Michael,
Most states are already regulating vocational schools though their secondary education commissions. (or something similar). These state commissions have the ability and experience to regulate flight schools.
These commissions currently regulate business schools, truck driving schools, beauty schools, etc for financial capability, proper operation as well as safeguards to insure student money is protected.
The problem is that flight schools have somehow been EXEMPT (by state statutes) from these vocational school regulations for reasons that no one can explain other than they "thought" the FAA was regulating flight schools.
Of course, most of us know that the FAA DOES NOT REGULATE flight schools and has never looked at a flight school financial statement or even required a bond or insurance.
The most the FAA has ever done is look over and approve a 141 syllabus that allows for a REDUCTION in the number of required hours for a certificate or rating. (Why a new student needs less hours is beyond me since I have always heard students and pilots complain that they need more hours)
The FAA has never gotten involved in consumer problems such as student flight school issues.
The flight training industry has one of the most expensive costs of any education program. However it is the only one that we know of that has absolutely no regulation from the state or federal government. Regulation in this industry has just slipped through the cracks. That has allowed the bad guys to enter this industry unchecked and simply steal millions of dollars from flight school students without any real consequence.
The bad guys are bad for the good flight schools as well as the students.