In summary

We need strong consumer protection during the pandemic, but the federal government is not going to provide it. So it’s time for California to step up.

By Claudia Deeg, Special to CalMatters

Claudia Deeg is an associate with the California Public Interest Research Group, CALPIRG, cdeeg@calpirg.org.

It’s been more than four months since the World Health Organization declared COVID-19 a global pandemic. 

Millions of us have lost jobs, are juggling caring for children at home or struggling to keep up with rent. Payday lenders are viciously targeting desperate consumers with loans with triple-digit interest rates – even as these businesses received billions of dollars in federal relief aid. ACE Cash Express, a payday lender, was cited by the Consumer Financial Protection Bureau for using illegal debt collection tactics, and two other California-based companies have been marketing these loans to California consumers.

One would hope that amidst this crisis, the government would do everything in its power to protect consumers. Last week marked nine years since the Consumer Financial Protection Bureau opened. The bureau was created as a financial watchdog and generated nearly $12 billion in relief to consumers in its first six years. This agency should be working to stop predatory companies from using the pandemic to exploit desperate Americans.

However, the Trump administration has gutted the Consumer Financial Protection Bureau over the past several years, and the bureau recently rolled back critical regulations on payday loan lenders right when consumers need these protections the most. A new report from the U.S. PIRG Education Fund found that consumer complaints to the bureau have set a new record each month since the beginning of the COVID-19 pandemic in March.

We need a strong consumer watchdog to protect us during the COVID-19 pandemic, but the federal government is not going to provide one. So it’s time for California to step up.

California must create its own consumer protection agency, and this year we have an opportunity to do just that. Gov. Gavin Newsom has proposed creating the Department of Financial Protection and Innovation, a new agency that would protect consumers from threats including aggressive debt collectors, loan sharks and scammers.

The governor’s proposal would transform the Department of Business Oversight and establish the Department of Financial Protection and Innovation as a regulator with expanded oversight of companies, including debt collectors and credit reporting agencies. In many cases, the Department of Business Oversight, California’s existing regulator, lacks the authority necessary to promulgate rules and enforce state laws against companies using unfair, deceptive and abusive practices.

We cannot wait any longer. Stronger consumer protections were needed in California before the COVID-19 pandemic, but the surge in predatory lending and financial scams concurrent with the outbreak has made the need for better consumer and small business protections even more critical. Unfortunately, this proposal was left out of the initial budget passed in June, but legislators can still act on this issue in August. 

Experts say that California’s economy is unlikely to return to pre-coronavirus levels in the next three years. That means three more years of unprecedented financial strain for consumers and uncertain prospects for small businesses. If we fail to establish the rigorous consumer protections needed to safeguard Californians, we will only prolong this crisis and leave more people in desperate situations.

We urge Newsom, Senate President Pro Tempore Toni Atkins, Assembly Speaker Anthony Rendon, and all California state legislators to fund creation of the Department of Financial Protection and Innovation in the 2020-21 budget. The economic pains caused by this pandemic are not going to end anytime soon, and so we must do all we can to care for and protect Californians.

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