California Enacts Stronger Financial Protections for Consumers

Limón’s AB 1864 Regulates Predatory Lenders and High Interest Rates

Monique Limón | Credit: Paul Wellman (file)

Signing a loan or insurance document with confusing fine print can have expensive financial repercussions, and during the COVID-19 pandemic, complaints to the state over predatory lenders, aggressive debt collectors, and high interest rates have increased by 40 percent. To protect Californians, Santa Barbara Assemblymember Monique Limón’s Assembly Bill 1864 was signed by Governor Gavin Newsom on September 25.

“In my role as Chair of Banking and Finance, I know of individuals in our state who have taken out a $2,500 loan that ended up being a $13,000 loan when all was done and paid for,” said Limón. “And that causes individuals and families to become homeless — these stories really exist. There’s a lot of work to be done.”

The new law establishes the Department of Financial Protection and Innovation to regulate all financial services in the state, including previously unregulated businesses such as debt collection, credit repair, and check cashing. This first-in-the-nation bill won bipartisan support in the California State Legislature.

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Governor Newsom was joined at a virtual signing ceremony by Jay’Riah Thomas, an appointee to the State Independent Living Council. After taking out student and personal loans — some of which were subject to excessively increased interest rates — Thomas was doubtful that she will be able to pay them off in the near future. “Debt collectors on all spectrums have been a complete nightmare for me. They use scare tactics such as threatening to garnish my wages, send negative inquiries to be placed on my credit report, or even serving me to appear in court,” Thomas said. “I honestly have a fear of answering phone numbers I do not know due to these debt collectors.”

The Financial Protection office, which replaces the Department of Business Oversight, has enforcement authority over “any person that engages in the offering or providing of a consumer financial product or service to a California resident.” This oversight will also apply to new industries and inventions, which is particularly necessary in the constantly changing field of technology.

“California is the fifth-largest economy in the world,” said Limón. “Sometimes people don’t want to invest or experiment in a state like California where they don’t know the rules — if you tell people here’s the rules, here’s the guidelines, here’s who you can contact, and we actually have an agency in favor of it, then you can stimulate folks to come in. It gives entrepreneurs and businesses clear direction, which can stimulate innovation — particularly in the tech sector,” Limón said.

Earlier this year, the United States Supreme Court voted to limit the independence of the federal Consumer Financial Protection Bureau. The court ruled the bureau’s director could be removed by the president, which renders it vulnerable to political pressure. With the future of the federal Consumer Financial Protection Bureau uncertain, California’s new consumer-oriented, state-level financial protection agency sets a nationwide precedent.

“While the federal government is getting out of the financial protection business, California is leaning into it,” said Governor Newsom. “It’s at this moment especially — when so many Californians are strapped for cash and struggling to pay their bills — that families are likely to fall victim to predatory and abusive financial products. These bills ensure that financial predators are subjected to alert oversight and agile enforcement.”

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