Government LendingRegulatory

California’s consumer protection watchdog is “mini CFPB”

Head of DFPI was an enforcement attorney at the bureau for three years


As the COVID-19 crisis wanes, so will emergency protections adopted in spring 2020 with the intention of keeping U.S. residents in their houses and apartments during the pandemic. California intends to exercise its new muscles on behalf of residents easing back into the normal flow of housing financial responsibilities, making the most of new authorities it has with the enactment on Jan. 1 of the California Consumer Financial Protection Law (CCFPL).  

The law expands the staff of the rechristened Department of Financial Protection and Innovation (previously known as the Department of Business Oversight) by about 90 more staffers and the budget by 15%, to fuel the department’s expanded vision. The wider scope of the department’s authority coincided with the wilting of the federal Consumer Financial Protection Bureau under the Trump administration.

Now, under the Biden administration, the CFPB is reinvigorated. This means that housing financial services companies and adjacent industries, such as the credit report sector, face strengthened regulators at both the state and federal levels.

California will make the most it, said DFPI Commissioner Manual Alvarez.

“Coming out of the recovery, our focus in California is to ensure that vulnerable populations are as protected as they can be and that we can do what we can to educate the public about rights and resources, especially in respect to housing and mortgage assistance. That’s priority one,” Alvarez said. “We have to be sure Californians come out of the economic recovery as best as possible.”

That means amplified outreach to California renters and homeowners to be sure they appeal to the department as soon as financial conflicts erupt. “Our two overarching objectives are informing the public of their rights and making sure that licensees are regulated and have resilience to continue operating,” said Alvarez.

The DFI, like all state regulators, has the authority to grant and cancel business charters and licenses required to operate in the state. That gives the DFI stronger and more focused power to enact its priorities, as compared to the CFPB, which does not grant operating permissions.

Back in 2008, as an enforcement attorney, Alvarez got a close look at the housing economy meltdown and the broken gears of mortgage lending and servicing that crushed many homeowners and companies.

“it was a Kafkaesque bureaucracy,” he said. “In general, an institution’s obligation is to be responsive to the needs of their consumers. In 2008…they didn’t even meet that bar.”

Now, with a new generation of servicers and industry standards, Alvarez said the DFPI will “ensure that those companies that are servicing mortgages continue to operate in a way that ensures the stability of their operations. It would be disastrous for consumers if servicers were no longer stable enough to continue operating.“

Alvarez is one of several former CFPB senior staff who moved on in the wake of the 2016 election to state positions, noted Quyen Truong, herself a former assistant director of the CFPB, now a partner with the Stroock law firm in Washington, D.C.

The “mini CFPB” departments elevated in both New York and California attracted staffers from the shakeup at the federal CFPB under the Trump administration, said Truong. “There’s a lot of cross-pollination” of professionals, perspectives and priorities,” said Truong, whose team communicated with states on legal interpretations during her tenure at the federal agency. 

“The CFPB and the states share a lot of authority as well as regulatory priorities,” said Truong. “In those areas, you’ll see significant collaboration, especially in the potential for coordinated action and enforcement. There’s also the potential for division of labor where they have overlapping authority and interest, where one or the other might be more active. If the CFPB is aggressively pursuing certain business practices, the states might preserve their resources for other areas,” she said. 

Lenders, servicers and other industries who support the housing economy and adjacent consumer finance operations need to know that “collaboration among the CFPB and states is fluid and informal,” said Truong. “The states will be looking to see where the CFPB will be putting its resources and will balance their interests accordingly.”  

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