With the official passage of the California Consumer Protection law on Friday, California’s Department of Business Oversight will be renamed the California Department of Financial Protection and Innovation and given expanded powers. The state legislature says the move will increase financial regulation and consumer protection in the Golden State.
California Gov. Gavin Newsom signed the bill, originally introduced on Jan. 7, 2020, and it is effective starting Jan. 1, 2021.
According to the DBO, under the law, the department will have expanded enforcement powers to protect California consumers from pandemic-inspired scams, promote innovation, clarify regulatory hurdles for emerging products and increase education and outreach for vulnerable groups.
“We have already seen an increase in predatory financial lending and scams as the most vulnerable in our state try to weather the economic downturn induced by the COVID-19 pandemic,” said Manuel Alvarez, DBO commissioner. “This legislation will allow us to increase consumer protections without imposing undue burdens on honest and fair operators.”
The DBO currently licenses and regulates several types of financial services such as state-chartered banks and credit unions, mortgage lenders and servicers, escrow companies etc. The new authority, however, will extend their oversight to debt collectors, credit reporting agencies and bureaus and some fintech companies.
A market monitor and research arm will also be established as the Division of Consumer Financial Protection to track the latest financial products.
“This is a landmark law to protect all Californians,” said Lourdes Castro Ramírez, California Business, Consumer Services and Housing Agency secretary. “It is now even more important with the financial challenges faced by many individuals and households impacted by the economic losses caused by the COVID-19 pandemic and the recent wildfires.
“We are ready and committed to supporting the success of the Department of Financial Protection and Innovation as they expand their mission and oversight to protect our most vulnerable Californians.”
The Department plans to fund the $44.3 million in projected start-up costs over the first three years by using existing reserves as well as hiring an additional 90 employees to focus on the new activities.
California isn’t the first state to set up state enforcement after what was perceived to be a pullback from federal regulatory action by the Consumer Financial Protection Bureau.
In 2017, Pennsylvania Attorney General Josh Shapiro announced that he was launching a Consumer Financial Protection Unit designed to “better protect Pennsylvania consumers from financial scams.” New York followed suit in 2019 in an act New York Department of Financial Services Superintendent Maria Vullo said was to address the CFPB’s “troublesome policy shift away from consumer protection.”