California legislators are pushing for the formation of a new watchdog agency to protect consumers from bad loans by “predatory lenders.”
California Assembly member Monique Limón told National Public Radio (NPR) that since the COVID outbreak, consumer complaints about financial wrongdoing in her state are up 40 percent.
A number of those complaints, she said, are directed at mortgage companies, as well as personal lenders, and even some companies promising to help people get out of debt.
Along with Gov. Gavin Newsom, Limón aims to create the Californian watchdog agency, which would be called the Department of Financial Protection and Innovation. They hope it would lead the way for other states to create similar protections, they said. But a legislative deadline means they need to do it by August 31.
"Consumer protections are an area where California wants to show that we care," Limon told NPR. "As the fifth-largest economy in the world we think that it is very important and it's the right thing to do."
The new agency would give the state broader power and ability to police aggressive debt collectors, credit repair schemes, predatory lenders and other unethical financial practices.
Limón proposed this agency even before the pandemic (which she says has exacerbated problems with lenders) because the Trump administration has relaxed oversight, she and other lawmakers believe, leaving it up to states to protect borrowers.
One national study last year found that the federal Consumer Financial Protection Bureau's enforcement activity dropped 80% from 2015. And money returned to consumers dropped by 96%.
A long list of fair lending and consumer protection groups back the proposal.
At a recent legislative hearing, small business groups said they also want the new agency to protect them from predatory financial practices.
A bankers-association representative told the station that, while everyone should face the same regulations, most big banks and financial institutions already are very heavily regulated at both the state and federal level.
The financial firms have some lawmakers’ attention when it comes to potentially evading any new mandatory regulations.
One group of moderate Democrats is pushing to allow for large carve-outs for many financial firms, a “source close to the negotiations over the proposal” told NPR.
If created, the new agency would be made by restructuring and expanding the size and authority of an existing agency called the Department of Business Oversight.