California is expected to create a financial protection watchdog agency by month’s end.
NPR reports lawmakers are moving quickly to create the new department of state government because the federal Consumer Financial Protection Bureau (CFPB) has been rendered useless under the Trump administration.
“Consumer protections are an area where California wants to show that we care,” Assemblywoman Monique Limón told the radio network. “As the fifth-largest economy in the world we think that it is very important and it’s the right thing to do.”
Authorized by the Dodd–Frank Wall Street Reform and Consumer Protection Act a decade ago under the Obama administration in response to the financial crisis of 2007–08, the CFPB is responsible for consumer protection in the financial sector.
But under the Trump administration, NPR reports enforcement is down 80 percent from 2015, and money returned to consumers has dropped by 96 percent.
Limon said while the new agency was proposed before the pandemic, given the economic impact, the need for oversight is more important now.
Since the outbreak, she said, complaints about financial wrongdoing have increased in California by 40 percent. They include disputes about mortgages, personal loans and firms that promise to get consumers out of debt.
The 40-year-old Democrat, who represents the 37th Assembly District, has joined Democratic Gov. Gavin Christopher Newsom, 52, to propose the Department of Financial Protection and Innovation. It would provide Californians with protection from predatory lenders, aggressive debt collectors, credit repair schemes and other questionable shady financial practices.
Lawmakers face an Aug. 31 legislative deadline.
“A bad loan, a risky payday product, an aggressive debt collector, can push someone over the edge into poverty … at the worst possible time in the middle of a public health crisis,” she told NPR.
Small business groups and financial firms have lined up in favor of the measure.
Beth Mills, a spokeswoman for the California Bankers Association, said she supports the new agency, in part, because online lenders face much looser regulations than banks.
Still, Mills said her members, most of the state’s large and small lenders, prefer to be exempt from the bill because they are heavily regulated.
But Richard Cordray, a former director of the federal Consumer Financial Protection Bureau, said exempting a large portion of the banking community would be a big mistake.
“I don’t think that the Legislature should make it hard for consumers to get their money back when they’ve been victimized by unfair, deceptive and abusive practices,” he told NPR.