CA DFPI Seeks Comments on the Proposed Registration Requirements of California’s Consumer Financial Protection Law

California’s Department of Financial Protection and Innovation (DFPI) has announced an Invitation for Comments seeking feedback from interested parties regarding the implementation of the recently enacted California Consumer Financial Protection Law (CCFPL). The DFPI has taken into account the initial comments and is in the process of developing regulations by topic.

On November 17, 2021, the DFPI invited interested parties to comment on the proposed registration requirements

Read the invitation here: Invitation for Comments on Proposed Rulemaking Under the California Consumer Financial Protection Law (PRO 01-21).

Read the drafted text for Registration here: Title 10. Investment, Proposed Regulations Under the California Consumer Financial Protection Law PRO 01-21.

The deadline to submit comments under this invitation is Monday, December 20, 2021.

The invitation notes that:

By issuing registration regulations for the products described above, the DFPI aims to strengthen its ability to protect California consumers through compliance examinations of registrants and regular reporting. The DFPI may also better detect risks to California consumers and understand emerging markets for consumer financial products and services. The DFPI’s proposal to register the providers of certain products or services described above does not represent a determination that other laws, including other licensing laws under the Commissioner’s jurisdiction, do not apply. For this reason, the draft rules do not limit the DFPI’s ability to make later determinations concerning the scope of the DFPI’s licensing laws.

The DFPI is interested in obtaining the following input: 

  1. Proposals to streamline the registration process while preserving the DFPI’s access to data necessary to detect risks to California consumers and develop risk-based examinations. 
  2. Proposals that will improve transparency in connection with the registration process and the data collected from registrants. 
  3. Proposals that will clarify what information collected in connection with registration is and is not subject to public disclosure. 
  4. Proposals to clarify the annual reporting requirements to improve the ease and consistency of reporting across providers. 
  5. Proposals for annual reporting requirements that were not included in the draft rules that would help the DFPI better understand the risks and benefits of the covered products for California consumers. 
  6. Proposals to clarify whether and when the registration requirements apply to Department licensees and licensees and registrants of other state agencies. For example, if a DFPI licensee originates bona fide retail installment contracts (RIC) that meet the definition of education financing, should the licensee be required to register in connection with its RIC origination practices?

Economic Impact

  1. Explain the impact of the draft rules on the ability of California businesses to compete with businesses in other states. 
  2. Explain the economic impact of the draft rules. 
  3. Explain whether and to what extent the draft rules would create or eliminate jobs within the state. 
  4. Explain whether and to what extent the draft rules would create new businesses or eliminate existing businesses within the state. 
  5. Explain whether and to what extent the draft rules would affect the competitive advantages or disadvantages for businesses currently doing business within the state. 
  6. Explain whether and to what extent the draft rules would affect the expansion of businesses currently doing business within the state. 
  7. Explain whether and to what extent the draft rules would increase or decrease investment in the state. 
  8. Explain whether and to what extent the draft rules would affect the incentives for innovation in products, materials, or processes. 
  9. Explain whether and to what extent the draft rules would benefit the health, safety, and welfare of California residents, worker safety, and the state’s environment and quality of life, among any other benefits. 
  10. Explain whether there is a more cost-effective way that is equally effective in achieving the purpose of the draft rules.
  11. Describe any reasonable alternatives to the draft rules that would lessen any adverse impact on small business.

About the Regulation:

CCFPL applies to, amongst other things, debt settlement services and student debt relief services. There are four (4) subject products this regulation applies to: debt settlement services, student debt relief services, education financing, and wage-based advances. Section 10 of the proposed rule would demand registration for anyone who offers or provides any subject product, unless the person is engaged in providing debt settlement services and licensed under Fin. Code section 12004 or the person has provided an audit report under subdivision (i) of section 12104 within the last twelve (12) months and are providing debt settlement services solely in accordance with the requirements of that section. 

Section 20 of the proposed rule explains that NMLS would be designated to receive and store filings and collect any related fees. Note that the fees have yet to be determined. Accordingly, all applicants (those seeking registration) would need to use the NMLS electronic system. As of the time of this alert, there is no alternative method to apply for registration.

If promulgated, this rule would require applicants to submit specific forms set forth in section 21. The MU1 includes business activities, disclosure of other trade names, contact information of the employees of consumer complaints, organizational chart, list of direct and indirect owners and executive officers, management chart, and description of the business. Branch offices would need to file an MU3, and each branch manager would need to file an MU2. 

Moreover, upon successful completion of filing an application and successful payment of all fees would not automatically result in registration. However, the proposed rule suggests that the application would be approved if the commissioner determines that the application is complete and notifies NMLS that the application is approved. If approved, debt settlement services and student debt relief services must also provide the following supplemental information: “Copies of representative contracts, disclosures, and periodic statements used by the applicant to provide debt settlement services [or student debt relief services] to California residents.”

Section 23 contains notices for anyone who applies for registration, and section 24 explains the process for designating an email address, which must be done within five (5) business days of approval. The statute explains that by registering a designated email address, the registrant “consents to receive information from the commissioner at that email address including but not limited to assessment notices.”

Section 40 allows for changes to an already-submitted application. If any changes cannot be made through NMLS, then the necessary changes or payment of additional fees can be made directly with the commissioner. Any change must be made within thirty (30) calendar days of the event that triggers the change. Section 41 explains that:

In the event of any change in the principal officers, directors, partners, or other persons named in the application, a registrant shall, within thirty (30) calendar days of the date of the change, file an amendment to the application containing the same information regarding the new person(s) as is required on Forms MU1, MU2, and MU3 and pay the fees, if any, to file the changed information through NMLS. Any fees that cannot be paid through NMLS shall be paid directly to the commissioner. NMLS fees shall be paid by the registrant to NMLS through NMLS. Fees are not refundable.

Moreover, any new branch offices that are established must also update NMLS within thirty (30) days of engaging in business at the new location. 

Section 50 imposes annual requirements, which includes annual payment of pro rata shares of all costs and expenses. “The pro rata share shall be the proportion that a registrant’s gross income from subject products provided to residents of this state bears to the aggregate gross income from subject products provided to residents of this state of all registrants as shown by the annual reports to the commissioner.” By November 30 of each year, the commissioner would notify each registrant of the amount assessed, and payment is due no later than December 31 of that year. If payment is not made timely, then registration may be revoked. To do so, the commissioner would need to order a Summary Revocation of the registration and request a hearing within thirty (30) days of the order. If a hearing is not conducted within sixty (60) days of the request, then the order would be deemed rescinded. Rescission of a Summary Revocation Order (section 52) may also occur when a former registrant submits a written request for reinstatement, pays any annual fee assessed, and files any other required report (e.g., section 51). The former registrant may also be subject to a fine.

Section 51 discusses annual reporting. On or before March 15 of every year, an annual report must be filed through NMLS. For debt settlement services, there are seven (7) requirements: 

  1. The number of California residents who contracted with the registrant for debt settlement services or who had an existing contract in effect. 
  2. For the residents identified in subdivision (b)(1), the average number of debts each resident contracted for settlement with the applicant. 
  3. For the residents identified in subdivision (b)(1), the total dollar amount and average dollar amount of debt per resident contracted for settlement with the registrant (based upon total balances upon execution of the contracts with the registrant). 
  4. For the residents identified in subdivision (b)(1), the total dollar amount and average dollar amount per resident of charges paid over the contract term. 
  5. The total number of debts and average number of debts per person that the population identified in subdivision (b)(1) contracted for resolution with the applicant in which the person, over the contract term, has accepted a settlement with their creditor and made at least one payment pursuant to that settlement. 
  6. For the debts in which a person identified in subdivision (b)(1) has accepted a settlement at any time with their creditor and made at least one payment pursuant to that settlement, the average amount owed upon execution of the contract with the applicant, and the average settlement amount based upon the total of all payments due under each settlement.
  7. For the debts in which a person identified in subdivision (b)(1) has accepted a settlement with their creditor and made at least one payment pursuant to that settlement over the contract term, the average amount of time between execution of the contract between a person and the applicant, and the first payment under each settlement.

Student debt relief services have nine (9) requirements:

  1. The number of California residents who contracted with the applicant for student debt relief services or who had an existing contract in effect. 
  2. The average number of debts per person that the population identified in subdivision (c)(1) have contracted for resolution with the applicant. 
  3. The total dollar amount and average dollar amount of federal student loans per person that the population identified in subdivision (c)(1) contracted for resolution with the applicant (based upon total balances upon execution of the contracts with the applicant). 
  4. The total dollar amount and average dollar amount of private student debt per person that the population identified in subdivision (c)(1) contracted for resolution with the applicant (based upon total balances upon execution of the contracts with the applicant).
  5. The total dollar amount and average dollar amount of charges per person paid by the population identified in subdivision (c)(1) over their contract term. 
  6. For federal student loans for which the population identified in subdivision (c)(1) contracted for resolution with the applicant, the number of federal student loans in which the resolution specified in the contract has been reached, and the average amount of time between execution of the contract and the resolution. 
  7. For federal student loans for which the population identified in subdivision (c)(1) contracted for resolution with the applicant, the number of federal student loans in which the resolution specified in the contract has not been reached, and the average amount of time between execution of the contract and the date the report is generated. 
  8. For private student debts in which the population identified in subdivision (c)(1) contracted for resolution with the applicant, the number of private student debts for which the resolution specified in the contract has been reached, and the average amount of time between execution of the contract and the resolution. 
  9. For private student debts for which the persons identified in subdivision (c)(1) contracted for resolution with the applicant, the number of private student debts in which the resolution specified in the contract has not been reached, and the average amount of time between execution of the contract and the date the report is generated.

For any questions about this Debt Relief Watch alert, please contact Felix Shipkevich, Shipkevich PLLC, by email to fs@shipkevich.com, or by phone to (212)252-3003.

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