Opinion

A good thing: CA’s new consumer financial protection setup

A woman balancing her books with the help of a calculator. (Photo: fizkes, via Shutterstock)

Robust regulatory oversight creates a healthy, vibrant consumer credit market that benefits households from all economic backgrounds, as well as responsible lenders. As noted by Richard Cordray, former director of the Consumer Financial Protection Bureau, credit markets work best when there is a beneficial alignment of interests between borrowers and lenders.

Oversight can protect and level the playing field for both parties, as we will see soon in California with the state’s recent decision to “modernize” its lead financial regulatory agency, the Department of Business Oversight, into the new Department of Financial Protection & Innovation (DFPI).

Previously unregulated industries will now face oversight, and the DFPI will have a market monitoring and research arm to keep up with emerging financial products

Both consumers and lenders will benefit from this balanced and updated agency’s enhanced capacity to meet the rapidly evolving landscape of financial services.

In September, California Gov. Gavin Newsom signed AB 1864. The legislation tackles several important issues, including enacting the California Consumer Financial Protection Law (CCFPL).

Under the CCFPL, effective Jan. 1, 2021, the DFPI will have a broader scope of authority to address not only the challenges of protecting consumers from unfair, deceptive, or abusive acts or practices (UDAAP) during this COVID pandemic, but the strengthened regulatory capacity to meet the ongoing changes and innovations with financial services.

For example, previously unregulated industries will now face oversight, and the DFPI will have a market monitoring and research arm to keep up with emerging financial products.

Under the new agency structure, California’s consumer credit markets will be strengthened. Consumers will gain better protections from harmful practices while responsibly focused financial services companies, including household credit providers, benefit from less market disruption caused by predatory businesses preying on vulnerable consumers.

The reality is, just one bad apple can damage the reputation of all market participants. That is why responsible lenders that work hard to ensure consumers have successful experiences strongly support robust regulatory oversight in all the markets they serve.

I am hopeful that the agency will take a balanced and responsibly focused approach to their expanded responsibilities and authority. Adopting this approach would promote a level playing field, which will greatly benefit consumers and financial companies alike.

Lenders operating in California that focus on the need to promote successful consumer outcomes should be encouraged by the new law and the creation of the DFPI. The new legislation will benefit the state’s financial services industry by:

–Cracking down on improper business practices, harmful products and bad actors. As the DFPI rids the market of deceptive and purposefully confusing financial products, the reputation of good players will improve, credit markets will expand and better options for consumers will be more widely available.

–Ensuring the success of consumers. There is an obvious alignment between the success of consumers and lenders. If offered easy access, affordable rates and clear terms, consumers are more likely to be able to repay their debts. In turn, lenders are able to stay in business and serve as a much more sustainable and morally sound business model than trapping consumers in spiraling debt pits.

By expanding the powers of the DFPI through this modernization, California is on the leading edge of financial regulation compared to the rest of the country. True, many of the specifics about the DFPI’s new oversight powers are still in the making. But so far, all signs point towards the agency being a force for good in the fight against predatory financial practices, which will only serve as a win-win for consumers and the responsible household credit providers who serve them.

Ed’s Note: Chris McKinley is the senior vice president for government affairs at  Lendmark Financial Services.


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