The creation of a state-level regulatory agency in California similar to the Consumer Financial Protection Bureau would be burdensome for lenders, Quyen Truong, partner at Stroock & Stroock & Lavan LLP, told Auto Finance News, especially considering the Department of Business Oversight is already active in regulating the finance industry.
“If a new agency were created that devoted significant resources to consumer protection law enforcement, it would give that agency the ability to detect and take action on a far larger number of matters than is currently the case with California’s existing regulators,” Christopher Willis, partner at Ballard Spahr LLP, told AFN.
Still, creation of a new agency comes with hurdles. Compliance experts told AFN that the process would be significant and could take years to accomplish if it receives enough support to move forward.
Currently, Monique Limόn, chair of the California State Assembly Committee on Banking and Finance, is the only legislator publicly discussing enhancement of regulatory oversight in the state, said Richard Gottlieb, partner at Manaat, Phelps & Phillips LLP. “This does not have widespread support as of yet,” he said.
However, Patty Covington, partner at Hudson Cook LLP, believes the idea has the potential to gain traction. “The reason I think so is because of [Limόn],” Covington said. “She’s fairly new, but she’s been pretty successful to date.”
In addition to being chair of the banking and finance committee, Limόn was an educator and school board member, served as an assistant whip to the assembly, and sponsored two credit-related bills last year — one on payday lending and one on student loan borrowing — all of which bode well for the assembly member. “Her strong emphasis on education, her strong interest in under-served communities, her interest in diversity and fair lending — all those things come up in credit,” Covington said. “They have traction.”
Not to mention that Limόn has “the political pull” and “experience mobilizing votes,” she added.
A state-run CFPB would need to be rolled into an existing regulatory agency, such as the Department of Business Oversight, for example, to avoid a “turf war,” Covington said. Several states, including New York, Pennsylvania, Virginia, Maryland, and Massachusetts, have regulatory divisions folded into the office of the attorney general.
If California is able to create a mini CFPB — or similar regulatory agency — there is potential for reverberation on a national scale, Covington said. “If you remember back to 2001, California passed the first security breach data law,” she said. “Now 51 jurisdictions have one.”
Similarly, California’s Consumer Privacy Act sparked interest from legislatures in Washington, D.C., AFN previously reported. “[The Consumer Privacy Act] is the first time privacy was seen as a fundamental right, as opposed to something that’s specific to an industry,” Covington said.
California could benefit from additional regulatory manpower. “The California Attorney General has regulatory rule-making requirements under the Consumer Privacy Act,” Covington said, “So I think they’re feeling very squeezed from a resource perspective, because they have to write these rules.”
All things considered, “there’s real potential here,” she said.
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