California is planning to strengthen its regulation of financial companies by replicating on a state level what the Consumer Financial Protection Bureau was created to be.
The state legislature has revived an idea Gov. Gavin Newsom first proposed in January to remake the California Department of Business Oversight into a beefed-up regulator of fintech companies, credit reporting agencies, debt collection forms and others firms.
The agency, which would be renamed the Department of Financial Protection and Innovation, DFPI, would see its powers expanded to address “abusive” acts and practices, going beyond its current goal of preventing unfair and deceptive acts and practices. The new agency would be fashioned after the federal CFPB that was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The proposal to create a “mini-CFPB” in the state was added to a pending budget bill after being dropped in June. California is the most populous state in the nation, home to 12% of the Americans. If the state was an independent nation, its economy would be the fifth-largest in the world.
The legislature likely will “act on this proposal in the coming weeks,” according to staff comments in an agenda for a state Senate hearing held last week.
The DFPI is designed to “provide consumers greater protection from predatory practices while facilitating innovation and ensuring a level playing field for all companies operating responsibly in California,” according to the description in Newsom’s proposal. It “seeks to cement California’s consumer protection leadership amidst a consumer-protection retreat by federal agencies, including the Consumer Financial Protection Bureau.”
Enforcement actions at the federal CFPB plummeted after President Donald Trump took office in 2017, according to a story last year in the Wall Street Journal. The number of new enforcement investigations fell to 15 in fiscal 2018, from 63 in fiscal 2017 and 70 in fiscal 2016, the CFPB said in response to a Freedom of Information Act request from the Journal.
Beth Mills, a spokeswoman for the California Bankers Association, said in an interview with NPR that she supports the creation of the new state agency because it would mean better policing of online lenders who compete with banks but operate with looser oversight.
“We would welcome greater regulation on them to make sure that we’re operating under the same rules,” Mills said, while proposing banks that already are heavily regulated by the Federal Reserve and the Office of the Comptroller of the Currency be exempt from the new bill.