawn a significant public backlash.

The scrutiny will not be coming only from Democrats. With a total of 14 fresh faces stepping into state AG offices, experts see the potential for bipartisan coalitions to tackle cost-of-living issues, predatory pricing and the intersection of AI and commerce. 

Former Colorado Attorney General John Suthers, a Republican who has also served as the U.S. Attorney for Colorado and is a former mayor of Colorado Springs, said state AGs may form unlikely alliances in the next two years to address antitrust issues. 

“We’re going to see a higher level of cooperation between Republicans and Democrats at the industry-watchdog level,” Suthers said. “Democrats will be concerned about corporate mergers, and everybody will be concerned about data privacy and social media.”

The pullback in federal enforcement has spurred states to fill the void.

“When Congress or D.C. isn’t functioning well, AGs oftentimes step in,” Pryor said. “If we’re going to look at the next two years, it’s very possible that Washington won’t be functioning very well, and so you could think that AGs might step in.” 

Broad, bipartisan coalitions of state attorneys general have recently joined forces to target major financial and fintech firms. This year alone, a coalition of 18 state AGs targeted Capital One Financial for deceiving 360 Savings account holders; 46 AGs took action against Block for failing to protect users from fraud on its CashApp payment platform; and 41 AGs pursued subprime auto lender Credit Acceptance Corp. for trapping low-income car buyers in risky loans they couldn’t afford.  

The states also have big-tech companies in their sights. 

In August, a bipartisan coalition of 52 attorneys general reached an $18.6 billion-dollar settlement with Meta Platforms. The deal resolved long-standing litigation alleging that Meta knowingly designed features on Facebook and Instagram that were addictive and harmed children and teenagers.

The new crop of state AGs are likely to take a different approach than the Federal Trade Commission, which has become the most active federal regulator under the Trump administration.

While the FTC has been focused on providing restitution for consumers who were harmed, energized state AGs are looking to leverage state-level consumer-protection statutes to push for significant penalties and injunctive relief that requires changes to their business practices, Yaghi said.

“States are going to be more aggressive in terms of not only how companies are harming consumers, but also on what their business model looks like and how they can change the way a company operates to help protect consumers,” Yaghi told American Banker. “They want civil penalties and want to fundamentally alter how companies promote products, market services, and operate their day-to-day business.”

In past periods of deregulation in Washington, state AGs have tended to step forward to fill the gap.

“There’s also this idea of ‘underreach,’ where the federal government should be doing certain things — there are federal responsibilities around antitrust. And if the state agencies feel like the Feds are not holding up their end in the market, that’s when the state agencies may come in and try to fill that,” Pryor said.

Because state AGs can stack multiple violations on top of one another to pile on steep civil penalties, companies should consider proactive auditing, Yaghi said.

“Now is a good time for companies to double-check how they are using and deploying AI, setting prices and disclosing and advertising products and services,” he said.