California Governor Newsom submitted his updated 2020-2021 budget proposal to the state legislature on May 14, 2020.  The proposed budget amendments include substantial cuts to compensate for the anticipated impact to state revenue due to job losses and business closures caused by the COVID-19 pandemic.  The funding allocated to the revamping of the Department of Business Oversight (DBO) was not impacted, however.  The budget contemplates the renaming of the DBO to the “Department of Financial Protection and Innovation” (DFPI) and the hiring of 90 new positions by 2022-2023.  The $19.3 million cost associated with this initiative is anticipated to be satisfied through existing settlement proceeds for the first three years and through fees on covered entities thereafter.

A trailer bill accompanying the budget would provide the DFPI significant oversight, rulemaking, enforcement and examination authority relating to “consumer financial law.”  This would give the agency the ability to regulate companies currently offering consumer financial services in California, many of which are not currently subject to DBO oversight, such as debts collectors.  The DFPI would also have expansive authority to regulate unfair, deceptive, and abusive acts and practices.  Any covered person may be required to file reports and register with the new agency.  The Legislative Analyst’s Office stated that this expansion may require roughly 9,000 newly-covered persons to be registered.  The trailer bill must be passed by the legislature by June 15, 2020.

The Legislative Analyst’s Office, in February 2020, took issue with these types of expansive changes occurring through a trailer bill, which is subject to a more streamlined process, rather than through the traditional legislative process.  It stated:

We recommend that the Legislature consider the Governor’s proposed statutory changes through the legislative policy process. This would allow the changes to be vetted by the policy committees that have expertise on the specific issues that are raised.  In addition, this would better position the Legislature to determine which policies should be established in statute and which could be left to the regulatory process.

The trailer bill includes minor amendments which appear to be in response to these types of concerns.  The proposed budget describes the purpose of these amendments:

The May Revision includes budget bill language that makes the funding and positions contingent upon the Legislature passing the necessary statutory language to implement the new program.  This approach is intended to continue the discussion on the proposal’s statutory language into the summer to give the Legislature more time to evaluate the proposal.

Assuming the trailer bill is passed by June 15th, it seems the legislature will be able to amend the substantive provisions of the California Consumer Financial Protection Law over the summer.