California’s AB 1864: What You Should Know

Assembly Bill 1864 (AB 1864) passed the California Legislature on Aug. 31, 2020, and Gov. Gary Newsom signed it into law as of Sept. 25, 2020. The intent of this new law is to expand California’s ability to protect its residents against abusive and predatory financial products and services. Here is a summary of the important regulatory changes it brings.

• The Department of Business Oversight (DBO) will be renamed the Department of Financial Protection and Innovation (DFPI). This means that wherever in your content you mention the DBO, you need to change it to the DFPI. This includes your website, social media and marketing material. Specifically, loan officers licensed in California will need to update their state licensure verbiage to “Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act”.
• The DFPI’s jurisdiction is being expanded to include sectors of the financial industry that were not under the DBO’s jurisdiction. The new sectors include debt collectors, credit reporting agencies and financial technology companies. This means that if your business includes one or more of these sectors, you may be subject to new regulations and licensure requirements.
• The DFPI will add new staff to actively monitor the marketplace and identify patterns of abuse, as well as to secure relief for consumers treated unfairly by financial firms. Lenders will need to ensure company policy meets these new state regulations, but also make sure that all employees who represent their company also complies – even on social media.
• The DFPI has been given expanded authority. In addition to having the same power the DBO had, it was also given equivalent authority to bring actions to enforce the Consumer Financial Protection Act of 2010 (CFPA) and the federal Bureau of Consumer Financial Protection (CFPB). Because this additional power was added outside the California Consumer Financial Protection Law (CCFPL), it is not subject to CCFPL restrictions, including for banks. According to Lexology.com, this means that a person or service provider covered under the CFPA and CFPG will be subject to “many of the same rules they are already familiar with … but they will now be interpreted, applied and enforced by a regulator with a California sensibility.”
• The DFPI, under the new law, may establish a registration system for covered persons, including those who haven’t previously been covered. This could mean that licenses will become required for such individuals as debt collectors. This licensure will more than likely include background checks for “principals, officers, directors, or key personnel and bonding or other appropriate financial requirements.”
• The DFPI may define unfair, deceptive, or abusive acts and practices (UDAAPs) in connection with the offering or provision of commercial banking. The definition for “commercial banking” from Senate Bill 1235 (SB 1235), outlines that it includes factoring and merchant cash advances as well as regular commercial purpose loans and lines of credit. This update means that small business lenders, among others, are now covered by the CCFPL.
• There have been some changes to the scope of covered persons and service providers, with numerous exemptions. However, in general a “covered person” includes, among others, any person engaging in offering or providing a consumer financial product or service to California residents. A “service provider” is any person providing material service to a covered person in connection with the covered person’s consumer financial product or service. You will need to have your legal team investigate whether you are exempt or not.

The changes this law makes have implications that make social media monitoring more important than ever. One obvious change is updating language from “Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act” – where ever it is used, online and off – to “Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act.” Be sure to have your California MLOs and other staff review this new regulatory update and remind them what they can and cannot say in social media to avoid violating new regulations.