As federal agencies pull back on consumer protection regulations under the Trump administration, California is stepping up to fill the void. This shift was forecasted in January, when the Consumer Financial Protection Bureau (CFPB) released a report titled “Strengthening State-Level Consumer Protections” (discussed here), which provided a roadmap for states looking to bolster their consumer protection laws after the anticipated rollback with the new administration.
California’s Legislative Response
In response to the reduction in federal oversight, California has taken significant steps to enhance its consumer protection laws. On April 2, the California Senate Banking and Financial Institutions Committee passed Senate Bill No. 825, which seeks to amend Section 90002 of the Financial Code. This bill aims to clarify that the California Consumer Financial Protection Law (CCFPL) does not prevent the commissioner of financial protection and innovation from enforcing provisions against unfair, deceptive, or abusive acts or practices (UDAAPs), even for those operating under certain licenses. This legislative move is a direct response to the diminished enforcement activities of the federal CFPB under the current administration. SB 825 will now be re-referred to the Committee on Judiciary.
Additionally, on April 1, California introduced Assembly Bill 801, the California Community Reinvestment Act, which requires financial institutions to meet the financial services needs of low- and moderate-income (LMI) communities and communities of color. The bill mandates regular assessments of financial institutions’ performance in meeting community needs and imposes penalties for non-compliance. Specifically, the bill requires the commissioner to assess the record of each covered financial institution in satisfying this obligation no less than once every three years and assign one of five possible ratings. The bill authorizes the commissioner to consider this record of performance when considering an application for such things such as the establishment of a branch or the relocation of a main office. The bill also prohibits a covered financial institution with certain ratings from receiving state funds for deposit or being awarded a state contract to provide financial services. The bill also establishes the Community Reinvestment Fund to support these initiatives.
Assembly Bill 801 is in direct response to the March 28 announcement by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the federal banking agencies) of their intent to rescind the 2023 Community Reinvestment Act (CRA) final rule and reinstate the previous CRA framework (discussed here). The CRA, enacted in 1977, was designed to address systemic inequities in access to credit by encouraging banks to meet the credit needs of their entire communities from which they draw deposits, including LMI areas, while adhering to safety and soundness principles. The regulations implementing the CRA had not been substantively updated since 2005, until in 2023, the federal banking agencies issued the long-awaited final rule. Key provisions of the final rule included flexibility in retail lending evaluations for smaller banks, new data collection and reporting requirements for larger banks, and the requirement for banks to lend to LMI communities in areas where they have a concentration of mortgage and small business loans, not just where they have physical branches. The final rule was set to become effective on April 1, 2024, with a transition period for compliance with the new regulations.
Conclusion
As federal agencies pull back on consumer protection regulations, California is stepping up to fill the gap. Businesses operating in California will need to stay vigilant and adapt to the increasingly complex and varied regulatory environment.
