DS News - Bank of America

66 new agency is a resurrected, repurposed, and gentrified DBO. GENTRIFYING DODD-FRANK Although considered the progeny of the Dodd-Frank Act Title X, the statutory intent and motivation of the CCFPL does not perfectly align with the decade-old Wall Street reform objectives of Dodd-Frank. Where Dodd-Frank created a new Bureau of Consumer Financial Protection within the Federal Reserve Board to supervise certain financial firms and act as both a rule maker and enforcer against unfair, deceptive, or abusive acts (UDAAP) related to a bevy of consumer financial products or services, California's rendition seeks to cultivate what legislators appraise a limited pool of consumer financial products, providers, and/or services who are "unscrupulous," spotlighting UDAAP and discriminatory practices time and again. Likewise, whereas Dodd-Frank was marketed as a somewhat balanced approach to protecting the consumer from UDAAP and discrimination, pointing to a need to reduce unnecessary regulatory burden and efficiency, the CCFPL appears to be more heavy-handed, punitive, and discretionary. Legislative findings acknowledge the need for reform, pointing to the mixed benefits of technological innovation, raising an eyebrow at technology that, even at its best, "poses risks to consumer and challenges to law enforcement." SIGNIFICANT EXEMPTIONS e CCPFL exempts national banks, banks chartered by California or any other state, and existing DBO licensees, other than payday lenders and student loan servicers. e CCFPL also exempts licensees and their employees of any California state agency. For example, the CCFPL will likely exempt real estate licensees under the Real Estate Law and their employees acting under those licenses. Once you subtract the exempted institutions, the statute's jurisdiction applies almost exclusively to entities that were not previously licensed by the DBO. ese entities must qualify as "covered persons," which as defined by the CCPFL include: (1) those that offer or provide consumer financial products or services, (2) or those affiliates that act as service providers, and/or (3) any service provider that offers or provides its own consumer financial product or service. Simply put, whether or not an entity is classified as a "covered person," and thus subject to the CCPFL authority, depends on whether or not it offers or provides a consumer financial product or service. Here, "service providers" are synonymous with the term as applied in Dodd-Frank Title X and are meant to include any person that provides a material service to a covered person in connection with the covered person's offering or providing of a consumer financial product or service. Likewise, in keeping aligned with Dodd- Frank's definitions, "financial product or service" is meant to designate a fairly inclusive list and adds to its genre brokering the offer or sale of a franchise on behalf of another. Ultimately, the CCFPL, like Dodd-Frank, grants the DFPI, as the modern oversight agency, authority to issue regulations that define "financial product or service" according to benchmark criteria. UDAAP Just as Title X gives the CFPB authority to regulate UDAAP, the CCPFL bestows upon the DFPI the same sovereignty. As a successor to the DBO, the DFPI may take enforcement action against covered persons for UDAAP violations and may further issue regulations regarding UDAAP. In addition, the CCPFL commissions the DFPI to bring proceedings under the Dodd-Frank provisions that authorize state regulators to enforce Title X and any regulations promulgated by the CFPB pursuant to Title X. e DFPI may bring such proceedings, with advance notice provided to the CFPB, against both covered persons under the CCPFL as well as against existing DBO licensees, including California-licensed banks, savings and loans, credit unions, California Financing Law licensees, and California Residential Lending Act licensees. e CCPFL also sanctions the DFPI to not only prescribe definitions of UDAAP as applied to covered persons, but also interpret "unfair" and "deceptive" in accordance with Business and Profession s Code 17200. "Abusive" is defined synonymously with the Title X definition. e CCFPL further authorizes the DFPI to define UDAAP in connection with any offering of commercial financing or other financial products and services offered to small businesses, nonprofits, and family farms. In response to consumer complaints, the CCFPL requires the DFPI to mandate a protocol that ensures the covered person's response is not only timely but satisfies certain criteria. e DFPI may not pursue enforcement action against a covered person for failure to comply until the complaint response protocol is promulgated. Reporting Requirements, Imposed Transparency, and Public Accountability Under the umbrella of the CCPFL, the DFPI is permitted to issue rules related to the registration of covered persons, including the imposition of registration fees. The effects of the CCFP will undoubtedly reach beyond California state lines and potentially be a catalyst for change in other states. Feature By: Rosemarie C. Hebner & Eric D. Houser

• Cover