The governors of California and New York have both outlined plans to expand their states’ oversight of the credit and collections industry. This appears to be driven by states’ perceptions that the Consumer Financial Protection Bureau (CFPB) has “cancelled” its monitoring and enforcement activities, creating a need for states to intervene. It’s going to be a busy year!
California offers a mini-CFPB
On January 10, 2020, the Governor of California proposed a budget for 2020-2021 that contemplates the passage of a new California consumer financial protection law. The new law will essentially revamp the Department of Business Supervision and transform it into the Department of Financial Protection and Innovation (“DFPI”). Simply put, the DFPI would be the California version of the CFPB.
Although the text of California’s consumer financial protection law has not been released, Governor Budget summary unveils his vision for the DFPI. The DFPI would have expanded enforcement power to prosecute “unfair and deceptive practices” and would give the DFPI jurisdiction to oversee debt collectors, credit reporting agencies, FinTech companies and other financial service providers previously unlicensed and unregulated by the Department of Business Oversight.
DFPI costs would initially be “covered by settlement proceeds available in the funds of Crown corporations and financial institutions, with future costs being covered by royalties on newly covered industries and increased royalties on existing licensees.” “. The proposed budget for the DFPI would include a “Financial Protection Fund of $10.2 million and 44 positions in 2020-21, increasing to $19.3 million and 90 ongoing positions in 2022-23”.
More specifically, DFPI activities would include:
- Provide services to empower and educate consumers, especially older Americans, college students, military personnel, and recent immigrants;
- Licensing and reviewing new industries that are currently under-regulated;
- Analyze market patterns and developments to inform evidence-based policy and enforcement;
- Establish a new FinTech Innovation Office that will proactively cultivate the responsible development of new consumer financial products;
- Provide legal support for the administration of the new law; and
- Expand existing administrative and information technology staff to support the Department’s increased regulatory responsibilities.
Why is the Governor of California proposing this? The budget summary states that “California’s economy and its people thrive when predatory business practices are controlled and innovation is cultivated. . . The federal government backtrack of the CFPB makes Californians vulnerable to predatory corporations and leaves businesses without the clarity they need to innovate.
It is now up to the California legislature to consider and pass the governor’s proposed budget. The legislature has until June 15and to pass the budget, which means the public has a short window of opportunity to offer feedback to their legislators on the state’s spending priorities.
New York offers debt collector license
On January 8, 2020, the Governor of New York released his annual message to the State Legislature, titled “state of the stateoutlining his proposed 2020 agenda. It reveals that the governor plans to propose legislation to give the New York Department of Financial Services (“DFS”) “the authority to license debt collection entities and empowering DFS to review and investigate alleged abuse, including requiring the submission of information to DFS and authorizing DFS investigators to enter a debt collector’s office at any time to examine their books and records .
The proposal outlines how licensing debt collectors would give the state greater control over debt collectors. For example, it would provide the state with a mechanism to collect fines, revoke licenses (thus preventing some collectors from collecting in the state), and “combat schemes designed to defraud people into paying debts that they must not”.
In addition to the above, the Governor intends to propose more legislation to regulate the credit and collections industry, including:
- Introduce a law that prohibits unfair, deceptive, and abusive acts and practices (“UDAAP”), thereby bringing New York law into line with federal law.
- Eliminate exemptions that currently exist for certain unlicensed financial products and services.
- Require more supervised entities to make contributions to the DFS to cover the costs of reviews and oversight.
- Increased fines for violations of New York insurance law.
- Prohibiting lenders from requiring consumers to sign a confession of judgment, thereby codifying tThe Federal Trade Commission rule that prohibits admissions to judgment.
Like California, the Governor of New York said he is proposing this legislation because the CFPB recently “canceled key federal financial protections for consumers; and reduced enforcement efforts in critical areas.
Also noteworthy in the state report is the governor’s plan to introduce “three-part nationwide legislation to unmask and retaliate” against illegal telemarketing calls and robocalls. The legislation would (1) “require telephone service providers to block robocalls”, (2) “require the rapid implementation of call authentication technology to flag suspicious callers” and (3) “create new penalties for telecommunications companies that fail to comply and double robocall penalties for Do Not Call violations.