California lawmakers approve budget proposal to create financial watchdog for consumers

Consumer Reports applauds California for strengthening oversight of financial industry 

SACRAMENTO, CA – California will be better equipped to protect consumers from unfair, deceptive, and abusive financial practices thanks to AB 1864, a proposal included in the revised budget approved today by state lawmakers, according to Consumer Reports.  The proposal to strengthen state oversight of the financial industry was originally made by Governor Gavin Newsom when he introduced his budget earlier this year.

Consumer Reports and a coalition of consumer and small business groups had urged state lawmakers to support the proposal in light of the severe economic crisis that has made millions of Californians more vulnerable to unfair financial practices.

“So many Californians across the state are suddenly out of work and struggling to pay their bills as a result of the COVID pandemic,” said Suzanne Martindale, senior policy counsel and western states legislative manager for Consumer Reports.  “Predatory financial firms are taking advantage of the crisis by peddling high-priced loans and other risky products that could make things even worse for families desperate for cash.  California’s revamped financial watchdog will have the authority and resources it needs to monitor companies that currently evade state oversight and stop illegal practices that cheat vulnerable consumers out of their money.”

Under AB 1864, the Department of Business Oversight will be augmented and renamed the Department of Financial Protection and Innovation (DFPI).  The new watchdog is being funded using the Department of Business Oversight’s existing reserve fund from past enforcement actions rather than money from the state’s general fund.

The DFPI will have broad subject-matter jurisdiction over the financial services industry,  including expanded authority to oversee important sectors that aren’t currently subject to their supervision, such as debt collectors, credit reporting agencies and so-called “fintech” companies.  It will be strengthened with dozens of new staff charged with actively monitoring the marketplace to identify patterns of abuse and to secure relief for consumers who are treated unfairly by financial firms.

California is strengthening state oversight at a time when the Consumer Financial Protection Bureau has dramatically scaled back its enforcement of consumer financial protection laws and reduced penalties on firms caught taking advantage of consumers.

“Given weak oversight at the federal level, we are pleased that California is filling the gap and stepping up its efforts to stop financial fraud and abuse,” said Martindale.  “This proposal should serve as a model for other states seeking to strengthen oversight of the financial industry so that consumers are treated fairly when they pay their bills, can manage their debts, and build family wealth and security.”

Michael McCauley, michael.mccauley@consumer.org, 415-902-9537