With Democrats in control of the White House, Senate and House of Representatives, consumer financial services companies are understandably anxious about the regulatory environment.
Last week, the newly-empowered California Department of Financial Protection and Innovation (the “DFPI”) gave us a sense of what to expect when it announced an investigation into 12 debt collectors that it alleged were engaged in unlawful, unfair, deceptive, or abusive debt collection practices. The DFPI licenses and regulates a wide variety of parties involved in providing or servicing consumer financial products and services in California. The DFPI has existed since 2013, but was known as the Department of Business Oversight until 2020, when it was renamed and granted significantly enhanced oversight and enforcement powers by the California Consumer Financial Protection Law (the “CCFPL”). This is the first major action taken by the DFPI and it provides a sense for the new regulatory landscape.
In complaints filed with the DFPI, consumers alleged that these debt collectors called repeatedly, failed to validate debts, and threatened to sue the consumers for debts they do not owe. The debt collectors have until mid-February to respond to the subpoenas.
The CCFPL allows the DFPI to enforce new provisions relating to unfair, deceptive and abusive acts and practices (“UDAAP”) against statutorily covered persons and service providers, to regulate the offering and provision of consumer financial products or services under California’s consumer financial laws and to exercise nonexclusive oversight and enforcement authority under California’s (and in some cases, federal) consumer financial laws.
Because national banks, state-chartered banks and most state-licensed entities are exempt from the CCFPL, the biggest impact of the CCFPL will likely be on nonbank financial companies and service providers to financial companies.
Commenting on the DFPI’s announcement, former CFPB Director Richard Cordray told Yahoo Finance that “[i]t’s a good sign that they are starting fast, and the action they’re bringing against these debt collectors is meaningful.” Cordray consulted with California Governor Gavin Newsom and state legislators on how to empower the DFPI.
The DFPI investigation comes as the federal Consumer Financial Protection Bureau (the “CFPB”) looks set to return to pre-2018 levels of activity. Under Cordray, the CFPB’s Director from its inception until 2018, many felt that the CFPB was a prime example of aggressive government overreach and that it was too insulated from political oversight. Others felt that it was a key watchdog agency working to protect American consumers from predatory financial practices. In any event, it certainly was active, obtaining an aggregate of approximately $12 billion in penalties and restitution from companies subject to its jurisdiction.
After Cordray resigned to run for Governor of Ohio, the CFPB has been more restrained in its enforcement and rulemaking agenda, first under acting Director Mick Mulvaney and then under Director Kathy Kraninger.
But with Elizabeth Warren ally Rohit Chopra being widely reported to be President Biden’s pick to lead the CFPB, it looks likely that the CFPB will return to its agenda under Cordray. Chopra previously served as the assistant director at the CFPB, as well as a student loan ombudsman.
“It’s a return to the days of the CFPB as it was under my leadership,” said Cordray. And “this portends the opportunity for a great deal of direct cooperation and coordination between the DFPI and the newly-aggressive CFPB, which is what we will have in the wake of Rohit Chopra taking the reins,” he added.
Consumer financial services companies, take note.