On August 31, 2020, the California Legislature passed the “Department of Financial Protection and Innovation” (DFPI) Bill. Effective on January 1, 2021, the Bill renames the California Department of Business Oversight (DBO) as the DFPI. The Bill also assigns the newly named agency with the responsibility to implement and oversee the application of the California Consumer Financial Protection Law (CCFPL). The Bill further tasks the DFPI with establishing a “Financial and Technology Innovation Office.” The Governor is expected to sign the Bill into law without reservation.
Currently, the DBO is the California agency which regulates and licenses financial institutions and providers of financial services including money transmitters, proraters, finance lenders, and banks. Like the DBO, the DFPI will continue regulating those industries, but will now also regulate fintech companies, debt collectors, and credit reporting agencies. It is important to note that the CCPFL exempts some financial institutions, including banks and credit unions that are already licensed or charted under federal or any other state law.
The Bill is colloquially knowns at the “Mini-CFPB” Bill because it gives the DFPI the same rights relating to unlawful, deceptive, or abusive acts or practices (UDAAP) that Title 10 of the Dodd-Frank Act gives to the CFPB. Through the DFPI the CCFPL applies to “covered persons,” which is defined in the Bill as “any person that engages in offering or providing a consumer financial product or service, any affiliate that acts as service providers, and any service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.” This definition of “covered persons” in the DFPI Bill is similar to the definition of a “service provider” in Title X of the Dodd-Frank Act. A “service provider” under Title X of Dodd-Frank is defined as “any person that provides a material service to a covered person in connection with the covered person’s offering or providing of a consumer financial product or service.”
The newly enacted Bill, the DFPI will have a similar enforcement authority over the UDAAP to the CFPB as well. This enforcement authority will help to expand the DFPI’s regulatory reach within the industries it oversees. In conjunction with state attorneys general that have concurrent enforcement authority over UDAAP, the DFPI can also bring enforcement proceedings pursuant to Title X of the Dodd-Frank Act against “covered persons” and those with existing licenses with the DBO. Perhaps most importantly noted in the Bill, under the CCFPL, the DFPI is not required to consult with the CFPB on its UDAAP actions.
Therefore, with the enactment of this new “mini-CFPB” Bill, enforcement actions in California may be on the rise, whether that be from the California Attorney General’s Office, or from the newly formed DFPI. Additionally, other states may follow a similar path to California and create their own new agencies with a similar broad jurisdiction over consumer financial services and products. We may see these “mini-CFPB” agencies proposed in legislation in states like New Jersey, Maryland, and Pennsylvania, so it is important for financial institutions, especially those in the fintech industry, to stay updated in this space.
- California Legislature passed a new “mini-CFPB-like” regulatory agency called the Department of Financial Protection and Innovation (DFPI).
- The DFPI is not simply renaming the current Department of Banking Oversight (DBO).
- The Bill, after enacted by the Governor, will give the DFPI similar regulatory and enforcement authority over financial institutions as given to the CFPB by Title X of the Dodd-Frank Act.
- State Attorneys General and the DFPI may bring more enforcement actions in this space now that they have this “stronger” consumer protection authority via the California Consumer Financial Protection Law (CCFPL).
- We may see more states implementing similar “mini-CFPB” agencies in the future.