'A major, major initiative’: California wants to create its own Consumer Financial Protection Bureau

This post has been updated with a comment from California Governor Gavin Newsom.

Frustrated with federal inaction, California aims to build a “mini” version of a federal agency that is tasked with consumer protection.

Billing it as California’s version of the Consumer Financial Protection Bureau (CFPB), Governor Gavin Newsom revealed in his proposed 2020-2021 state budget that the new entity — a Department of Financial Protection and Innovation — intends to “cement California’s consumer protection leadership amidst a retreat on that front by federal agencies including the [CFPB]” and “provide consumers greater protection from predatory practices.”

Richard Cordray, one of the architects of the proposal and the first director of the federal CFPB, told Yahoo Finance that the state’s move is monumental.

“California really is a very influential policymaker when it wants to be,” Cordray said in an interview. “This is a major, major initiative that will make a big difference, not only in California — certainly in California — but also nationally.”

A California state flag at the Coachella Valley Music And Arts Festival on April 14, 2017 in Indio, California. (Photo: David McNew/Getty Images)

Newsom revealed his overall budget proposal in late January, which includes the new CFPB proposal. More details were introduced in the state legislature on Feb. 1, in the form of a “trailer bill.”

The bill was clear in laying out its purpose.

“The lack of a single regulatory body over providers of financial products and services in California leaves California consumers vulnerable to abusive financial products and practices,” the budget stated. “Unfair, deceptive, or abusive practices in the provision of financial products and services undermine the public confidence that is essential to the continued functioning of the financial system and sound extensions of credit to consumers.”

The proposal pushed for consumer financial protection laws and the new agency. Revisions by the Assembly and the Senate will be decided by June 15, and the bill would then go back to Newsom for his review (i.e. to sign or to veto).

California Gov. Gavin Newsom looks on during a a news conference about the state's efforts on the homelessness crisis on January 16, 2020 in Oakland, California. (Photo: Justin Sullivan/Getty Images)

‘There wasn’t a need for this 50, 60 years ago’

The need for a consumer watchdog in the first place was due to the stunning increase in the use of credit, Cordray explained.

“Things have changed dramatically in the last two generations, in terms of the financialization of our lives… People use credit cards more than ever, mortgages… And student loans have proliferated to a degree that they didn't exist 25 years ago,” he said, stressing that Americans overall are “carrying much more debt.”

But when they run into problems with these financial products, “they're often facing off against big financial companies,” Cordray explained. “And people can get very frustrated when they feel they're being treated unfairly and there's nothing much they can do about it.”