California Puts State-Level Financial Protection Agency Proposal on Hold

California’s plan to create a state consumer financial protection agency⎯announced in January as part of Governor Gavin Newsom’s budget proposal⎯was temporarily put on hold to focus on more urgent coronavirus relief funding issues and to meet a statutory deadline that took place on June 15. The state is also dealing with a homelessness crisis, wildfire outbreaks, and protests. The California Assembly is scheduled to adjourn this week for the summer, and on June 4th stripped the proposed agency from the budget plan under negotiations.

“The legislature has other things on their plates in a very short legislative session,” said Jan Lynn Owen, former Department of Business Oversight commissioner, according to American Banker. “Because the legislature and state government shut down due to the crisis, this was a very abbreviated legislative session, which can cause some good public policy to be put on hold.”

Some lawmakers have urged that the agency, which many have dubbed a “mini-CFPB”, be introduced as a standalone bill, which would would require more legislative oversight. Other lawmakers are leery about the governor having too much authority and saw putting the plan into the budget as a power grab.

The initial proposal would have merged the Department of Business Oversight’s two main funds. Newsom’s budget proposed $10.2 million to fund 44 new positions for the 2020-2021 fiscal year, and increased funding to $19.3 million a year for 90 new positions by the 2022-2023 fiscal year.

In a February report, the Legislative Analyst’s Office recommended that statutory changes be removed from the budget process, which “would allow the changes to be vetted by the policy committees that have expertise on the specific issues that are raised.”

“This would better position the Legislature to determine which policies should be established in statute and which could be left to the regulatory process,” the report read.