California Enacts “Mini-CFPB” Law, Significantly Altering Financial Services Regulation in the State
By: Jeremy McLaughlin & Mehreen Ahmed
On September 25, 2020, California Governor Newsom signed AB-1864 into law, which will significantly change the landscape of consumer financial service regulation in the state. The law renames the Department of Business Oversight as the Department of Financial Protection and Innovation (“DFPI”). Along with a new name, the DFPI also gains important enforcement powers as the agency will now have the power to enforce all California laws related to “persons offering or providing consumer financial products or services in the state.” The law allows DFPI to establish a “Financial and Technology Innovation Office.” A key aim of the law is to improve the state’s consumer protection capacity by increasing the number of investigators and attorneys to oversee financial institutions.
The new legislation has been dubbed a “Mini-CFPB” bill because it includes the California Consumer Financial Protection Law (“CCFPL”), which allows DFPI to regulate unlawful, deceptive, or abusive acts or practices (“UDAAP”)—a power identical to that granted to the Consumer Financial Protection Bureau (“CFPB”) through the Dodd-Frank Act. The law expands the type of entities that are subject to regulatory oversight, including service providers and affiliates acting as a service provider. In addition to regulating money transmitters, banks, and finance lenders, the agency can now also regulate fintech companies, debt collectors, and credit reporting agencies, although a variety of entities are exempted. The law also contains new registration requirements, which would often involve paying a fee, background checks for certain personnel who control the business, obtaining a bond, and showing audited financial statements.
Perhaps one of the most significant aspects of the law is the broad grant of enforcement powers to DFPI, including the power to bring administrative and civil actions seeking civil and monetary penalties as well as injunctive relief, issue subpoenas, promulgate regulations, hold hearings, issue publications, conduct investigations, and implement outreach and education programs. The law will take effect on January 1, 2021.