New Calif. Consumer Protection Agency Strikes Data Sharing Deal with Fintechs
At the end of January, the California Department of Financial Protection and Innovation (DFPI) signed an agreement with five fintech companies to better evaluate the risks and benefits of the products they offer. The DFPI is using new enforcement and oversight authority granted from the California Consumer Financial Protection Law that took effect January 1, 2021, empowering the agency to regulate financial service companies. The five companies are Earnin, Even, Brigit, Payactiv, and Branch.
“I’m very much applauding this effort by California,” said Dan Quan, adjunct scholar at the Cato Institute, according to Yahoo Finance. “The root of this industry… started as a way to be a lower-cost alternative to payday lending… [and] these companies are dying for certainty.”
Starting in April, these fintechs will submit quarterly reports to the DFPI so the department can assess how their products are affecting consumers and the fees being collected. This is a direct result of a “tailored, collaborative approach” with the fintechs, said DFPI Commissioner Manuel Alvarez.
Studies show that there is increased demand for cash advance products from fintechs. A report from CB Insights revealed that more than $1.8 billion in equity funding went to alternative lenders as of the third quarter of 2020. Also, DailyPay, an on-demand payment platform, reported a 400 percent increase in users at the beginning of the COVID-19 pandemic, as employees sought access to their paychecks before pay day. The DFPI’s partnership helps these companies earn a more defined and stable reputation.
There is speculation that the federal Consumer Financial Protection Bureau will follow a similar regulation method once President Biden’s appointee, Rohit Chopra, is confirmed by the Senate.
Zuben Mathews, CEO of Brigit, said the fintech would “welcome proactive engagements with regulators, including consumer champions like Mr. Chopra. We hope all regulators take note of the monitoring-first approach the DFPI has taken to help expand financial innovation.”