Renewed Regulatory Focus in 2021?

Editor's note: This story originally appeared in the January edition of DS News.

2020 has been a year of uncertainly, marked by unprecedented events and divisiveness. But there is one thing that everyone can agree on: California is a trendsetter when it comes to passing new progressive laws, and this year was no different. Despite an almost two-month suspension of the legislature’s normal session, California did something that everyone should take note of—it created a state version of the CFPB.

Assembly Bill 1864, which is effective at the first of the year, establishes the California Consumer Finance Protection Law (CCFPL) and rebrands the existing Department of Business Oversight as the Department of
Financial Protection and Innovation (DFPI).

The legislative counsel’s digest states that “[t]he bill would require the department to regulate the provision of various consumer financial products or services and to exercise nonexclusive oversight and enforcement authority under California consumer financial laws and, to the extent permissible under the federal consumer financial laws.” [Emphasis added].1 One of the purposes of the CCFPL is to “restore financial protections that have been scaled back at the federal level.” 2 It is no secret that President Trump is pro-deregulation, which has resulted in the CFPB slowing down on its enforcement actions, including in the consumer finance sector.

The mortgage banking industry had been under intense and ongoing regulatory scrutiny by the CFPB in the wake of the Great Recession, and this last administration provided a respite.

The State of California clearly took notice of an objection to that approach and decided to take matters into its own hands. Notably, the California law passed before the 2020 election took place. Fast forward, and the United States now has President-elect Joe Biden, who will be taking office on January 20, 2021. His Vice
President-elect, Senator Kamala Harris, is well known for her multibillion-dollar foreclosure settlement against banks during her time as the California Attorney General. Needless to say, she is familiar with the mortgage banking industry.

In a recent article in The Atlantic, the author wrote: “During the mortgage fight of 2011 and early 2012, she was in a big new job, figuring out how to leverage her power. The experience was also, she told me, weirdly relevant to the position she’s in now, with a COVID-induced foreclosure-and-eviction crisis looming. This moment is ‘actually similar in many ways,’” Harris told me.3 With Harris hailing from California and with her direct experience, it is not a stretch to suspect that this new administration will ramp up the regulatory oversight on the mortgage banking industry. Additionally, it is easy to forget with everything that has happened this year that the CFPB’s constitutionality was also decided on by the Supreme Court in Seila Law LLC v. Consumer Financial Protection Bureau. The case established that the President must have the ability to remove the Director of the CFPB to maintain its constitutionality.4 This means that President-elect Joe Biden can remove the Trump-appointed Director Kathy Kraninger and replace her with a new director.

When you add it all up, it means that mortgage banking professionals should expect the next few years to continue to be challenging. Extended foreclosure, eviction, and collection moratoriums will expire at some point in the future, and how those CARES Act-impacted accounts were handled will be the source of legal and regulatory scrutiny for the next decade, both on a federal and state level. As a matter of fact, for better or worse, the CFPB and the states are already working together more closely as evidenced by the recent press release reporting that the CFPB and the Office of the Colorado Attorney General are holding joint office hours.5 If there is one sure bet to be made, it’s that the mortgage banking community must buckle up and be prepared to (again) be under a microscope. Now is not the time to forget the past lessons learned. If the industry does, the State of California will be the first to remind it of what those lessons were.