On April 25, 2024, California’s Department of Financial Protection and Innovation (“DFPI”) released its Annual Report of Activity Under the California Consumer Financial Protection Law for 2023 (“Annual Report”). The Annual Report provides an overview of rulemaking, enforcement, oversight, consumer complaints, and education and outreach for the calendar year 2023 and confirms that 2023 was the most active year yet for the DFPI. In addition to advancing two significant rulemaking packages under the California Consumer Financial Protection Law (“CCFPL”), the DFPI dramatically increased its number of investigations and public actions related to the CCFPL. The DFPI also received 70% more CCFPL-related complaints than it received last year and implemented a new consumer complaints portal to capture those complaints.
The first of the two rulemaking packages advanced under the CCFPL is the rule empowering the DFPI to pursue unlawful, unfair, deceptive, or abusive acts and practices (referred to in the Annual Report as “UUDAAP”) against providers of commercial financing or other financial products or services to small businesses. This rule became effective on October 1, 2023 and also requires annual reporting from providers of small business financing. The second rule would require registration and reporting from providers of what the Annual Report refers to as “four previously unregistered products and services in California: (1) income-based advances, including ‘earned wage access’ (EWA) products, (2) private postsecondary education financing, (3) debt settlement, and (4) student debt relief.” The rule’s registration requirements are robust, and the rule would also deem earned wage access products to be loans and any optional charges, including tips, to be charges under the California Financing Law. This second rule has been stalled by the Office of Administrative Law’s Disapproval Decision for a lack of clarity and a failure to follow the required rulemaking procedure.
The Annual Report also highlights three pieces of legislation chaptered in 2023 that supplement the CCFPL by establishing licensing requirements and standards for specific products and industries:
- AB 39, which will require licensing beginning July 1, 2025 for any person engaging in crypto asset business activity of more than $50,000 annually with or on behalf of a California resident;
- SB 301, which requires the DFPI to regulate crypto kiosks with withdrawal limits, mandatory disclosures, and fee caps; and
- SB 478, which makes it an unlawful business practice to advertise a price for a good or service that does not include all mandatory fees or charges.
The DFPI increased the number of CCFPL-related investigations from 196 in 2022 to 734 in 2023 and the number of public CCFPL-related actions from 94 in 2022 to 181 in 2023. The Annual Report shows that more than two-thirds of the investigations and actions taken involve crypto scams and investigations. The other categories mentioned are “fake debt collectors,” private postsecondary education financing, and student debt relief companies. The Annual Report also mentions the DFPI’s ongoing true lender litigation against Opportunity Financial, LLC in which the DFPI suffered a significant setback in late 2023.
The Annual Report also discusses the activities of the Consumer Financial Protection Division, the Office of Financial Technology Innovation, and the Office of Public Affairs, which collectively demonstrate the delicate balance that the DFPI is trying to strike between protecting consumers and promoting responsible innovation. We will continue to monitor the DFPI’s activities under the CCFPL and expect that 2024 will be an even more active year for the department.
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