When Governor Gavin Newsom released information about the fiscal 2020-2021 budget, it included a proposal to revamp the California Department of Business Oversight (DBO) to directly assume regulation of fintech companies, debt collectors, credit reporting agencies and other entities involved with financial services.
Why the necessity for drastic revisionary action? Gov. Newsom (D) has criticized the Trump administration and the Consumer Financial Protection Bureau for reducing enforcement of the American financial sector. “They’re getting out of the financial protection business. We’re getting into it,” Newsom said. “We’re going to protect consumers from unfair and deceptive practices better than we have,” he added.
The DBO would be renamed the Department of Financial Protection and Innovation (DFPI), which would be expanded to regulate “abusive” acts and practices, as well as existing standards for unfair and deceptive acts and practices by any business entity offering financial services or products in California. This new grant of authority would extend to financial services not currently subject to the DBO’s regulatory oversight.
The governor’s proposal would also establish the following:
- Create a new Division of Consumer Financial Protection to supervise financial services currently unregulated by the DBO. The new division would include a market monitoring and research arm and expanded consumer outreach targeted to vulnerable California populations such as students and senior citizens.
- Create an Office of Financial Technology Innovation to encourage and keep the department outreach targeted to vulnerable populations. As one of its first tasks, the office would study and assess a state regulatory scheme for virtual currencies.
- Promote innovations by amending the Financial Code to make California’s banking ecosystem a more viable option for new entrants into the industry.
- Establish a new consumer protection ombudsperson to assist the public and other stakeholders.
The new budget proposes 44 new positions in fiscal 2021, increasing to a total of 90 by fiscal 2022, while also requesting 16 new enforcement positions. The DBO overhaul would be funded with $44.3 million, spread out over the next three years. Initial funding is projected at $10.2 million for the first year, then $19.3 million by fiscal 2022. Available settlement proceeds would provide funding with future costs paid by fees from new licensees and increased fees from existing licensees.
Will the DBO, or its proposed successor, the DFPI, have sufficient resources to advance the California Governor’s proposed changes? Only time will tell.
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