SACRAMENTO, Calif. (CN) — Citing inaction by the Trump administration, California Governor Gavin Newsom on Friday signed a consumer protection bill giving state regulators greater ability to fight predacious debt collectors and lenders.
Intended as a junior version of the federal Dodd-Frank Act, Newsom said the bill is a warning to financial service providers known to target Californian’s oldest and most vulnerable populations. In a virtual signing ceremony, Newsom claimed California will establish the “nation’s strongest” consumer watchdog agency and enforce portions of the Obama-era act as Congress initially intended.
“We need the state to lead as the federal government is pulling away from financial protection,” the Democratic governor said.
Assembly Bill 1864 officially creates the Department of Financial Protection and Innovation, which will focus on rooting out unfair, deceptive and abusive financial practices. It authorizes the department to partner with the California Department of Justice to pursue civil penalties and issue cease and desist orders when pertinent.
To staff the new endeavor, Newsom said he and the bill’s supporters were able to secure enough money in the recent budget to eventually add 90 new positions by 2023 at a cost of $19 million.
Proponents celebrated the signing as a major step toward fighting swindlers hawking predatory high-interest rate deals, noting that reported cases of financial fraud have jumped during the pandemic.
“We don’t want the products taking advantage of the people of California,” said the bill’s author Assemblywoman Monique Limon, D-Santa Barbara.
Limon, who sponsored a 2019 bill that greatly capped interest rates on payday loans, said the new department will be able to regulate companies offering debt settlement, credit repair, rent-to-own deals and check cashing services.
Supporters say the department will help fill the void at the federal level, as financial lobbyists have combined with the Trump administration to weaken the role and independence of the Consumer Financial Protection Bureau.
Created as part of congress’ Wall Street reforms during the Great Recession, the bureau was tasked with preventing and weeding out predatory mortgage and other high-interest consumer loans. Its jurisdiction includes banks, credit unions, payday lenders and debt collectors.
Appointed in 2012 by then-California Attorney General Kamala Harris to make sure banks held up their end of a $25 billion mortgage servicing settlement, California Congresswoman Katie Porter said AB 1864 will buffer the ongoing lack of enforcement at the federal level.
“This historic bill will strengthen our state’s economy by adding guardrails to our capitalist system so that it creates prosperity for all Californians,” Porter said during the signing ceremony.
The measure was widely opposed by state Republicans, payday lenders and the California New Car Dealers Association, but nonetheless cleared the Senate and Assembly on the final day of the legislative session. Limon’s proposal does not create any new state consumer laws and goes into effect on Jan. 1.
Along with AB 1864, Newsom signed several other consumer protection bills including a law requiring debt collectors and buyers to obtain state licensing, as well as legislation creating a so-called Student Borrower Bill of Rights.
“It’s at this moment especially — when so many Californians are strapped for cash and struggling to pay their bills — that families are likely to fall victim to predatory and abusive financial products,” Newsom said of the consumer protection package. “These bills ensure that financial predators are subjected to alert oversight and agile enforcement.”