The governors of California and New York have both introduced plans to expand their states’ oversight of the credit and collections industry. This appears to be driven by the states’ perception that the Consumer Financial Protection Bureau (CFPB) has “rolled back” its oversight and enforcement activities, thereby creating a need for the states to step-in. It’s going to be a busy year!
California Proposes Mini-CFPB
On January 10, 2020, California’s Governor proposed a budget for 2020-2021 which contemplates the passage of a new California Consumer Financial Protection Law. The new law will essentially overhaul the Department of Business Oversight and transform it into the Department of Financial Protection and Innovation (“DFPI”). Simply put, the DFPI would be California’s version of the CFPB.
Although the text of the California Consumer Financial Protection Law has not been released, the Governor’s Budget Summary reveals his vision for the DFPI. The DFPI would have expanded enforcement authority to pursue “unfair and deceptive practices” and would give DFPI jurisdiction to supervise debt collectors, credit reporting agencies, FinTech companies, and other financial services providers previously unlicensed and unregulated by the Department of Business Oversight.
The DFPI costs would initially be “covered by available settlement proceeds in the State Corporations and Financial Institutions Funds, with future costs covered by fees on the newly covered industries and increased fees on existing licensees.” The proposed budget for the DFPI would include a “$10.2 million Financial Protection Fund and 44 positions in 2020-21, growing to $19.3 million and 90 positions ongoing in 2022-23.”
Specifically, the DFPI’s activities would include:
- 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;
- 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; and
- Expanding existing administrative and information technology staff to support the Department’s increased regulatory responsibilities.
Why is California’s Governor proposing this? The Budget Summary states “California’s economy and its people thrive when predatory business practices are policed and innovation is cultivated . . . The federal government’s rollback of the CFPB leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.”
It is now up to California’s Legislature to review and pass the Governor’s proposed budget. The Legislature has until June 15th to pass the budget, which means the public has a short window of opportunity to offer comments to their legislators on the State’s spending priorities.
New York Proposes Debt Collector Licensing
On January 8, 2020, New York’s Governor released his annual message to the State Legislature, titled “State of the State,” which outlines his proposed agenda for 2020. It reveals that the Governor plans to propose legislation to give New York’s Department of Financial Services (“DFS”) “authority to license debt collection entities, and empower DFS to examine and investigate suspected abuses, including by requiring the submission of information to DFS, and authorizing DFS investigators to enter a debt collector's office at any time to review its books and records.”
The proposal explains how licensing debt collectors would give the State greater control over collectors. For example, it would provide the State with a mechanism to collect fines, revoke licenses (thereby preventing certain collectors from collecting in the State), and “combat schemes intended to defraud people into paying debts they do not owe.”
In addition to the above, the Governor has plans to propose more legislation intended to regulate the credit and collections industry, including:
- Introducing a law which prohibits unfair, deceptive, abusive acts and practices (“UDAAP”), thereby making New York law consistent with federal law.
- Eliminating exemptions which currently exist for some unlicensed financial products and services.
- Requiring more supervised entities to pay assessments to the DFS to cover the costs of examinations and oversight.
- Increasing fine amounts for violations of New York’s Insurance Law.
- Prohibiting lenders from requiring consumers to sign a confession of judgment, thereby codifying the Federal Trade Commission’s rule which prohibits confessions of judgment.
Like California, the New York Governor stated he is proposing this legislation because the CFPB has recently “rolled back key federal consumer financial protections and scaled-back enforcement efforts in critical areas.”
Also noteworthy from the State of the State is the Governor’s plan to introduce “three-part nation-leading legislation to unmask and fight back” against illegal telemarketing calls and robocalls. The legislation would: (1) “require telephone providers to block robocalls,” (2) “require rapid implementation of call authentication technology to flag questionable callers,” and (3) “create new penalties against telecom companies that do not comply and double penalties against robocalls for ‘Do Not Call’ Law violations.”