California consumers need new protections

The state of California is the 5^th largest economy in the world. Its 40 million people deserve world-class consumer protections in the financial marketplace. That requires an agency with a singular focus on protecting Californians against scams, frauds and predatory conduct.

For more than a year, we have been working toward this result. At an Assembly hearing last March, we made the case that California’s economy would be stronger if consumers were less vulnerable to financial abuses. New protections benefit consumers, and they also support law-abiding businesses that otherwise must compete against cheaters that break the law to get an unfair edge.

Fortunately, Gov. Gavin Newsom has proven to be a valuable ally in our efforts to protect consumers. His experience in dealing with financial predators as mayor of San Francisco helps shape his agenda in the State Capitol.  Last year, the governor signed Assembly Bill 539 which placed an interest rate cap on consumer loans. The budget proposal he unveiled earlier this year builds on the work of legislators and consumer advocates to ensure all Californians have the best chance for a fair deal in the financial marketplace.

These measures are now before the state Legislature. The budget must be adopted by June 15, and the new protections could not come any sooner. The governor has proposed to overhaul the existing Department of Business Oversight into a new Department of Financial Protection and Innovation. His proposal relies on existing funds set aside for consumer protection, meaning the program would not pull funding away from other important priorities, such as emergency response, homelessness or wildfire prevention.

The governor’s proposal refocuses the state’s approach to protecting consumers against deceptive financial offerings. Complex credit products, with tricks and traps buried in the fine print, can ruin families. Neighborhoods felt the devastation of the last financial crisis, as irresponsible and predatory mortgage lending led to foreclosures and homelessness that triggered the Great Recession. California was decimated by job losses, its budgets were turned upside-down, and the economic recovery was uneven for almost a decade.

Now, as another recession looms, California consumers need these protections more than ever. A severe crash will multiply financial problems for millions who have little or no savings cushion. As people need help dealing with defaults, evictions and foreclosures, they will be shadowed by novel scams designed to take money out of their pockets just when they need every penny to get by. A dedicated consumer agency is essential to help them navigate the unfamiliar path ahead.

It is not yet clear who may oppose these measures. Banks and credit unions, already highly regulated, are hardly affected. Yet they will benefit from the more level playing field produced by broader coverage of other types of financial companies that compete against them. Debt collectors are not currently required to be registered in California, and some may balk at having to do so. But debt collectors already are registered or licensed in most states, and the good ones know they are better off if bad actors are rooted out. Indeed, it may just be the financial predators themselves who won’t like what the governor is doing. If that’s true, then so much the better.

Research shows that laws against financial abuses are routinely under-enforced. The Attorney General’s office and the existing Department of Business Oversight currently take on some of the most important matters, but their long list of other duties leaves them stretched thin to diagnose and address all the problems plaguing consumers. 

At the federal level, the Consumer Financial Protection Bureau tries to monitor these issues for 320 million Americans, and the $12 billion it put back in people’s pockets over its first six years shows the need is great. But new leadership at the Consumer Financial Protection Bureau has cut back its enforcement efforts, and in any event, it cannot serve as the front line of protection for local communities as well as California officials can. That is why Congress embraced federalism by inviting states to take a more active role in consumer financial protection.

This is a rare opportunity. Newsom’s bold new proposal would catapult California to the forefront of protecting consumers. As we have learned not to depend on the vagaries of policy made in Washington, we have a chance to stand up for ourselves. The great state of California should take that chance.

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Assemblymember Monique Limòn, a Democrat from Santa Barbara, represents the 37th Assembly District, Assemblymember.Limon@assembly.ca.gov. She serves as chair of the Banking and Finance Committee and was the author of Assembly Bill 539. Richard Cordray, author of the new book “Watchdog,” was the first director of the U.S. Consumer Financial Protection Bureau, raccordray@gmail.com. They wrote this commentary for CalMatters.