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Financial Services Law Insights and Observations

California governor proposes strengthening state consumer protection authority and increasing financial innovation

State Issues Consumer Finance CFPB CDBO State Regulators State Legislation Debt Collection Fintech Licensing

State Issues

On January 10, the California governor submitted his proposal for California’s 2020-2021 state budget, which would, among other things, include the creation and administration of the California Consumer Protection Law (Law). The governor’s budget summary indicates that “[t]he federal government’s rollback of the CFPB leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.”  The proposed Law is intended to provide “consumers with more protection against unfair and deceptive practices when accessing financial services and products.” To create and administer the Law, the proposed budget contemplates the expansion of the Department of Business of Oversight’s (DBO) authority to “protect consumers” and “foster the responsible development of new financial products.” In light of the expanded role, the governor also proposed renaming the DBO to the Department of Financial Protection and Innovation. The governor’s budget includes an allocation to the DBO of a $10.2 million Financial Protection Fund and 44 positions in 2020-2021, which would increase to $19.3 million and 90 positions in 2022-2023 for creating and implementing the Law.

According to the DBO’s website, the DBO currently “provides protection to consumers and services to businesses engaged in financial transactions” and “oversees the operations of state-licensed financial institutions, including banks, credit unions, money transmitters, issuers of payment instruments and travelers checks, and premium finance companies.” Under the governor’s budget proposal summary, in addition to the DBO’s current functions, the DBO will have greater authority to “pursue unlicensed financial service providers not currently subject to regulatory oversight such as debt collectors, credit reporting agencies, and financial technology (fintech) companies, among others.”

The budget proposal summary provides that the DBO’s new activities will include:

  • Offering services to educate consumers (e.g., older Americans, students, military service members, and recent immigrants).
  • Licensing and examining industries that are currently under-regulated.
  • Analyzing market patterns and developments for evidence-based policies and enforcement.
  • Enforcing against unfair, deceptive, and abusive practices.
  • Establishing a new Financial Technology Innovation Office, which will be tasked with proactively promoting “responsible development of new consumer financial products.”
  • Providing legal support for the administration of the Law.
  • Expanding administrative and IT staff to support the DBO’s increased authority.

 The details of the Governor’s budget proposal have not yet been published.

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