Sacramento, CA 1 September 2020 – In the aftermath of two failed consumer protection bills in both the state assembly and senate, the California legislature did manage to pass a bill that will create its own version of the Consumer Financial Protection Bureau. State Governor Gavin Newsom, who spearheaded the bill, is poised to sign the bill into law. As part of the 2020-21 budget, Governor Gavin Newsom set in motion a reorganization and significant expansion of the authority of the California regulator, the Department of Business Oversight (DBO). This reorganization includes:
- A new name (Department of Financial Protection and Innovation);
- Greatly expanded examination and enforcement resources; and
- A new law (California Consumer Financial Protection Law or CCFPL) that gives the regulator unfair, abusive, or deceptive acts or practices (UDAAP) and other authority mirroring the CFPB’s authority under Dodd-Frank Act Title X.
The bill, AB 1864, will create the Department of Financial Protection and Innovation. The bill includes exemptions for categories of companies that are already licensed by other state agencies in California, such as mortgage servicers. Neither debt collectors or collection agencies are specifically named in the bill, either under the section listing the state laws that the new agency is in charge of or the categories of companies that are exempt from the agency.
A separate measure had already passed in California requiring collection agencies to obtain licenses in order to operate in the state, which may make them subsequently exempt from the law, but is not immediately clear upon reading the updated version of the bill.
The bill does prohibit the use of engaging in unfair, deceptive, or abusive acts or practices with respect to consumer financial products and services, which could include debt collection activities.
The newly created agency is charged with “all the investigatory and subpoena powers” set forth in Sections 11180 to 11191 of the Government code, and may assess a number of penalties, including rescinding contracts, refunding money, payment of damages, and notifying the public of the violation. The department can assess fines of up to $1 million and may bring civil actions against alleged wrongdoers.
The 2020-21 budget signed by Governor Newsom in June provides $10.2 million in 2020-21 growing to $19.3 million in 2022-23 to fund the DFPI reorganization and expansion as well as the initial implementation of the CCFPL.[1] Starting in 2023-24, DFPI activities will be funded by registration fees from new licensees. Current DBO licensee assessments may increase as well, but the funding structure will provide a strong incentive for the DFPI to focus on licensing as many new covered persons as quickly as possible. The same is true for enforcement actions given that penalties imposed on covered persons provide another agency funding source.
With the spread of the coronavirus pandemic across the United States, question has arisen as to whether or not there was enough money and time for the state to create the new Department of Financial Protection. For several months there has been a “will they or won’t they” story and the on and off again nature has led to many stops and starts along the way.
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