Gavin Newsom, the governor of California, is expected to announce a proposal today that would create a state-version of the Consumer Financial Protection Bureau in The Golden State, joining a growing number of other states that are ramping up their efforts to regulate the financial services industry in the wake of a perceived pullback from the CFPB itself.
The proposed legislation would create a Department of Financial Protection and Innovation, revamping California’s current Department of Business Oversight, according to a number of published reports. Two different published reports specifically spotlighted that debt collectors would fall under state oversight as a result of the proposal.
“The federal government’s withdrawal and inaction now leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate,” said Newsom, according to one report.
Other states, like New Jersey and Pennsylvania, have created their own versions of the CFPB to regulate financial services companies, including collection operations, and to protect consumers. And, earlier this week, New York Gov. Andrew Cuomo proposed stronger regulations over the debt collection industry through a licensing requirement.
“The California and New York markets drive the country, and with those two states setting a strong standard for existing and evolving products, they can do a lot to address the vacuum in Washington,” said Lauren Saunders, the associate director of the National Consumer Law Center, in one report.
To create the new agency, Gov. Newsom is proposing legislation — the California Consumer Financial Protection law — which would allow the state to hire additional staff, increase its enforcement oversight, and further protect individuals targeted with questionable financial products and services.
From one report:
I asked the governor’s office if it’s expecting debt collectors to sue California on grounds that federal law preempts state law and that California thus has no right to stick its nose into the industry’s business.
The answer I received is no, a lawsuit is unlikely.
I think litigation is all but certain, although the federal law does say states can enact regulations for debt collectors that are “not inconsistent” with what’s already on the books.
