5 Takeaways from CA’s New ‘Mini-CFPB’ Bill

On August 31, 2020 the California State Legislature passed Assembly Bill 1864. The bill will take effect on January 1, 2021, unless there is an unlikely veto by Governor Gavin Newson.  Among the bill’s purposes are to “clarify DBO’s authority to enforce provisions of the federal Dodd-Frank Wall Street Consumer Financial Protection Act of 2010 over existing licensees, to protect consumers from unlawful, unfair, deceptive, or abusive acts or practices, and to expand DBO’s jurisdiction to cover currently unlicensed persons that offer or provide consumer financial products and services in California.”

Here are the top 5 takeaways:

1.    DBO Becomes DFPI

• The Department of Business Oversight (DBO) will be renamed the Department of Financial Protection and Innovation (DFPI)

• A Financial Technology Office will be established under the DFPI “to promote innovation and consumer access within financial technology services sector.”

• A new Division of Consumer Financial Protection will be established, i.e. a ‘mini-CFPB’

• The DFPI will perform new activities, “like consumer financial product market research and targeted consumer outreach and education programs.”

2.    Expanded Powers

• The Consumer Financial Protection Law (CFPL) prohibits covered persons or service providers from:

o   Engaging in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services

o   Offering or providing a consumer a financial product or service that is not in conformity with any consumer financial law

o   Failing or refusing to maintain and make accessible records required by a consumer financial law or any rule or order issued by the DFPI

• The CFPL grants rulemaking authority to the DFPI, in connection with unlawful, unfair, deceptive or abusive acts or practices with respect to consumer financial products or services, including data collection and reporting

3.    Additional ‘Covered Persons’

• CFPL applies to any person or business “that engages in the offering or providing of a consumer financial product or service to a California resident.”

• Covered persons include debt collectors, credit reporting agencies, and certain Fintech companies

• CFPL does not apply to those businesses and licensees already regulated by other CA regulations and agencies, such as banks, bank holding companies, credit unions, mortgage lenders, broker/dealers, investment advisors, etc

4.    Added Registration Requirements

• The DFPI will have the authority to create rules and regulations related to registration requirements and registration fees

• Recordkeeping requirements may be established for regulatory oversight purposes

5.    Enforcement

• The new law will allow the DFPI to bring enforcement actions, including monetary penalties against the covered persons listed above

• Consistent with the Consumer Financial Protection Bureau (CFPB), penalty amounts “range from $5,000 for each day the violation or failure to pay continues or $2,500 for each act or omission in violation to $1,000,000 for each day the violation or failure to pay continues or $25,000 for each act or omission in violation.”

The new law will certainly grant the state more authority to oversee consumer protection within financial service providers not previously regulated, including Fintechs. However, it may be some time before the state’s budget allows for the new regulatory changes to take full effect.

For more information, contact Troy Garris at 301-461-8952 or troy@garrishorn.com.