On September 25, 2020, Governor Newsom signed a number of bills, including AB 1864, which established the Department of Financial Protection and Innovation (“DFPI”) in place of the Department of Business Oversight (“DBO”), and SB 908, the Debt Collection Licensing Act. Both bills were passed by the California legislature in late August 2020, and are touted by Governor Newsome as part of a package of bills designed to protect consumers from financial predators and abusive business practices.

As covered in previous ‘blog posts, AB 1864 renames the DBO as the DFPI, and through the California Consumer Financial Protection Law (“CFPL”) it gives the DFPI added powers in an effort to transform the agency into California’s version of the federal Consumer Financial Protection Bureau. The definition of covered persons under the law includes any person who engages in offering or providing a “consumer financial product or service” to a resident of California. However, there are some exemptions. For example, the CFPL does not apply to persons currently licensed as a “finance lender, broker, program administrator, or mortgage loan originator under Division 9 (commencing with Section 22000) of the Financial Code,” persons licensed as a “residential mortgage lender, a mortgage servicer, or a mortgage loan originator under Division 20 (commencing with Section 50000) of the Financial Code,” or to a “bank, bank holding company, trust company, savings and loan association, savings and loan holding company, credit union, or an organization subject to oversight of the Farm Credit Administration, when acting under the authority of a license, certificate, or charter under federal law or the laws of another state.”

For covered persons, the CFPL includes a broad list of prohibited conduct, including engaging in “unlawful, unfair, deceptive, or abusive act or practice with respect to consumer financial products or services,” offering or providing a financial product or service “not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law,” and failing to provide cooperate with the DFPI as it relates to records and reports. The CFPL also provides the DFPI authority to bring administrative and civil actions, to issue publications and reports, establish a process for consumers to submit complaints against covered persons, and proscribe rules and regulations. In particular, the DFPI is permitted to take action against a covered person who engages in “unfair, deceptive, or abusive practices with respect to consumer financial products or services,” and the CFPL provides a schedule of penalties and remedies available to the DFPI.

SB 908, the Debt Collection Licensing Act, requires persons who are engaged in the business of debt collection in California to obtain a license. There is a similar list of exemptions as in AB 1864, including depository institutions, persons licensed under California’s Financing Law, Residential Mortgage Lending Act, or Real Estate Law, persons subject to the Rental-Purchase Act, and a trustee performing acts in connection with a nonjudicial foreclosure. The DBO, now renamed the DFPI, is to begin adopting rules for licensing starting on January 1, 2021, with enforcement to begin on January 1, 2022. In addition to adopting rules for licensing, the DBO/DFPI is also given powers to investigate and examine applicants, suspend licenses, and issue orders and other relief for unlicensed conduct or other violations, among other things. SB 908 also amends the Rosenthal Fair Debt Collection Practices Act to require debt collectors to include their license number in at least 12-point font in written or digital communications to debtors.

The combination of AB 1864 and SB 908 is a one-two punch for debt collectors and potentially even creditors and other financial services entities that operate in California. Who exactly these two laws apply to, the overlap and interplay between the two laws, and any regulations and rules issued under them, are all areas that will surely continue to develop in the near future.