The fintech industry and consumer advocates can both claim that the nominee poised to take over a powerful state financial regulator is one of their own.
Former CFPB enforcement attorney Manny Alvarez would bring extensive experience in both the fintech industry and consumer financial protection to the California Department of Business Oversight (DBO) once he becomes commissioner in May.
The appointment of Alvarez, who specialized in mortgage fraud and consumer finance law at the Consumer Financial Protection Bureau, is the latest example of Democratic state officials turning to the growing ranks of the CFPB alumni as the agency retrenches under President Donald Trump.
“One of the signs we did something right in the early days, from a talent point of view, is that we will start to see people appearing in really high-impact positions, who professionally grew up in those early days of the CFPB,” said Raj Date, former CFPB deputy director and now managing partner of Fenway Summer, a fintech venture capital firm.
Alvarez’s subsequent work as general counsel for fintech lender Affirm Inc., makes him all the more suited to regulate a growing segment of the financial services industry, say former CFPB colleagues.
Alvarez helped the company grow its partnerships with dozens of online retailers to offer consumer financing at the moment of purchase. The company holds a sterling reputation in an industry often under scrutiny by state and federal regulators. Prior to his three-year stint at the CFPB, Alvarez was deputy attorney general under then-Calif. Attorney General, now Senator, Kamala Harris (D-Calif.).
“He is someone who really is and was dedicated to consumer protection,” said Joanna Pearl, former chief of staff for the CFPB’s Enforcement Division and now legal director at the Public Rights Project, a non-partisan legal advocacy group in Oakland, Calif. “He’s now spent a number of years leading a company with those same goals and ideals in mind but understands what the realities of a fintech startup are,” Pearl said.
Alvarez, who was tapped by California Gov. Gavin Newsom on March 28, declined to comment for this story. Under California state rules, Alvarez can assume his position prior to being confirmed by the state Senate, which has a year to do so from his appointment.
His selection is just one of many recent examples of ex-CFPB officials landing prominent state roles.
C. Hunter Wiggins, former CFPB principal deputy enforcement director, was appointed a few days later as chief of staff to the Illinois Department of Financial and Professional Regulation.
Others include: Chris D’Angelo, former CFPB associate director for supervision, enforcement and fair lending who’s now chief deputy attorney general for financial justice under New York Attorney General Letitia James; and Eleanor Blume, former CFPB counsel who’s now an economic adviser to California Attorney General Xavier Becerra.
The regulatory approach in California, home to Silicon Valley and one of the world’s largest economies, is felt far beyond its borders. The DBO holds broad jurisdiction over industries ranging from banks and mortgage lenders to payments providers, payday lenders and securities brokers.
The state is particularly significant for the financial technology industry, with many venture capital-backed fintech companies headquartered there, Date said.
California-based companies like Affirm, PayPal, Marqeta, Upstart, Stripe and Plaid have helped drive the evolution of digital lending and payments. The industry not only challenged the traditional financial services sector to evolve, it also pushed regulators to expand their operations and craft new policies and regulations to encourage growth.
“California DBO has a really big influence on both the nature and direction and speed of that trajectory, over time. That’s a challenge.” Date said. It’s also an opportunity for Alvarez to shape nationwide issues about how technology and finance intersect, are structured, and address persistent problems faced by underserved customers, he said.
Alvarez will face two significant fintech initiatives when he arrives in May. DBO staff are currently writing financing disclosure rules for fintech lenders that work with small businesses, the first state in the nation to do so. The state is also active in a multi-state effort to streamline licensing procedures for non-bank money service businesses.
The DBO has also been probing the interest rate practices of payday lenders and others, particularly following an August 2018 California Supreme Court ruling that some interest rates can be deemed “unconscionable"—an undefined term under the law.
States Stepping Up
California could rise as one of the more significant states to step into the void many say created by the Trump Administration’s pullback on enforcement.
State lawmakers are in the early stages of considering establishing a state-level equivalent of CFPB, which could include an expansion of the DBO’s enforcement and supervisory authorities.
Consumer advocates are encouraging the initiative.
“This is the perfect time for California to step forward to shore up consumer financial protection, even as the Trump administration is currently default on some of its obligations under federal law,” former CFPB Director Richard Cordray said at a March 27 hearing before the California Assembly Committee on Banking and Finance.