California Announces Revamp Of Consumer Protection Regime In Place Of Sidelined CFPB

On January 10, 2020, California Governor Gavin Newsom formally unveiled his plans to expand California's enforcement activities with respect to consumer protection laws. Although the text of the law is not yet available, Governor Newsom's proposed state budget for 2020-2021 contemplates passage of the California Consumer Financial Protection Law (CCFPL). Among other things, the CCFPL would revamp the California Department of Business Oversight (DBO) into the Department of Financial Protection and Innovation (DFPI), with a substantial increase in staff and enforcement powers.

This initiative is part of Governor Newsom's response to “the rollback of the CFPB” under the Trump administration, and it involves key players from the industry, including former CFPB Director Richard Cordray and current DBO Commissioner Manuel Alvarez, who previously worked at the CFPB as an enforcement attorney under Cordray. State-level consumer protections that go beyond federal standards, such as those contemplated by Governor Newsom, may be permitted under the Dodd-Frank Act so long as they are not inconsistent with federal laws.

Currently, the DBO regulates financial services offered by state-chartered banks and credit unions, payday lenders, auto lenders, residential mortgage lenders, money transmitters, investment advisers, and securities dealers and brokers. It has power to bring enforcement actions, which can result in the suspension, denial, or revocation of a license, as well as receivership, rescission, restitution, and penalties. For example, in December 2019, the DBO settled a three-year action against auto title lender TitleMax of California, Inc., which must deliver nearly $700,000 in refunds to more than 21,000 TitleMax customers and pay a $25,000 penalty to resolve allegations that it charged excessive interest rates and fees. Last year, the DBO pursued over 500 enforcement actions against individuals and entities located around the country.

Under Governor Newsom's proposal, the DFPI would have expanded jurisdiction to regulate “debt collectors, credit reporting agencies, and financial technology (Fintech) companies.” The DFPI would also gain additional responsibilities and powers, including:

Offering services toempower and educate consumers, including the elderly, students, military service members, and recent immigrants; Licensing and examining new financial industries; Analyzing patterns and developments in the market to inform evidence-based...

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