California will soon have its own version of the Consumer Financial Protection Bureau, as the state recently enacted a new law that “significantly expands the state’s ability to protect Californians against abusive and predatory financial products and services.”
The law, AB 1864, was signed into law recently by California Gov. Gavin Newsom. The law, which goes into effect on Jan. 1, 2021, has already renamed the state Department of Business Oversight and will soon give the department much more power.
The DBO is now known as the California Department of Financial Protection and Innovation and will operate as “California’s version of the federal Consumer Financial Protection Bureau,” according to Newsom’s office.
In a statement, Newsom said that the state is stepping in to fill the consumer financial protection gaps left by the CFPB, which under Republican leadership has been less active in regulation and enforcement over the last several years.
The agency, which is the brainchild of Sen. Elizabeth Warren, D-MA, was initially aggressive in regulating the nation’s financial services providers, but the agency changed its tone in recent years under Director Kathy Kraninger, a Trump administration appointee.
Now, California is preparing to step in to fill that void.
“While the federal government is getting out of the financial protection business, California is leaning into it,” Newsom said in a statement. “It’s at this moment especially – when so many Californians are strapped for cash and struggling to pay their bills – that families are likely to fall victim to predatory and abusive financial products. These bills ensure that financial predators are subjected to alert oversight and agile enforcement.”
AB 1864 was among a series of bills designed to increase the Californians’ financial protections that Newsom signed into law late last month.
According to Newsom’s office, the new Department of Financial Protection and Innovation will:
- Significantly expand the state’s consumer protection capacity by adding dozens of investigators and attorneys to supervise financial institutions and crack down on financial predators
- Create a team to monitor markets to proactively identify emerging risks to consumers
- Create a team dedicated to consumer education and outreach, listening and responding to consumers in specific communities, including veterans, immigrants, and older Californians
- Create a new Office of Financial Technology and Innovation, which will cultivate financial technology to serve – not exploit – consumers
Notably, the law also increases the state’s power to target “unfair, deceptive and abusive acts and practices” conducted by financial services providers in the state.
According to the DFPI, the law will also give the department “new regulatory powers to protect consumers from unfair, deceptive or abusive practices committed by currently unlicensed financial services or products, including credit reporting bureaus and credit repair agencies.”
The DFPI will also increase its staff by 90 employees over the next three years to address the department’s increased oversight.
“This is a landmark law to protect all Californians,” said California Business, Consumer Services and Housing Agency Secretary Lourdes Castro Ramírez. “It is now even more important with the financial challenges faced by many individuals and households impacted by the economic losses caused by the COVID-19 pandemic and the recent wildfires. We are ready and committed to supporting the success of the Department of Financial Protection and Innovation as they expand their mission and oversight to protect our most vulnerable Californians.”
The soon-to-be-renamed DFPI licenses and regulates the financial services industry in California, including state-chartered banks and credit unions, money transmitters, securities broker-dealers, investment advisers, nonbank installment lenders, payday lenders, mortgage lenders and servicers, escrow companies, PACE (Property Assessed Clean Energy) program administrators, and franchisors.