The state of California is reportedly seeking to establish its own financial watchdog agency which would operate similarly to the federal Consumer Financial Protection Bureau (CFPB). The proposal would be accomplished through an expansion of the existing California Department of Business Oversight (DBO). This is according to original reporting at NPR.
Members of the state assembly contend that the state needs to take its own action to protect its consumers since the federal regulator has become “paralyzed” under the leadership and direction of the Trump Administration, and that the pandemic has created additional urgency by placing Californians in poor financial health which makes them more vulnerable to predatory practices and scams, according to state legislators in support of the proposal.
“We are now as states left to do the work ourselves,” says California Assembly member Monique Limón (D) to NPR, who represents over half of Santa Barbara County and nearly a quarter of Ventura County. “Consumer protections are an area where California wants to show that we care. As the fifth-largest economy in the world we think that it is very important and it’s the right thing to do.”
Limón is proposing the creation of the statewide agency along with the support of Governor Gavin Newsom, which would be called the Department of Financial Protection and Innovation. A looming legislative deadline means that the proposal will need to be fast-tracked and made by August 31.
Limón proposed the creation of the agency before the outbreak of the COVID-19 coronavirus, but contends that the need for greater economic oversight of Californians has become more essential due to the economic shock many are feeling as a result of the continued pandemic.
“A bad loan, a risky payday product, an aggressive debt collector, that can push someone over the edge into poverty, into bankruptcy and homelessness at the worst possible time in the middle of a public health crisis,” she says to the news outlet. “So, the case is even stronger now.”
A recent legislative hearing on the topic of the new agency reportedly generated support from leaders of small business groups seeking protections from predatory financial practices, and the new agency has also garnered support from a leading member of the California Bankers Association (CBA), the outlet reports.
“We would welcome greater regulation on [online lenders] to make sure that we’re operating under the same rules,” says Beth Mills, SVP of communications at the CBA to NPR. Since many online lenders face looser regulations than banks, better regulation of banks’ competitors would be generally welcome, she says.
However, many of the small and large banks represented by the CBA are already heavily regulated at the state and federal levels, so exemption from oversight by the new agency for those entities would be ideal, she explains.
Other banking organizations are vehemently opposed to the creation of the agency, according to reporting at American Banker.
This includes lobbying organizations like the California Financial Services Association, which primarily represents auto lenders. Financial trade groups also object to giving the proposed agency “broad investigatory and subpoena powers with a nearly unlimited scope of records and information that may be requested before ever alleging any wrongdoing,” according to a letter submitted to incumbent DBO Commissioner Manny Alvarez.
Former CFPB Director Richard Cordray is reportedly consulting on the creation of the bill in California which would propose the new agency.
Read the story at NPR.