SACRAMENTO — California will create a state consumer financial protection agency to fill a void left by federal regulators, who have pulled back on oversight during the Trump administration.
Gov. Gavin Newsom in a Sept. 18, 2019, file photo. On Friday, Newsom signed legislation establishing the state Department of Financial Protection and Innovation to regular credit reporting agencies and debt collectors.
Gov. Gavin Newsom signed legislation Friday establishing the Department of Financial Protection and Innovation, a restructured Department of Business Oversight that will expand its focus to credit reporting agencies, debt collectors and financial technology companies that have not previously been subject to state regulation.
The new state department, Newsom said at an online signing ceremony, will “create conditions for innovation to flourish in a way where we can steward that and we can just work against its excesses. So we support risk-taking, not recklessness.”
AB1864 by Assemblywoman Monique Limón, D-Santa Barbara, gives the state department authority to enforce the Consumer Financial Protection Act of 2010 and regulations issued by the federal Consumer Financial Protection Bureau, the agency created by that law.
The department will also be able to develop its own rules to prevent “unlawful, unfair, deceptive or abusive practices,” and seek financial penalties against service providers that engage in them.
In addition to the banks and credit unions that California already regulates, the state will now oversee services such as debt settlement, credit repair, check cashing, rent-to-own contracts and financing for retail sales. Out-of-state banks and some services, including mortgage lenders, escrow agents and investment advisers, are exempt from the law.
“For decades California has attempted to do more for consumers, and truthfully, we’ve fallen short,” Limón said. “Helping consumers ensure that they have an agency that looks out for them before any other entity is the right thing to do.”
The federal consumer protection bureau was created to oversee products like credit cards and home mortgages in the wake of the 2008 financial crisis. Wall Street and Republicans opposed its formation as government overreach.
After President Trump took office, employees of the agency battled for control with his administration, which pledged to rein in its operations. A legal challenge over the bureau’s scope and independence ended this summer when the Supreme Court ruled it could continue operating, but that its leadership was at the discretion of the president.
Supporters said the state financial protection department would serve as a watchdog for low-income communities, seniors and other Californians who have been left economically vulnerable by the coronavirus pandemic.
“This bill does put California in the forefront of consumer financial protection across the country,” said Richard Cordray, the first director of the federal bureau. He said it will “influence financial companies that will find it hard to operate differently elsewhere than they operate in California, so they’ll have to meet higher standards.”
Newsom also signed 11 other consumer protection bills, including AB376 by Assemblyman Mark Stone, D-Scotts Valley, creating a borrower bill of rights for student loans, and SB908 by Sen. Bob Wieckowski, D-Fremont, requiring that debt collectors operating in California be licensed.