AB 1864 has now passed California’s legislature and is another California fire with which Governor Newsom must deal. This Bill seeks to rename the Department of Business Oversight as the Department of Financial Protection and Innovation (“DFPI”), and is expected to be signed by Governor Newsom. Earlier, Governor Newsom proposed the CFPL in his 2020-2021 budget frame-work. The goal, according to Newsom, was for the DFPI to become a California version of the Consumer Finance Protection Bureau (“CFPB”), particularly in light of a perceived retreat by federal agencies, including the CFPB, in recent years. While increased funding for the DFPI was included in the 2020-2021 budget, it was contingent on upon enactment of the CFPL.
There are some notable changes in the version of the CFPL ultimately passed by the California’s legislature. The definition of covered persons includes any person who engages in offering or providing a “consumer financial product or service” to a resident of California. While earlier versions of the CFPL included almost no exemptions, the version passed by the legislature includes a number of exemptions from the CFPL for persons or entities that are already licensed or regulated under an existing framework. 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.” Some commentators have thus concluded that the majority of the new framework under the CFPL will target previously unregulated financial institutions, such as newer “Fintech” firms, debt collectors, and cash advance lenders, while already regulated financial institutions such as banks, mortgage servicers, and auto finance lenders appear to remain exempt from most of the CFPL framework.
For those persons and entities that are covered, 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.
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