- California budget negotiators, facing a June 15 deadline to send Democratic Gov. Gavin Newsom an updated spending plan, shelved a proposal this month to create a state consumer financial protection agency, which some have compared to a mini-CFPB, in favor of more urgent matters such as coronavirus relief funding. The news was first reported Thursday by American Banker.
- The proposal may be revived later in the budget process, policy experts said. Lawmakers have until Aug. 31 to finalize the 2020-21 state budget.
- Some state lawmakers, wary of giving Newsom too much control, have pushed for the Department of Financial Protection and Innovation (DFPI), as it would be called, to be established through a stand-alone bill rather than as a line item in a state budget. "This would allow the changes to be vetted by the policy committees that have expertise on the specific issues that are raised," the Legislative Analyst’s Office said in a report, according to American Banker.
Time and a packed agenda are among the biggest factors playing into the agency's delay. California's legislative session usually runs from Jan. 6 to Aug. 31, but the coronavirus truncated that time frame and consumed lawmakers' attention. In addition to the pandemic, the state is addressing an active wildfire season, a homelessness crisis and a spate of protests.
"Because the legislature and state government shut down due to the crisis, this was a very abbreviated legislative session, which can cause some good public policy to be put on hold," Jan Lynn Owen, a senior adviser at Manatt and former Department of Business Oversight commissioner, told American Banker.
Newsom's January proposal couched the DFPI within the Department of Business Oversight. The agency would have the authority to bring enforcement actions against companies, issue fines and crack down on unfair, deceptive and abusive acts or practices. Newsom's proposal also would let the new agency collect data on how nonwhite-owned, women-owned and small businesses are being served by lenders.
Forty-seven fintechs, small-business lenders, community development agencies and consumer advocates signaled their support for the new agency and called for the DFPI to oversee small-business financing in a letter to lawmakers last month.
"Small business protection is crucial to our economic recovery," they wrote, according to American Banker. "For years, California small businesses have faced an epidemic of predatory lending and today, the predatory lending vultures are circling."
Under the original budget proposal, the DFPI would be self-funded through licensing fees and fines. Another proposal creating new restrictions on industrial banks chartered by the state was originally attached to the DFPI measure but was separated during the budget process.
The Legislative Analyst's Office proposed that the DFPI be funded in its first year on a pilot basis, with an increase in funding hinging upon more legislative oversight.
Newsom's original budget proposed $10.2 million to fund 44 additional jobs in fiscal 2020-21, with funding increasing to $19.3 million a year with 90 new jobs by fiscal 2022-23, according to JD Supra.