The California Department of Financial Protection and Innovation

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The California Department of Financial Protection and Innovation (DFPI) was created in 2020 through Assembly Bill №1864 by renaming an existing agency (Department of Business Oversight in the Business, Consumer Services, and Housing Agency, headed by the Commissioner of Business Oversight) and expanding its scope (putting it in charge of various additional laws including the California Consumer Financial Protection Law.)

Practice Tip: Because this is not the first time the agency has been re-strutted/renamed, you should be aware that all references in the California Constitution or in any statute or regulation to the “Superintendent of Banks” or the “Commissioner of Financial Institutions” or the “Commissioner of Corporations” or the “Commissioner of Business Oversight” or to the “State Banking Department” or the “Department of Financial Institutions” or the “Department of Corporations” or the “Department of Business Oversight” mean the Commissioner of Financial Protection and Innovation or the Department of Financial Protection and Innovation, respectively. See, Cal. Fin Code 321 (b) as modified by Assembly Bill №1864.

What is the California Department of Financial Protection and Innovation (DFPI)?

The California DFPI is a California agency responsible for the execution of any laws regulating:

• banks or trust companies or the banking or trust business;
• savings associations or the savings association business;
• credit unions or the credit union business;
• persons who engage in the business of receiving money for transmission or such business;
• issuers of stored value or such business;
• issuers of payment instruments or the payment instrument business;
• business and industrial development corporations or the business and industrial development corporation business;
• insurance premium finance agencies or the insurance premium finance business;
• persons offering or making any contract constituting bucketing;
• persons offering or selling off-exchange commodities;
• deferred deposit originators;
• finance lenders and brokers;
• residential mortgage lenders and servicers;
• capital access companies;
• check sellers, bill payers, and proraters;
• securities issuers, broker-dealers, agents, investment advisers, and investment adviser representatives;
• mortgage loan originators employed or supervised by finance lenders or residential mortgage lenders;
• escrow agents;
• franchisors;
• persons holding securities as custodians on behalf of securities owners;
• persons offering or providing consumer financial products or services in this state; and
• PACE program administrators.

See, Cal. Fin. Code Sec. 300 (b) as modified by AB 1864.

The DFPI regulates the offering and provision of consumer financial products or services under California consumer financial laws and exercises nonexclusive oversight and enforcement authority under California consumer financial laws. To the extent permissible under the federal consumer financial laws, the DFPI also exercise nonexclusive oversight and enforcement under the federal consumer financial laws.

See, Cal. Fin. Code Sec. 90006 (a) as enacted by Assembly Bill №1864

In addition, the DFPI enforces:

• The California Consumer Financial Protection Law enacted in 2020 through AB 1864.
• The California Financial Information Privacy Act under Cal. Fin. Code Sec. 4057 (with may also be enforced by the California AG)

Practice Tip: In 2020, the former office of the Commissioner of Business Oversight and the Department of Business Oversight were renamed office of the “Commissioner of Financial Protection and Innovation” (CFPI) and the “Department of Financial Protection and Innovation” (DFPI) through AB 1864. Effectively, the name did not change the status or authority of the department. The structure of the agency reminded intact with all officers appointed at the time remaining in place while powers were transferred. The CFPI and DFPI retained all of the rights, property, debts, and liability of the Commissioner of Business Oversight and the Department of Business Oversight, respectively. The change in name did not affect the validity of prior actions/proceedings or the validity permits/certificates/licenses issued. See, Cal. Fin. Code Sec 321 as modified by AB 1864.

Among other duties, the DFPI:

• Has the power to bring administrative and civil actions, issue subpoenas, promulgate regulations, hold hearings, issue publications, conduct investigations, and implement outreach and education programs.
• Is required to promulgate specified regulations and rules regarding registration requirements applicable to a covered person within certain time frames and subject to specified conditions.

The chief officer of the DFPI is the Commissioner of Financial Protection and Innovation (“Commissioner”) who has the authority and responsibility over all officers, employees, and activities in the department and, as a general rule, is subject to the provisions of the Government Code relating to department heads. The Commissioner is required to employ legal counsel (to represent the Commissioner and the DFPI legal actions and proceedings) and stenographic reporters (to transcribe testimony taken in hearings/investigations.) See, Cal Fin. Code Sec. 320 as modified by AB 1864.

• The Commissioner is appointed by the California Governor (subject to confirmation by the California Senate) and holds office at the pleasure of the Governor. See, Cal. Fin. Code Section 322.
• The chief officers for the Division of Corporations and Financial Institutions and for for the Division of Consumer Financial Protection are also appointed by the California Governor (subject to confirmation by the California Senate) and hold office at the pleasure of the Governor. See, Cal. Fin. Code Sect 351 as modified by AB 1864.

Practice Tip: Sections 11040 and 11042 of the Government Code (prohibition against employing in-house counsel to represent a state agency or employee in any judicial or administrative adjudicative proceeding absent consent from the California Attorney General) do not apply to the DFPI. See, Cal Fin. Code Sec. 320 (d).

The DFPI and FinTech

The DFPI has broad authority to enforce and issue rules with regards to the California Consumer Financial Protection Law (CCFPL), which regulates mainly the provision of financial products and services not subject to specific licensing requirements.

The DFPI is required to establish a Financial Technology Innovation Office under Cal. Fin. Code Sec. 90006(d)(1) (as enacted by Assembly Bill №1864) but, as of October 2020, the office has not been established yet.

• For more on this, see the posting on the California Consumer Financial Protection Law (CCFPL)