“Mini-CFPB” Could Be Future for California

Inside Subprime: May 15, 2019

By Lindsay Frankel

A California lawmaker is advocating for the creation of a statewide Consumer Financial Protection Bureau to further protect consumers, while critics say the move would be more burdensome for lenders.

Assemblywoman Monique Limón, D-Santa Barbara, said in March 2019 that California needs more consumer protection, either through a “mini CFPB” or by stepping up enforcement through California’s Department of Business Oversight.

“We are working to really rethink what a state CFPB would do,” Limón stated. “We see the presence of predatory lending products in auto loans, payday loans, cash advance and small business loans.”

Richard Cordray, former head of the CFPB, was also present at Limón’s press conference. Cordray has recently been in California to advise the state on how it should regulate banking and other financial services.

Federal consumer protection enforcement under the CFPB has scaled back since 2017, when the Trump administration took office. Since then, states have discussed how to fill perceived gaps in consumer protection through their own regulations.

And California has led headlines with such debates, since it has both the fifth-largest economy in the world and a population of almost 40 million people, and leaders in the state have been vocal against the federal CFPB’s recent moves to delay tougher payday loan rules.

California’s DBO is currently the overarching agency in the state for regulating all matters of protecting consumers, with a dual role of also monitoring banks, credit unions, and other financial services.

In late March 2019, Cordray spoke before California’s Assembly Banking and Finance Committee, saying that there exists a “conflict of interest” within the DBO’s dual responsibilities.

“That is not the right answer for a state as important as California,” he told the committee.

Cordray and others say they want two separate agencies to handle these matters.

Lenders and industry advocates say the move to create a mini-CFPB would be overly burdensome for lenders and that a new agency could create conflicting regulations, since there’s already an organization that regulates the finance industry.

A retired deputy commissioner at the DBO criticized the move, saying a mini-CFPB would need a lot more funding and people on staff to enforce consumer protections, but did agree that reforming the DBO would be a positive step.

The DBO has undergone recent administrative changes. Gov. Gavin Newsom  appointed Affirm’s General Counsel and Chief Compliance Officer, Manny Alvarez, to take over as DBO commissioner in March. If confirmed, Alvarez will become the second commissioner ever of the agency, which was created in 2014 by a merger of the Departments of Corporations and Financial Institutions.

That could signal, as one attorney wrote, a larger budget for the DBO and increased enforcement action.

So, while a mini CFPB is still being floated amongst California leaders, the move could be held off, at least for the time beginning.

Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including California, AnaheimBakersfieldChicoFresnoLos AngelesModestoOaklandReddingRiversideSacramento, San DiegoSan FranciscoSan JoseSanta Barbara, and Stockton.