On April 27, 2021, DWT's Department of Financial Protection and Innovation (DFPI) Taskforce hosted a discussion with the DFPI's General Counsel, Bret Ladine, to get his perspective about what's on the horizon for the financial services industry in California. Mr. Ladine provided insights on what has changed since the passage of the California Consumer Protection Law (CCFPL), including the DFPI's initial priorities, the scope of its jurisdiction, and its enforcement approach.
Among the other topics outlined below, Mr. Ladine signaled that the DFPI intends to utilize its authority under California Financial Code §326. This code section contains very broad authority for the DFPI to enforce anything within its jurisdiction, including "the provisions of the Consumer Financial Protection Act of 2010 (12 U.S.C. Sec. 5481 et seq.), or regulations issued by the federal Consumer Financial Protection Bureau thereunder, with respect to an entity that is licensed, registered, or subject to oversight by the [DFPI]."
While this power is not unique to California (the Consumer Financial Protection Act grants all states this authority), it has not been broadly utilized. Indeed, the DFPI may more actively enforce federal consumer financial laws.
The DFPI's stated goal is to be the "premier financial regulator and national model for consumer protection"—and the DFPI is equipped to enforce aggressively and independently. According to Mr. Ladine, several of the DFPI's initial priorities in pursuing this mission are:
- Public awareness and education: The DFPI is working on a massive public awareness campaign to ensure that consumers know about the DFPI, its consumer-focused mission, and the types of tools and relief that the DFPI makes available. Mr. Ladine emphasized this priority several times, especially as it relates to borrowers exiting pandemic-related forbearance plans.
- Mortgage servicing: The DFPI will be working to ensure mortgage servicers provide borrowers with protections granted under AB 3088, a measure designed to protect homeowners from certain COVID-19 hardships. Mr. Ladine found that the notice and cure provisions required under AB 3088 have already been a helpful tool for borrowers. Efforts to ensure mortgage servicers are adequately managing borrowers as they exit forbearance, and are providing loss mitigation options to borrowers, will remain on the forefront of the DFPI's agenda. Mortgage servicers can expect those issues to be exam priorities.
- Hiring: The DFPI is actively searching for candidates to fill numerous positions in various offices. There are several key hires that the DFPI has recently made, and will soon announce. These hires include the Ombudsman and a leader for the Financial Technology and Innovation Office.
- Rulemaking: Mr. Ladine explained that there are at least 16 separate rulemakings to be covered within 2021. The DFPI is working to prioritize those and anticipates PACE regulations to be finalized very soon. Mr. Ladine emphasized the importance of industry participants utilizing comment periods during rulemakings to ensure the DFPI can adequately consider each potential implication.
- Debt collection: Debt collectors have historically received attention in consumer complaints, but there was no way for the prior agencies to effectively enforce against them. The DFPI is focused on its rulemaking efforts to start working towards licensing of these entities. Mr. Ladine anticipates that, realistically, applications will not be required until sometime in 2023.
Scope of Jurisdiction
Since the passage of the CCFPL, which expanded the authority of the (former) California Department of Business Oversight (DBO) and rebranded it as the DFPI, the financial services industry has been focused on identifying changes in the DFPI's jurisdiction over financial products, services, and providers. A few obvious entity types facing additional oversight include debt collectors, virtual currency entities, and FinTech entities, as DWT discussed here.
Mr. Ladine helpfully explained that the DFPI's jurisdiction will serve as a regulatory umbrella that captures broad schemes of products and services that do not currently fit neatly within the regulatory boxes provided by the California Financing Law. However, the legislature may eventually create new "boxes" within the CCFPL for specific entities, products, or services.
The products and services that will receive the most focus from the DFPI are those with prominence, from a policy or consumer complaint perspective. For example, one area under review is earned-wage access (EWA), which had been a topic of legislative activity. The DFPI is gathering data about the product through a Memorandum of Understanding with five EWA companies.
As for the entities that are already licensed—such as money transmitters, finance lenders, and others—there are not any immediate substantive changes for them, in Mr. Ladine's view. Yet, those entities should be mindful of the DFPI's enhanced resources for enforcing the prohibition against unfair, deceptive, or abusive acts or practices (UDAAP) which could impact them.
The DFPI has active cooperation with the CFPB. It plans to ramp-up coordination in the future, especially with respect to multi-state efforts (e.g., pursuant to the Multi-State Mortgage Committee, for one). Likewise, the DFPI will coordinate with the California State Attorney General (AG), though the details of that will be ironed-out over time.
As of now, there is a continued dialogue between the DFPI and AG, and an understanding that the two have the statutory backing to share information very freely with some limited exceptions (such as certain information provided in licensing applications). The DFPI would like to avoid duplicative efforts between it and the AG, to the extent possible, and wants to ensure they share resources.
The DFPI is poised to have an important impact on consumer financial services enforcement, and Mr. Ladine gave listeners a glimpse into the DFPI's approach. Mr. Ladine highlighted that consumer complaints play a significant role in how the DFPI sets its enforcement priorities.
The DFPI will be working to develop its consumer complaint mechanism. (Of course, there will be future rulemaking to clarify how the DFPI will handle consumer complaints, as required by the CCFPL.) Depending on the success of the DFPI's consumer awareness campaign, mentioned above, consumer complaints will likely be a very powerful enforcement tool for the DFPI. To that end, Mr. Ladine noted the value provided by the CFPB's consumer complaint database.
The DFPI will also look to market monitoring and research. That effort will largely be undertaken once the DFPI can sufficiently staff the offices that would handle that work.
In addition to the DFPI's consumer-protection mission, it has jurisdiction over certain commercial financers and Mr. Ladine noted that small business concerns are on the DFPI's radar. The DFPI has noticed more attention given to small business issues, likely due to the strain on these entities in the wake of COVID-19.
Though the discussion did not cover many particulars with respect to these issues, Mr. Ladine explained that the DFPI has the enviable and unique (compared to other state financial services regulators) ability to enforce UDAAP prohibitions with respect to these products. We may also see additional rulemaking that covers small business and commercial financial products and services.
Mr. Ladine also elaborated about the new Financial Technology and Innovation Office, its role, and its limitations. What is its role? It will serve as an information gatherer, and a resource for licensees and others that are within the scope of the CCFPL. Its goal will be to work with innovative entrepreneurs to foster the creation of responsible financial products and services, and Mr. Ladine expects it to play a significant role in the DFPI's involvement with virtual currencies.
What is not its role? It will not act as a sandbox, and it does not have any regulatory authority.