California’s Proposal to Create Mini-CFPB
This proposed regulatory change will undoubtedly have a wide-ranging impact on financial markets nationwide.
On January 10, 2019, California Governor Gavin Newsom proposed a plan to create a California version of the federal Consumer Financial Protection Bureau ("CFPB") as part of the state's proposed 2020-21 budget. According to the budget summary, this mini-CFPB is necessary because the federal government's rollback of regulations "leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate." In his announcement, Newsom declared that "California is filling the void and stepping up to protect families and consumers."
A handful of states have created similar mini-CFPBs, some of which sit within the office of the state's attorney general and some of which are stand-alone agencies. California's would be more similar to the latter. The proposed mini-CFPB would replace the now-existing California Department of Business Oversight, renaming it the Department of Financial Protection and Innovation ("DFPI").
Although this proposal remains subject to a yet to be seen bill, the new DFPI would "empower and educate" consumers, examine new industries it deems currently underregulated, protect consumers against "unfair, deceptive, and abusive practices," establish a focus on the "responsible development" of new consumer financial products, offer legal support to consumers, and expand staff to support the DFPI's increased regulatory responsibilities. The proposal also envisions granting the DFPI the authority to "pursue unlicensed financial services providers not currently subject to regulatory oversight such as debt collectors, credit reporting agencies, and financial technology (fintech) companies." This information concerning the proposal is from the full budget summary. Once a bill is released, it is expected that there will be additional details regarding the proposal, including information concerning the scope of the jurisdictional and supervisory authority of the DFPI.
Former CFPB Director Richard Cordray noted that the DFPI "is going to catapult California into the forefront of consumer protection around the country on the state level." This proposed regulatory change will undoubtedly have a wide-ranging impact on financial markets nationwide.
Jones Day will continue to monitor this development.