California and New York are taking the lead to expand consumer financial protection, in part to smooth out the ebb and flow of federal policy and enforcement at the CFPB.  Within a few days of each other, Governor Gavin Newsom of California and Governor Andrew Cuomo of New York announced proposals to expand regulatory oversight in the financial consumer protection space.

A.  California

On January 10, 2020, California Governor Newsom sent the California Legislature his 2020-21 budget, which includes a proposal to overhaul the state’s Department of Business Oversight (“DBO”), and rename it the Department of Financial Protection and Innovation (“DFPI”). The DFPI, which some observers are describing as a “mini-CFPB,” would have enhanced regulatory powers, as well as responsibility to pursue now-unsupervised financial services providers. The Governor’s Budget Summary cited the reason for the expansion as “[t]he federal government’s rollback of the CFPB,” which leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.” Specific new activities would include, among others:

  • Licensing and examining new industries that are currently unregulated or under-regulated;
  • Protecting consumers through enforcement against unfair, deceptive, and abusive acts and practices (“UDAAPs”);
  • Establishing a new Financial Technology Innovation Office that would cultivate the responsible development of new consumer financial products.

The budget also would provide funding to administer the California Consumer Financial Protection Law. The California Legislature will now begin a detailed review of the budget, a version of which must be passed before June 15, 2020.

B. New York

On January 8, New York Governor Cuomo released his 2020 State of the State address and announced several important measures relevant to fintech and other financial services companies:

  • License requirement for debt collection companies: The Governor will propose legislation giving the New York Department of Financial Services (“NYDFS”) authority to license debt collection entities, and to examine suspected abuses via information requests and books-and-records examinations. The new oversight authority would allow the NYDFS to bring punitive actions against unscrupulous debt collectors, potentially resulting in fines or lost licenses.
  • Strengthen NY’s Consumer Protection Laws: Governor Cuomo also proposed a broad consumer protection agenda aimed at enabling New York to intervene in the absence of federal enforcement in order to protect consumers from new and predatory financial products. The agenda includes:
    • Expanded protection for NY Consumers from UDAAPs: current state law protects consumers from intentional fraud or material misrepresentations regarding financial products or services. The Governor’s proposal would enhance New York law to the level of federal law, which allows enforcement actions for a broader range of UDAAPs.
    • Elimination of exceptions: Although current NY law allows for enforcement actions, many consumer products and services are exempted. The Governor’s proposal would eliminate these exceptions.
    • Closing loopholes: Currently, entities licensed under New York’s Financial Services Law (“FSL”) are not required to pay assessments covering the cost of examinations. The Governor proposed amending the FSL to match the Insurance and Banking Law, which would require these entities to pay for examinations.
    • Fines: To deter illegal conduct, the proposal would amend the state’s law to increase fines. Instead of the current penalty of $5,000 per violation, Governor Cuomo proposed capping penalties at the greater of $5,000, or two times the damages or economic gain attributed to the violation. The FSL would also be updated to include authority for collecting restitution and damages.

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Blending our firm’s nationally recognized financial services practice with our corporate and technology practices, McGuireWoods’ fintech practice provides practical, business-minded counsel on legal and regulatory matters relevant to financial services companies and fintech vendors alike.