Back to the future with California regulatory reforms

Editor’s Note: This story originally appeared in the November edition of DS News, out now.

In a postalthough in the middleCOVID 19 climate, with an economy desperately trying to rebound after a global pandemic, some might say it’s confusing, and maybe sardonic limit, that the California legislature would throw a fast curveball aimed directly to financial institutions. However, on August 31, 2020, the California lawmakerature past what is packaged as a history initiative with the enthusiasm of become a governor’s legacy. the Financial protection for California consumers Law (CCFPL) promises at better protect consumers from financial problems players and at favor innovation throughout state financial services, which lawmakers suggest the federal government has promised but failed to do so.

This the law is recognized as an original idea by California Governor Gavin Newsom and is said to embody the ambitions of the Dodd-Frank Act Title X and its descendants by creation a new and improved mini-CFPB, affectionately known as the Department of Financial Protection and Innovation (DFPI). According to the Governor’s 2020-2021 Budget Summary, the DFPI promises to be a more influential and powerful bank agency than its predecessor, the current Department of Business Oversight (DBO), with redesigned authority and extended enforcement capacity. Headlines might dub the new law ‘mini’, but do notdon’t be foolednothing about the California mini-CFPB is pint in factdimensioned or diminutive.

This article offers a highlight coil of the new law and summarizes this the DFPI is strives to accomplish in its pretended efforts to better protect consumers and foster innovation in financial services across California. Newsom is not discreet about its intentions in creating the DFPI and expressly calls on the federal government thereforecalled “CFPB pullback” for allegedly leaving California vulnerable to predatory businesses and corporations without the clarity and security to innovate. Ultimately, the new California agency is a resurrected, reused, and BOD gentrified.

Gentrifying Dodd-Frank

Although considered to be the offspring of Title X of the Dodd-Frank Act, the statutory intent and motivation of the CCFPL does not fully align with Dodd-Frank’s ten-year-old Wall Street reform goals. Where Dodd-Frank created a new Bureau of Consumer Financial Protection within the Federal Reserve Board to oversee certain financial companies and act in general manufacturer and executor against unfair, deceptive or abusive acts (UDAAP) related to a multitude of consumer financial products or services, the California restitution seeks to cultivate what lawmakers value a limited pool of consumers’ financial resources products, suppliers, and / or services who are “unscrupulous”, highlighting the UDAAP and discriminatory practices time and time again.

Likewise, whereas Dodd-Frank has been touted as a somewhat balanced approach to protecting the consumer from UDAAP and discrimination, stressing the need to reduce unnecessary regulatory burden and efficiency, the CCFPL appears to be more severe and punitive, and discretionary. The legislative conclusions recognize the need for reform, pointing to the mixed benefits of technological innovation, raising an eyebrow at technology which, even at its best, “presents risks to consumers and challenges to law enforcement.”

Important exemptions

CCPFL exempts national banks, California or other state chartered banks, and existing DBO licensees, other than payday lenders and student loan administrators, of the CCFPL. The CCFPL also exempts licensees and their employees from any California state agency. For example, the CCFPL will likely exempt holders of real estate licenses under the Real Estate Act and their employees acting under those licenses.

Once you subtract exempt institutions, the jurisdiction of the law applies almost exclusively to entities that were not previously licensed by the DBO. These entities must be qualified as “covered persons”, which, within the meaning of the CCPFL, includes: (1) those who offer or provide financial products or services to consumers, (2) or affiliates who act as service providers, and / or (3) any service provider that offers or provides its own financial product or service to consumers. Simply, whether or not a the entity is classified as a covered person, and therefore subject to the authority of the CCPFL, depends on the offer or provision of a consumer financial product or service. Here, “service providers” are synonymous with the term as applied in Dodd-Frank Title X and are intended for include any person who provides a material service to a covered person under the the offer or provision by the covered person of a consumer financial product or service.

Likewise, according to Dodd-Frank definitions, financial product or service aims to designate a fairly inclusive lists and adds to its genre the brokerage of offering or selling one franchise on behalf of another. Ultimately, the CCFPL, like Dodd-Frank, grants DFPI, as a modern watchdog agency, power to issue regulations that define financial product or service according to benchmarks.

UDAAP

Just as Title X gives the CFPB the power to regulate the UDAAP, the CCPFL gives the DFPI the same sovereignty …

Read the full story p. 64 of the November issue of DS News, available here.

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