By Stephanie Mendivil
On September 25, 2020, Governor Newsom signed a series of bills to establish a California consumer financial protection watchdog agency, modeled after the federal Consumer Financial Protection Bureau, that is designed to expand the state’s authority and resources to protect Californians against abusive and predatory financial products and services. Specifically, AB 1864 (Limón), as amended August 25, 2020, amends sections 300, 320, 321, 326, and 351, adds Division 24 to, and repeals section 371 of the Financial Code to impose these significant structural changes to the Department of Business Oversight (DBO).
Of note, section 321 renames the DBO as the Department of Financial Protection and Innovation (DFPI), which will retain all the powers, duties, responsibilities, and functions of DBO. AB 1864 also adds new Division 24 to the Financial Code to enact the California Consumer Financial Protection Law (CCFPL), which, according to the bill’s author, expands DFPI’s ability “to improve accountability and transparency in the California financial system and promote nondiscriminatory access to responsible, affordable credit.”
New section 90000 contains a series of legislative findings documenting the need for a consumer financial services regulator in California, particularly in this era of the COVID-19 pandemic, when consumers are particularly vulnerable to financial abuse, and declares the intent of the legislature to “strengthen consumer protections by expanding the ability of [DFPI] to improve accountability and transparency in the California financial system, provide consumer financial education, and protect consumers from abusive financial practices, while prioritizing the prevention of unethical businesses from harming the most vulnerable populations” in California.
The CCFPL requires DFPI to regulate the provision of various consumer financial products and services and to exercise nonexclusive oversight and enforcement authority under California consumer financial laws relating to “persons offering or providing consumer financial products or services in [the] state,” and, to the extent permissible, under the federal consumer financial laws.
The CCFPL also makes it unlawful for “covered persons” (persons who engage in offering or providing “consumer financial products or services,” their service providers, and affiliates when acting as a service provider) to engage in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services, or offer to provide a consumer a financial product or service that is not in conformity with any consumer financial law. Under the CCFPL, “covered persons” includes entities not previously subject to DBO oversight, including debt collectors, credit reporting agencies, certain fintech companies, and some merchants who extend credit directly to consumers. The CCFPL allows DFPI to issue and enforce rules defining Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), as they relate to commercial financing or financial products and services offered or provided to small business recipients, nonprofits, and family farms. This rulemaking may include data collection and reporting. No part of the CCFPL limits the authority of any district attorney or city attorney lawfully permitted to bring actions to enforce California’s Unfair Competition Act, or the authority of the Attorney General to prosecute violations of civil or criminal laws.
Under the CCFPL, DFPI has the power to bring administrative and civil actions to enforce the Consumer Financial Protection Act of 2010, issue subpoenas, enact regulations, hold hearings, issue publications, conduct investigations, and implement outreach and education programs. DFPI is allowed to enact regulations requiring any covered person to submit a registration, pay a fee to DFPI, submit background checks for certain personnel, and obtain a bond or satisfy other financial standing requirements. All moneys collected under the CCFPL must be deposited into the newly created Financial Protection Fund.
The CCFPL also requires DFPI to establish the Financial Technology Innovation Office which will “promote innovation and consumer access within [the] financial technology services sector.”
Governor Newsom signed AB 1864 on September 25, 2020 (Chapter 157, Statutes of 2020). The name change of the Department became effective immediately upon signing the bill; the remainder of the provisions of the bill become effective on January 1, 2021.