New California bill will bolster defenses against unfair financial practices | Opinion

When Isaac Newton said, “for every action there is an equal and opposite reaction,” he could have been speaking of an important consumer protection bill pending in Sacramento. The recent dismantling of the Consumer Financial Protection Bureau has prompted California state Sens. Monique Limón and Tim Grayson to introduce legislation to fill the federal void and ensure that vigorous enforcement of the laws protecting state consumers from financial scams is not shackled to the crumbling bureau.

Their legislation is urgently needed to safeguard everyone who uses financial products to pay for their homes, businesses and everyday lives.

After the 2008 financial crisis, it became clear that millions of people lost their homes and much of their life savings during the Great Recession when unsound mortgage loans went bad and pushed them into foreclosure. In the aftermath, Congress sensibly focused on the specific ways consumers can be harmed by such predatory financial products, including credit cards, student loans and auto loans.

Congress passed legislation to create the Consumer Financial Protection Bureau and gave it the necessary powers to combat “unfair, deceptive or abusive” conduct. The agency has successfully used these powers to claw back and return billions of dollars to customers from financial institutions that cheated them.

When President Donald Trump was elected in 2016, concerns mounted about whether the bureau would continue to serve as an effective “cop on the beat” to prevent financial companies from engaging in illegal conduct that would upend household budgets.

As California leaders saw the Consumer Financial Protection Bureau slowing its efforts, they moved to fill the breach. In 2020, the legislature passed a landmark law to beef up California’s oversight of consumer financial products. As an Assemblymember, Limón was the lead author of the legislation that established the Department of Financial Protection and Innovation as a powerful and independent state-level counterpart to the bureau.

Since its founding, the Department of Financial Protection and Innovation has effectively wielded its authority to rein in illegal practices by mortgage companies, escrow agents, subprime lenders, loan brokers and many others, saving California consumers millions of dollars and protecting them from further harm.

But the current decimation of the Consumer Financial Protection Bureau has revealed a gaping hole in the state department’s powers. Under current state law, if a company qualifies for a license from the department, then it is exempt from any department-imposed sanctions for engaging in “unlawful, unfair, deceptive or abusive acts or practices,” leaving that potent authority mostly to the Consumer Financial Protection Bureau.

Under the previous federal administration, this approach worked well, as the bureau was actively engaged in vigorously using this authority to protect consumers.

But now, that day is gone — maybe forever. As the bureau’s oversight and enforcement are significantly curtailed before our eyes, it is now obvious that Californians’ financial security should not be jeopardized by the whims of the federal government.

Californians are now at risk of having no agency effectively empowered to protect them against predatory conduct by mortgage lenders (among others). The legislation being considered in Sacramento to plug this loophole, Senate Bill 825, simply says that the Department of Financial Protection and Innovation has independent legal authority to protect California consumers when its own licensees commit unfair, deceptive or abusive acts. That is plain common sense.

Consumer financial protection requires constant, flexible vigilance. Lawbreakers are always creative and resourceful; lawmakers must be, too.

When it comes to protecting the wages and nest eggs of California families from clever, well-resourced fraudsters, there should be no gaps in what the department can do, because the message coming from Washington is loud and clear: California, you are on your own.

That’s why every legislator should vote for SB 825 and why Gov. Gavin Newsom can cement his legacy as a champion of working families and consumers by signing it.