League Engages CA’s New Dep. of Financial Protection and Innovation 

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California's Department of Business Oversight (DBO) will be renamed the Department of Financial Protection and Innovation.
California's Department of Business Oversight (DBO) will be renamed the Department of Financial Protection and Innovation.

The California Governor’s Office and the state’s Department of Business Oversight (DBO) have announced a plan to overhaul the department to add a more aggressive consumer watchdog function to the agency, as well as to foster technological advancement.

The department will be renamed the Department of Financial Protection and Innovation, which was announced Jan. 10 during Gov. Gavin Newsom’s budget briefing.

Newsom believes consumer protections at the federal Consumer Financial Protection Bureau (CFPB) have been rolled back, and that California needs to therefore play a larger role. There is robust discussion on the CFPB’s current approach, which has led some to believe the bureau is not utilizing its enforcement tools strongly enough. The Newsom administration, in consultation with former CFPB Director Richard Cordray, drafted the proposal to beef up the power of the California DBO.

DBO Commissioner Manuel Alvarez, who himself is a former CFBP enforcement attorney, has been communicating with stakeholders, including the California Credit Union League’s team in Sacramento. Regarding consumer protection, Alvarez has said the state’s Department of Financial Protection and Innovation will focus on extending oversight to financial service providers that are not already under DBO supervision.

It will also conduct outreach to educate and empower consumers, with a special emphasis on making certain that various populations, such as seniors, veterans and immigrants, are being properly served and fairly treated.

The League does not anticipate any changes in the state’s credit union division regarding supervision, examination, and enforcement. And while credit unions do not appear to be the target of the enhanced functions at the agency, it is too early to tell what, if any, impact this new division will have on credit unions doing business in California, or how that division will coordinate with the credit union division.

The initial three-year start-up costs for the new department are expected to be $44 million and covered by available settlement proceeds in the State Corporations and Financial Institutions Funds. The California Department of Finance is projecting an ongoing cost beginning in 2022 or 2023 of roughly $19.3 million per year, and it expects these future costs to be covered by fees on newly covered industries and increased fees on existing licensees.

“The League strongly opposes increased fees for state-chartered credit unions, and we will work hard to stop such action,” said Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues. “We will also fight to ensure this new structure and oversight will not in any way affect federally-chartered credit unions. Obviously, we will also attempt to ensure credit unions do not fall victim to unintended consequences, as was frequently experienced by the good financial industry players under the CFPB.”

The California League will be fully engaged on this proposal as it takes shape and makes its way through the legislature. However, it should be noted that since this is part of the governor’s budget, it goes through a different process than a normal piece of legislation. The language for the proposal will be included in a “budget trailer bill” which should be in print by Feb. 1. Once the League has this language, it will be able to fully analyze the proposal and its potential impact on credit unions.

Although the budget trailer bill is part of the budget process, a trailer bill can pass later than the June 15 budget deadline — and as late as the end of legislative session on Aug. 31.

“As always, we will be reaching out to each of you to assist our lobbying team as we work to protect credit unions from any burdens that impair your ability to serve your members,” Dykstra said. “This may include meetings in Sacramento or in the district offices of state legislators. Please follow all League updates as the legislative session gets under way, and plan on joining us at the California Government Relations Rally (GRR) in Sacramento on April 13 - 14, 2020.”

Here are some of the new activities the Department of Financial Protection and Innovation will be overseeing:

  • Offering services to empower and educate consumers, especially older Americans, students, military service members, and recent immigrants.
  • Licensing and examining new industries that are currently under-regulated.
  • Analyzing patterns and developments in the market to inform evidence-based policies and enforcement.
  • Protecting consumers through enforcement against unfair, deceptive, and abusive practices.
  • Establishing a new Financial Technology Innovation Office that will proactively cultivate the responsible development of new consumer financial products.
  • Offering legal support for the administration of the new law.
  • Expanding existing administrative and information technology staff to support the department’s increased regulatory responsibilities.

Please refer any questions to Robert Wilson, the league’s vice president of state government affairs, at robertw@ccul.org.

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