California Financial News: Enhanced DFPI Prepares to Flex Its Muscles

Financial Services Law

As we previously reported, the newly established California Department of Financial Protection and Innovation (DFPI) starts the new year with greatly enhanced powers, and it is making sure consumers, industry and the general public are on sufficient notice. We discuss the latest below.

What Happened

In late 2020, the California legislature passed the California Consumer Financial Protection Law (CCFPL) (AB 1864). The law rebranded the former Department of Business Oversight (DBO) as the DFPI and greatly expanded the department’s already extensive regulatory, licensing and enforcement powers. Notably, however, the law exempted banks and savings associations and declined to enhance the DFPI’s powers over those entities already regulated by the DBO, such as mortgage lenders and money transmitters. You can read more about the law and agency here.

Most of the new powers were set to commence on January 1, 2021. And sure enough, in the DFPI’s monthly bulletin for January 2021, the DFPI reminds us that those powers are being implemented “with immediate effect.” The DFPI notes it will review and investigate consumer complaints against previously unregulated financial products and services, including debt collectors, credit repair and consumer credit reporting agencies, debt relief companies, rent-to-own contractors, private school financing, and more.

The DFPI is building out its new Division of Consumer Financial Protection (CFPD), including a market monitoring and research arm to keep up with emerging financial products. Consumer outreach to target vulnerable populations, such as students, new Californians, military servicemembers and senior citizens, will be expanded. Critically here, the CFPD will include an ombudsman who will help independently investigate complaints against the department “and work to resolve process issues.”

Among other things, the bulletin likewise advises that the DFPI will launch a statewide campaign in spring of 2021 to educate California consumers on how the department can support and protect consumers.

With “innovation” in its name, it is no surprise that the DFPI is likewise soon to be opening its new Office of Financial Technology Innovation “that will engage with new industries and consumer advocates to encourage consumer[-]friendly innovation and job creation in California.” The DFPI promises to work proactively with entrepreneurs and create a regulatory framework for “responsible, emerging financial products.”

Why It Matters

The DFPI is beginning to sound more like the mini Consumer Financial Protection Bureau that the legislators envisioned when they passed AB 1864 into law. And the DFPI is now invested in making a show of force to assist those perceived to be most in need.

“Californians struggling with the economic fallout associated with the COVID-19 pandemic face increased financial pressures and are more likely to be victims of financial scams and fraud,” says DFPI Commissioner Manuel P. Alvarez. “The new law could not have come at a better time.”

Manatt is actively counseling numerous clients on compliance with the CCFPL and with matters presently before the DFPI. (Coauthor Jan Lynn Owen is the former commissioner of the DBO, while Richard Gottlieb and Scott Pearson represent regulated entities in matters before the agency.) If you require assistance, please contact the authors or any member of the Manatt consumer financial services team.

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