DFPI enforcement: Time will tell how active new agency is

In September, Gov. Gavin Newsom signed into law Assembly Bill 1864, the new California Consumer Financial Protection Law. Adopted in response to what some critics saw as the Trump administration's more lenient approach to enforcing federal consumer protection laws, the CCFPL creates a state version of the federal Consumer Financial Protection Bureau by reorganizing and rebranding the Department of Business Oversight as the Department of Financial Protection and Innovation. The CCFPL expands the DFPI's enforcement powers to protect consumers against consumer fraud and abuse that is beyond the reach of the CFPB, including by protecting California consumers from pandemic-inspired scams, promoting innovation, clarifying regulatory hurdles for emerging products and increasing education and outreach for vulnerable groups. See California Financial Code, Sections 90001 et seq.

The CCFPL essentially adopts a state version of the federal Dodd-Frank Act in California. Like its federal parent, the CCFPL prohibits covered persons or service providers from engaging in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services. The law further prohibits offering or providing a consumer financial product or service that conflicts with consumer financial law and requires recordkeeping and access to records. The DFPI also has the authority to make rules regarding the registration of covered entities.

The CCFPL covers any person or entity that engages in the offering or providing of a consumer financial product or service to a California resident. Like its predecessor the DBO, the DFPI regulates state-chartered banks and other state entities that may not be covered by federal law but does not authorize enforcement against federal banking companies. The DFPI's supervision expands over the current DBO's reach to include financial services that are currently not regulated in California, such as debt collectors and credit reporting agencies, and new products or services that may enter the market in the future, including Fintech companies. The CCFPL exempts entities licensed by the agency of another state, entities authorized under federal law and persons or entities licensed under specific divisions of the Financial Code and Corporations Code, including escrow agents, finance lenders, finance brokers, program administrators, mortgage loan originators, broker-dealers and investment advisors.

The DFPI has real enforcement powers and may bring an action against any covered person or entity seeking several different forms of relief including rescission, reformation of contracts, refunds, restitution, disgorgement, damages, and monetary penalties. The penalty amounts are significant: for a negligent violation, the greater of $5,000 for each day the violation continues or $2,500 for each violation; for a reckless violation, the greater of $25,000 for each day the violation continues or $10,000 for each violation; and for a knowing violation, the greater of $1,000,000 for each day the violation continues or $25,000 for each violation. Given the impending change in the presidential administration, and the potential for more aggressive CFPB enforcement at the national level, time will tell how active the DFPI will be in enforcing the new consumer protection law in California. 