California lawmakers are aiming to shore up consumer financial protections for state residents as the Trump administration tries to defang the federal Consumer Financial Protection Bureau.
The state legislature is advancing measures that would expand California regulators’ authority to crack down on abusive practices and bring more scrutiny to potential discrimination by state-chartered financial institutions.
Some of the measures, and other laws California has enacted in recent years, incorporate recommendations that former top CFPB officials urged state regulators to enact as President Joe Biden left office. President Donald Trump’s pick to lead the agency on an acting basis, Russell Vought, has since sought to fire most of its staff and end enforcement of various industry regulations, such as rules on payday lenders and buy now, pay later products.
The push illustrates an urgency some lawmakers and consumer advocates see to create a more robust backstop for consumer protections in the states, and prepare for a future where they can’t rely on partners in federal agencies to help as they used to.
“The nature of those federal partnerships is changing dramatically,” Robert Herrell, executive director of the Consumer Federation of California, said in an interview.
Abusive Practices
The CFPB issued a Jan. 14 report with seven specific recommendations for state policymakers on issues such as junk fees and consumer privacy. The report came days before Trump took office and his administration began cutting the CFPB, with an aim of slashing its staff by 90%.
Those cuts loomed large over an April 22 state Senate Judiciary Committee hearing on a measure to expand the state’s Consumer Finance Protection Law.
State Sen. Monique Limón (D) argued the cuts underscored the need to ensure the state could “stand independently when enforcing the law.”
The bill (SB 825) would expand the 2020 law that authorized California’s financial regulator to take on unfair, deceptive, and abusive practices at companies not previously covered by the agency, such as debt-collection companies.
The law didn’t give the state agency the power to act on similar practices at companies already licensed by the state, most notably state-chartered banks and credit unions, which serve millions of customers. The agency currently must take a more cumbersome enforcement approach that involves consulting with the CFPB to go after abusive practices at those businesses.
Those financial institutions argue the measure would be redundant given the state’s attorney general already has the power to act.
The new measure would allow the state to crack down on what it views as abusive practices without relying on the federal agency—something that backers of the bill argue is key in the Trump era. Such practices can include the use of confusing language or requiring unnecessary steps to cancel a particular product.
“You don’t want them to be limited or hamstrung by processes and procedures that really aren’t applying in the same way anymore,” Herrell said.
The measure would also build on a recommendation from former CFPB officials to expand state authority to pursue cases involving abusive practices, not just unfair or deceptive practices.
The Biden-era regualtors argued incorporating the term “abusive” into consumer protection laws will allow states to better handle emerging scams that may not fall into categories in older laws.
Privacy and More
Other bills echo the CFPB’s recommendations, such as a measure (AB 656) that would expand state laws allowing consumers to request their personal data be deleted from websites. The new measure would expressly require social media companies to provide an easy, conspicuous link for deleting data.
Lawmakers are also considering creating a Community Reinvestment Act (AB 801) at the state level modeled on the federal law, which would expand state oversight of potentially discriminatory practices in the financial sector, such as unfair lending for housing and businesses.
The measure would include credit unions, unlike the federal Community Reinvestment Act, again echoing the views of Biden-era CFPB regulators who wanted the nonprofit financial institutions covered by the law.
In several areas, the state is ahead in areas addressed by the CFPB’s proposed recommendations under the Biden administration, such as establishing a limit on junk fees and creating rules around digital financial assets.
The movement on consumer protection at the state level reflects what has been an ebb-and-flow over the last eight years as legislators have responded to the expansion and rollback of federal regulatory expansions since the CFPB was established in former President Barack Obama’s first term.
“I also think we’re seeing some frankly emotional reactions by states and I wonder if that will settle,” Stefanie Jackman, partner at Troutman Pepper Locke, said in an interview.
Despite limits on their scope of enforcement compared to the federal level, state regulators have nonetheless been gearing up for a greater role in consumer protection since Trump first took office in 2017, Jackman added.
“It’s a challenge they’ve had eight years of practice rising to,” she said.
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