10 Key Takeaways From California’s New Consumer Finance Regulatory And Enforcement Regime | GoodwinNovember 21, 2020
Three California laws that affect fintech companies will go into effect on January 1, 2021. The California Consumer Financial Protection Law (CCFPL) expands the scope of the Department of Business Oversight’s (DBO) current regulatory and enforcement powers, and renames it as the Department of Financial Protection and Innovation (DFPI). The Debt Collection Licensing Law (DCLL) requires, among other things, that persons engaged in the collection of consumer debts, including first- and third-party debt collectors and debt buyers, obtain a license from the DFPI. The Student Loan Borrower Bill of Rights gives the DFPI broader authority to regulate student loan servicers, including depository institutions and servicers of federal student loans, in addition to providing consumers with a private right of action to enforce the law’s substantive requirements.
This Fintech Flash provides the key takeaways that fintech companies need to know about their “new” regulator and discusses how the three new California consumer finance laws may impact fintech companies.
- The DFPI Is Now the Primary State Regulator For Most Fintech Companies The CCFPL brings most fintech companies under the purview of the DFPI. The CCFPL gives the DFPI broad authorities over any “covered person,” which includes “[a]ny person that engages in offering or providing a consumer financial product or service to a resident of [California],” “[a]ny affiliate of a person … if the affiliate acts as a service provider to the person” that offers or provides the product or service, and “[a]ny service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.” In turn, a “service provider” “means any person that provides a material service to a covered person in connection with the offering or provision by that covered person of a consumer financial product or service.” This ultimately means that the DFPI has jurisdiction over most consumer-facing fintech companies, including companies offering consumer credit, digital banking services, and digital wallets, and fintechs that provide services to such companies, such as payment processors. Though the CCFPL exempts companies subject to existing DBO licensing requirements and regulations, including banks, bank holding companies, credit unions, and residential mortgage lenders and servicers, payday lenders and, as explained in more detail below, student loan servicers are not exempt from DFPI oversight.
- The CCFPL Requires Most Fintechs to Register With the DFPI The CCFPL authorizes the DFPI to create by rule “registration requirements applicable to covered persons engaged in the business of offering or providing a consumer financial product or service, including requiring a filing be made under oath, and requiring the payment of registration fees.” The DFPI may require registration of any “covered person” except entities already licensed…