California Bill Proposes to Strengthen Consumer Protections; Create CFPB Like State Agency

The most recent version of California’s Budget Trailer proposal bill – a bill that follows a state’s annual budget for the purpose of amending policies to achieve the approved budget – included some notable potential changes for financial service providers in the state. Among other things, the Budget Trailer would rename the California Department of Business Oversight (“DBO”) as the Department of Financial Protection and Innovation, and expand its authority, including the authority to enforce the provisions of the Dodd-Frank Act or any regulations issued by the Consumer Financial Protection Bureau (“CFPB”) under the Dodd-Frank Act.

The changes included in the California Budget Trailer are notable in that they are indicative of a larger trend taking place at the state level. Specifically, there has been concern ever since former CFPB Director Richard Cordray stepped down from that position in 2017, that the CFPB would reduce its enforcement activities in a way that may harm U.S. consumers. This concern was underscored again by the Supreme Court’s decision earlier this year to find the CFPB’s Executive Director structure unconstitutional.

In recent years, several states have addressed this concern by taking noticeable action to beef-up their regulatory enforcement capabilities in the wake of the changes at the CFPB. Notable among these were the formation of “Mini-CFPBs” in Maryland, Pennsylvania, and New Jersey with authority and responsibilities similar to that of the CFPB. California’s Budget Proposal is another example of this growing trend and may result in another “Mini-CFPB” for financial services providers to contend with.

A copy of the current version of the trailer bill provisions applicable to the California DBO is available at: https://esd.dof.ca.gov/dofpublic/public/trailerBill/pdf/35

Halle A. Hayhurst
Summer Associate