Consumer Finance Insights
January 28, 2020

California and New York Propose to Expand Consumer Protections

At the start of the new year, both California’s Governor Newson and New York’s Governor Cuomo proposed expansions to their respective state’s regulatory oversight of consumer financial services.

Of particular note, Governor Newson’s 2020-21 Budget Summary (California’s Proposal) explained that the reason behind California’s proposed regulatory expansion is the belief that “[t]he federal government’s rollback of the [Consumer Financial Protection Bureau (CFPB)]” leaves consumers “vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.”  Governor Cuomo’s 2020 State of the State Address (New York’s Proposal) based its need for regulatory expansion on a similar notion—regulating “many bad actors that go unchecked.”  Cuomo stated that New York “license[s] barbers, home inspectors and used car dealers [] – so it makes no sense that [New York] [doesn’t] have the authority to license an industry that can cause families financial ruin.”

California’s Proposal includes several notable changes to California’s regulation of consumer financial services.  California proposes a new California Consumer Financial Protection Law (CCFPB), which would work in conjunction with the expansion of California’s current Department of Business Oversight.  The Department of Business Oversight would be renamed the Department of Financial Protection and Innovation (DFPI), and with use of the CCFPB would have regulatory powers the current Department of Business Oversight does not have.  These powers would include: (1) the ability to regulate and to pursue debt collectors, credit reporting agencies, fintech companies and other financial services providers which are currently unregulated or under-regulated; (2) expanded enforcement authority against unfair, deceptive, and abusive acts and practices against consumers; and (3) the creation and regulation of a new Financial Technology Innovation Office that would assist in the development of new consumer financial products. California’s Legislature must review the Governor’s 2020-21 Budget and pass, or decline to pass, the Proposal before June 15, 2020.

New York’s Proposal also includes several impactful changes.  Most notably, the New York Department of Financial Services (NYDFS) would be given the authority to license currently unlicensed debt collection companies and investigate potential violations through information and books-and-records requests.  The NYDFS would also be given the authority to bring punitive actions against debt collectors.  The exemptions for multiple consumer products and services from enforcement actions would also be removed, opening the door for the State to bring more enforcement actions against consumer financial services providers.  Further, New York’s state law regarding unfair, deceptive, and abusive acts and practices would be expanded to meet the same level of regulation as federal law, allowing for enforcement actions for a broader range of practices.  There would also be greater fines for violation of New York’s Financial Services Law.  The State would also impose a new prohibition on confessions of judgment—which give lenders the right to obtain a judgment against a borrower from court clerks without notice to the borrower, and without a hearing, if a borrower misses a loan payment.  There are also proposed changes to the laws that would increase lower income borrowers’ access to financial services. New York’s Proposal is Governor Cuomo’s stated priorities and goals for the year 2020.  New York will work to implement the proposed changes throughout this year.

If implemented, the proposals will create what has more recently been called “mini-CFPBs”—an expansion of state regulatory oversight that mirrors parts of the CFPB in areas states feel the CFPB has lessened its grip on.  With two of the most populous states leading the way into this regulatory expansion it is possible that other states will follow suit, leading to more oversight of consumer financial services providers in the future.

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