California already has one of the most active state agencies in terms of regulating and (when necessary) punishing the financial services industry: the California Department of Business Oversight.
But the state could soon have a financial regulator that rivals the New York Department of Financial Services in terms of clout, reach, and scope.
On Friday, California Gov. Gavin Newsom will reportedly unveil a plan for the state to enact its own version of the Consumer Financial Protection Bureau, overhauling and increasing the power of the state’s Department of Business Oversight.
According to a report from the Los Angeles Times, the proposal to create a state-level CFPB will come in Newsom’s 2020-2021 budget, which Newsom is scheduled to reveal Friday.
Gov. Gavin Newsom will unveil a California Consumer Financial Protection Law as part of his proposed 2020-21 state budget, to be introduced Friday.
“As the Trump administration undermines and weakens the rules that protect consumers from predatory businesses, California is filling the void and stepping up to protect families and consumers,” he told me via email.
According to materials shared with me by the governor’s office, the proposed California Consumer Financial Protection Law would overhaul the existing Department of Business Oversight and rename it the Department of Financial Protection and Innovation, or DFPI.
It’s probably safe to say that the state of California and the Trump administration are not the best of friends. The president frequently targets the Golden State with insults and the Democratic-led state government frequently acts to subvert the administration’s efforts.
This latest effort would be a direct response to the Trump administration’s efforts to limit the CFPB’s influence and impact.
But it wouldn’t be the first such effort.
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.”
According to Shapiro’s office, the state’s Consumer Financial Protection Unit will “focus on lenders that prey on seniors, families with students, and military service members, including for-profit colleges and mortgage and student loan servicers.”
But Pennsylvania wasn’t alone. In 2018, during the tenure of Mick Mulvaney as CFPB director, the NYDFS said that the agency was prepared to step in to address the CFPB’s “troublesome policy shift away from consumer protection.”
New York later created its own state-level version of the CFPB, launching a new division within the NYDFS that focuses on consumer protection and financial enforcement. The division combines the previously separate Enforcement and Financial Frauds and Consumer Protection divisions into one entity.
According to the NYDFS, the Consumer Protection and Financial Enforcement Division focuses on “protecting and educating consumers and fighting consumer fraud, as well as ensuring that regulated entities comply with New York and federal law in relation to their activities serving the public.”
And soon, California could have its own version of the CFPB.
According to the Times report, Newsom’s plan calls for the following:
“dozens of new staff,” greater scrutiny of consumer markets “to identify patterns of abuse,” and increased outreach to people frequently targeted for questionable financial practices, such as veterans and immigrants.
With the size and scale of the financial services operations within the state of California, the impact of this proposed agency could be massive. More details on Newsom’s proposal should become available when the governor reveals his state budget on Friday.