the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law (CCFPL) and changes the name of the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI).
Key takeaways
- Establishes UDAAP authority for the new DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act. The DFPI also has authority to define UDAAPs in connection with the offering or provision of commercial financing (e.g., merchant cash advance, lease financing, factoring) and other financial products or services to small business recipients, nonprofits, and family farms.
- Authorizes the DFPI to impose penalties of $2,500 for “each act or omission” in violation of the law without a showing that the violation was willful, which, arguably, represents an enhancement of DBO’s existing enforcement powers in contrast to Dodd-Frank and existing California law. The new law also includes enhanced penalties for “reckless” violations of up to $25,000 per day or $10,000 per violation. For “knowing” violations, the penalty may be up to $1,000,000 per day or 1% of the violator’s net worth (whichever is less) or $25,000 per violation.
- Exempts from the DFPI’s new UDAAP authority, banks, credit unions, federal savings and loan associations, and similar entities, as well as current licensees of the DBO and licensees of other California agencies, “to the extent that licensee or employee is acting under the authority of” the license.
- Creates a “registration” requirement (subject to the DFPI’s implementing regulations) that greatly expands the reach of the DFPI to oversee entities that are not currently subject to licensure/registration. Businesses that could potentially be subject to the new law include service providers (including affiliated entities) that offer their own or integrated financial products or services, and entities that provide payment or other financial data processing products or services to consumers by any technological means, among others. Note that debt collectors may soon become subject to new licensure requirements under separate legislation awaiting the governor’s signature.
- Provides DFPI with broad discretion to determine what constitutes a “financial product or service” within the law’s coverage, including by a regulation finding that the financial product or service is either: “(A) Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law,” or “(B) Permissible for a bank … to offer or provide … [but] has, or likely will have, a material impact on consumers,” with certain enumerated exclusions.
- Provides that administration of the law will be funded through the fees generated by the new registration process and other funds generated from fines, penalties, settlements, or judgments.
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