California’s Mini-CFPB
By: Jenny Eldred, RBFL Student Editor
The California Consumer Financial Protection Law went into effect January 1, 2021,[1] reorganizing the Department of Business Oversight into the newly created Department of Financial Protection and Innovation. The DFPI assumes the reserved powers carved out of the Dodd-Frank Act for state regulators to protect consumers against unfair, deceptive, or abusive acts and practices.[2] The new California statute expands the jurisdiction of the consumer watchdog to cover previously unregulated actors including debt collectors, rent-to-own contractors, consumer credit reporting agencies, credit repair agencies, and—most notably—fintech.[3]
However, the DFPI does not have authority over any “bank, bank holding company, trust company, savings and loan association, savings and loan holding company, credit union…when acting under the authority of a license, certificate, or charter under federal law or the laws of another state.”[4] The exclusion of federally-chartered banks and banks chartered in other states was inserted into the bill as a result of the lobbyist efforts of the California Bankers Association.[5] The CCFPL is also limited in scope by not applying to persons licensed under other California state laws not administered by the DFPI, which effectively narrows CCFPL’s regulatory scope to mostly small lenders and fintech[6]—a major claw-back in scope from the original bill.[7]
The year 2020 presented significant challenges for consumer protection that likely prompted the California legislature into action, ranging from the COVID-19 pandemic[8] to Donald Trump running for reelection after effectively gutting the federal Consumer Financial Protection Bureau.[9] The CCFPL’s language also points to the emergence of fintech as another impetus of its enactment.[10]
The DFPI now has the opportunity to supplement what the CFPB doesn’t do particularly well at the federal level—regulating fintech. Tasked with regulating all actors who offer a financial product to consumers (from many individual payday lenders to massive banks), the CFPB may be too consumed with its responsibilities to fully pursue oversight of fintech industry actors.[11] During its first month, the DFPI has already signed memorandums of understanding with five fintech companies to provide it with information, follow industry best practices, and disclose their fees.[12] These agreements may possibly be the first of their kind between fintechs and a state regulatory agency.[13] California’s DFPI is undoubtedly an entity to watch in the emerging area of fintech regulation.
[1]Antonio F. Dias, et al., California Passes Legislation to Create Mini-CFPB. Jones Day. (Oct. 2020), https://www.jonesday.com/en/insights/2020/10/california-passes-legislation-to-create-minicfpb [https://perma.cc/6MXY-WMSN].
[2]Cal. Fin. Code §§ 90012(a); 90009(c); 12 U.S.C. § 5531(a), (b).
[3]Department of Consumer Protection and Innovation, California Consumer Protection Law for Businesses (Feb. 5, 2021, 11:35 AM), https://dfpi.ca.gov/california-consumer-financial-protection-law/ccfpl-for-businesses/.
[4]See Cal. Fin. Code § 90002 as enacted by Assembly Bill No. 1864.
[5]Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of 2019 CA A.B. No. 1864 as amended Aug. 25, 2020.
[6]See Id.
[7]See Id.
[8]See Cal. Fin. Code § 90000 as enacted by Assembly Bill No. 1864.
[9]See Biden Taps Proponents of Stricter Wall Street Rules for His agency Review Teams During Transition. The Washington Post. (Nov. 11, 2020, 6:24 AM), https://www.washingtonpost.com/business/2020/11/10/biden-transition-wall-street-regulation.
[10]See Cal. Fin. Code § 90000 as enacted by Assembly Bill No. 1864.
[11]See Rory Van Loo, Technology Regulation by Default: Platfoms, Privacy, and the CFPB, 2 Geo. L.Tech. Rev. 531, 545 (2018).
[12]See Id.
[13]See Press Release, Department of Financial Protection and Innovation, The DFPI Signs MOUs Believed to be Among the Nation’s First with Earned Wage Access Companies (Jan. 27, 2021), available at https://dfpi.ca.gov/wp-content/uploads/sites/337/2021/01/DFPI-Press-Release_Earned-Wage-Access-MOUs.pdf.