New York and California are taking steps to give their consumer financial protection regulators more power as they say federal oversight withers under the Trump Administration.
New York Gov. Andrew Cuomo (D) on Jan. 8 released proposals that would increase the state’s Department of Financial Services authority to bring enforcement actions, and increase oversight of the debt collection industry. California Gov. Gavin Newsom (D) is expected to announce on Jan. 10 legislation to entirely revamp and supercharge that state’s consumer financial protection efforts.
Though the reach of New York and California’s regulations stop at their borders, the sheer size and importance of the two states’ economies could effectively set standards that have an impact far beyond their state lines.
“The California and New York markets drive the country, and with those two states setting a strong standard for existing and evolving products, they can do a lot to address the vacuum in Washington,” said Lauren Saunders, the associate director of the National Consumer Law Center.
Both Cuomo and Newsom have been trying to position their states as counterweights to the Trump administration by prioritizing protections for immigrants, reproductive rights and the environment.
Now both governors have consumer financial protection in their sights.
On Jan. 8, Cuomo included an expansion of the state’s unfair and deceptive acts or practices powers to allow the DFS to pursue abusiveness claims as well. The CFPB currently has that authority, and Cuomo wants to match it.
New York’s governor is also proposing removing exemptions from DFS supervision and oversight for some financial products, although those have not yet been specified. Cuomo also wants the DFS to license and oversee debt collectors, a further expansion of the agency’s reach that comes after it got oversight authority over student loan servicers in 2019.
In California, Newsom is set to propose a dramatic expansion of the existing Department of Business Oversight into a Department of Financial Protection and Innovation, with the addition of dozens of professionals specifically tasked with consumer protection efforts and oversight of debt collectors.
“As the Trump administration undermines and weakens the rules that protect consumers from predatory businesses, California is filling the void and stepping up to protect families and consumers,” Newsom said in a Jan. 9 statement to Bloomberg Law.
Both New York and California have historically been important in setting national standards in areas ranging from fuel economy standards to cybersecurity laws.
Most recently, the California Consumer Privacy Act, which went into effect Jan. 1, set the first comprehensive internet privacy rules in the country. Because Congress appears to be unlikely to act on any privacy legislation for the foreseeable future, the CCPA has effectively become a national standard affecting any company with California consumers.
The New York DFS’s cybersecurity rules, which became fully effective in March 2019, have a similar national reach. And the New York regulator was the first to set consumer credit reporting rules following the 2017 Equifax Inc. breach, again effectively setting a national standard in the absence of any federal rules.
New York and California gearing up for increased oversight, regulation and enforcement of consumer financial markets could have a nationwide effect given the sheer size of the markets, said Todd Baker, a senior business, law and public policy at Columbia University’s Richman Center.
“Generally as a business matter most companies are going to adopt those standards as a national standard,” he said.
Both states say they also intend to promote innovation in finance, even as they look to expand their direct regulation of more financial products and services.
Those two objectives aren’t mutually exclusive, and may help startup fintech companies find more clarity in how they’ll be regulated by the states, said Jo Ann Barefoot, chief executive officer of the Alliance for Innovative Regulation.
Many fintechs “just don’t know whether they’re covered by licensing and other laws,” Barefoot said.
No Way Out
Companies can’t abandon California so they’ll have little choice but to comply with what the state comes up with.
The hope for companies is that the two states have at least some coordination, said Tony Dias, a Jones Day partner.
“One of the advantages of sharing information, one of the advantages of cooperation is that you learn what works better,” he said.
-With assistance from Laura Mahoney in Sacramento