California Governor Signs Legislation to Create “Mini-CFPB” and License Debt Collectors

On September 25, California Governor Gavin Newsom signed a series of bills, including AB 1864, which establishes the Department of Financial Protection and Innovation (DFPI) with the stated goal of “transform[ing] the agency into California’s version of the federal Consumer Financial Protection Bureau [CFPB].” The state joins others such as New York and New Jersey to adopt “mini-CFPB” agencies.

In addition to transferring the Department of Business Oversight’s current authority to the DFPI, AB 1864 establishes the California Consumer Financial Protection Law (CCFPL), which expands the agency’s authority and enforcement powers to pursue unfair, deceptive, or abusive acts and practices (often referred to as “UDAAP” violations) against a broader range of financial services providers. This includes debt collectors, fintech companies, debt settlement companies, and credit reporting agencies, among other entities. The law allows the DFPI to adopt additional regulations governing registrations, consumer disclosure requirements, and mandatory procedures for responding to consumer complaints.

The law provides the DFPI with broad enforcement powers including rescission of contracts, restitution, disgorgement of profits, and civil damages up to the greater of $2,500 per violation or $5,000 per day of ongoing violation. The law includes penalty kickers for reckless violations (greater of $10,000 per violation or $25,000 per day) and knowing violations (lesser of 1% of the entity’s total assets, $25,000 per violation, or $1 million per day). The enforcement authority only applies to acts engaged in after the effective date of the CCFPL.

The CCFPL does not apply to: (1) entities licensed by a state agency other than the DFPI; (2) national and state-chartered banks; or (3) a laundry list of DFPI-regulated entities such as escrow agents, finance lenders, mortgage brokers, mortgage servicers, mortgage originators, check sellers, and capital access companies, when acting within the scope of the specified licenses.

The CCFPL comes into effect on January 1, 2021, but many of its provisions, such as registration requirements, will require rulemaking procedures that could easily run later into the year.

Governor Newsom also signed SB 908 into law. This bill requires debt collectors to obtain licensing from the newly created DFPI and maintain a surety bond by January 1, 2022. It further requires collectors to provide additional verbal and written disclosures when communicating with debtors.

* Josh Stevens and Chad Blackham contributed to this post.