A California proposal meant to create a powerful state agency designed after the federal Consumer Financial Protection Bureau (CFPB) has made a comeback but with small businesses and fintech firms’ support. Basically, the proposal wants to achieve expanded consumer protections.
The bill was introduced in January by Gov. Gavin Newsom in his plans to expand oversight of all financial service providers in California. The proposal was dropped from a budget bill back in June. However, it has been revived and inserted back into a final budget bill that legislators were required to pass by August 31.
Gov. Newsom’s plan is meant to replace or remake the state’s existing Department of Business Oversight with a new agency referred to as the Department of Financial Protection and Innovation, with powers similar to those of the CFPB.
The bill would authorize the state’s financial regulator to:
- Focus on unregulated products to stamp out predatory practices.
- License and examine debt collectors, credit bureaus, and fintech companies.
- Conduct research to craft new regulatory policies.
- Seek to empower disadvantaged groups in making financial decisions.
Opposers
However, the proposal faces a lot of resistance from financial institutions citing the bill would expand the state’s enforcement powers and potentially increase fines and compliance costs. Several bank and financial services trade groups recently were making a last-ditch effort to kill the proposal.
Financial firms are particularly concerned with a provision in the bill that targets to expand enforcement and imposing administrative penalties for “unfair, deceptive or abusive acts or practices.”
“The state is imposing new enforcement requirements that lack clarity and seem to be redundant,” said a lobbyist for the California Financial Services Association, Scott Govenar.
Proposers
On the other, the proposal has already gathered the support of about 47 fintech, small businesses, and consumer advocacy groups. These groups are advocating for the elimination of unregulated industries— debt collectors, credit reporting agencies, and merchant cash advance lenders that market to small businesses— or for them to be registered and regulated.
“It hurts borrowers and lenders alike when responsible companies must compete against actors who find advantage in unfair and deceptive acts,” the director of policy and advocacy at the Responsible Business Lending Coalition, Kim Wilson said. The coalition represents fintech firms, including LendingClub and Funding Circle, and non-profit community development financial institutions.
Exemptions
Moreover, banks, credit unions, auto, and payday lender trade groups have announced their stand on the matter. They demand existing state licensees and entities operating with a federal license to be exempted entirely from the proposed bill.
“We [The California Credit Union League] believe the governor’s proposal should focus on the unregistered and unregulated entities in the state and leave current licenses out,” the group’s vice president of government affairs, Robert Wilson, said in a statement.
Besides that, some financial firms have other concerns. They want limited investigations by multiple agencies, such as the state attorney general, and prevention of duplication of actions. They also object to the bill’s draft language citing that the department could recover legal costs if it successfully sues a firm.
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President and CEO
The Power Is Now Media Inc.
Work cited.
https://www.americanbanker.com/creditunions/news/californias-mini-cfpb-plan-is-back-in-play.
