Back to the Future With California’s Regulatory Reforms

first_img Data Provider Black Knight to Acquire Top of Mind 2 days ago The Best Markets For Residential Property Investors 2 days ago Rosemarie C. Hebner graduated from Villanova University and obtained her Juris Doctorate from the Elisabeth Haub School of Law at Pace University. She represents corporations, financial institutions, and other institutional clients. She previously worked as in-house counsel for a prominent Fortune 500 manufacturing company, served as insurance defense counsel in the private sector, and has led CLE programs. Hebner is licensed to practice in New York and New Jersey. in Daily Dose, Featured, News, Print Features Servicers Navigate the Post-Pandemic World 2 days ago Back to the Future With California’s Regulatory Reforms 2020-11-16 Christina Hughes Babb Editor’s note: This story originally appeared in the November edition of DS News, out now.In a post—albeit mid—COVID- 19 climate, with an economy trying desperately to rebound from a global pandemic, some might say it is confounding, and perhaps borderline sardonic, that the California Legislature would throw a fast curveball aimed directly at financial institutions. However, on August 31, 2020, the California legislature passed what is packaged as a historic initiative with the enthusiasm of becoming a gubernatorial legacy. The California Consumer Financial Protection Law (CCFPL) promises to better protect consumers from financial bad players and to foster innovation throughout the state’s financial services, which legislators intimate the federal government promised but failed to do. This law is recognized as the brainchild of California Governor Gavin Newsom and is said to embody the ambitions of the Dodd-Frank Act Title X and its offspring by creating a new and improved mini-CFPB, affectionately coined 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 potent banking agency than its predecessor, the existing Department of Business Oversight (DBO), with redesigned authority and the capacity for expansive enforcement. Headlines may nickname the new law “mini,” but don’t be fooled—nothing about California’s mini-CFPB is actually pint-sized or diminutive. This article offers a highlight reel of the new law and summarizes what the DFPI is set out to accomplish in its purported effort to better protect consumers and foster innovation in financial services throughout California. Newsom is not discreet about his intentions in creating the DFPI and expressly calls out the federal government’s so-called “rollback of the CFPB” for purportedly leaving California vulnerable to predatory businesses and companies without the clarity and security needed to innovate. Bottom line, California’s new agency is a resurrected, repurposed, and gentrified DBO. Gentrifying Dodd-Frank Although considered the progeny of the Dodd-Frank Act Title X, the statutory intent and motivation of the CCFPL does not perfectly align with the decade-old Wall Street reform objectives of Dodd-Frank. Where Dodd-Frank created a new Bureau of Consumer Financial Protection within the Federal Reserve Board to supervise certain financial firms and act as a rule maker and enforcer against unfair, deceptive, or abusive acts (UDAAP) related to a bevy of consumer financial products or services, California’s rendition seeks to cultivate what legislators appraise a limited pool of consumer financial products, providers, and/or services who are “unscrupulous,” spotlighting UDAAP and discriminatory practices time and again. Likewise, whereas Dodd-Frank was marketed as a somewhat balanced approach to protecting the consumer from UDAAP and discrimination, pointing to a need to reduce unnecessary regulatory burden and efficiency, the CCFPL appears to be more heavy-handed, punitive, and discretionary. Legislative findings acknowledge the need for reform, pointing to the mixed benefits of technological innovation, raising an eyebrow at technology that, even at its best, “poses risks to consumer and challenges to law enforcement.” Significant Exemptions The CCPFL exempts national banks, banks chartered by California or any other state, and existing DBO licensees, other than payday lenders and student loan servicers, from the CCFPL. The CCFPL also exempts licensees and their employees of any California state agency. For example, the CCFPL will likely exempt real estate licensees under the Real Estate Law and their employees acting under those licenses. Once you subtract the exempted institutions, the statute’s jurisdiction applies almost exclusively to entities that were not previously licensed by the DBO. These entities must qualify as “covered persons,” which as defined by the CCPFL include: (1) those that offer or provide consumer financial products or services, (2) or those affiliates that act as service providers, and/or (3) any service provider that offers or provides its own consumer financial product or service. Simply put, whether or not an entity is classified as a “covered person,” and thus subject to the CCPFL authority, depends on whether or not it offers or provides a consumer financial product or service. Here, “service providers” are synonymous with the term as applied in Dodd-Frank Title X and are meant to include any person that provides a material service to a covered person in connection with the covered person’s offering or providing of a consumer financial product or service. Likewise, in keeping aligned with Dodd-Frank’s definitions, “financial product or service” is meant to designate a fairly inclusive list and adds to its genre brokering the offer or sale of a franchise on behalf of another. Ultimately, the CCFPL, like Dodd-Frank, grants the DFPI, as the modern oversight agency, authority to issue regulations that define “‘financial product or service”’ according to benchmark criteria. UDAAP Just as Title X gives the CFPB authority to regulate UDAAP, the CCPFL bestows upon the DFPI the same sovereignty … Read the full story on p. 64 of the November edition of DS News, available here.  November 16, 2020 1,236 Views Related Articles Demand Propels Home Prices Upward 2 days ago Previous: Agents Embrace Effort to Expand Private Flood Insurance Next: Bell Bank Hires Schwab as Chief Risk Officer About Author: Rosemarie C. Hebner About Author: Eric Housercenter_img Eric Houser has a national litigation practice specializing in consumer and commercial finance, default servicing, title, bankruptcy, and technology litigation. Houser has successfully tried cases from Hawaii to Connecticut. He graduated from the University of California, San Diego in 1984 and the University of San Diego School of Law in 1987. Houser is licensed to practice law in California and before the United States Supreme Court. The Best Markets For Residential Property Investors 2 days ago Governmental Measures Target Expanded Access to Affordable Housing 2 days ago The Week Ahead: Nearing the Forbearance Exit 2 days ago Demand Propels Home Prices Upward 2 days ago Subscribe Share Save Servicers Navigate the Post-Pandemic World 2 days ago  Print This Post Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Sign up for DS News Daily Data Provider Black Knight to Acquire Top of Mind 2 days ago Home / Daily Dose / Back to the Future With California’s Regulatory Reformslast_img