By Sharon Velasquez
According to the U.S. Department of Commerce, California today ranks as the 5th largest economy in the world, surpassing the United Kingdom. To flourish, great economies like California’s need consumer protections and oversight of financial markets. California has one single state agency charged with both, the Department of Business Oversight.
Given the Trump administration’s rollback of consumer protections and enforcement at the federal level and California’s influence in shaping national policy, the DBO is essential in protecting California’s consumers.
Despite its crucial role, DBO remains one of the least known agencies in the entire country. With over 360,000 lenders and 40 million consumers under its purview, California would only benefit if the DBO had more support and resources to fund its work.
To our future governor, consumer advocates respectfully request that you prioritize consumer protections and the DBO to ensure financial prosperity for all Californians.
So, what exactly is the DBO, who does it regulate and why is it important?
What is known today as the Department of Business Oversight (DBO) came to life in 2013 when Gov. Jerry Brown merged the state Department of Corporations and the Department of Financial Institutions. He combined these 100-year-old departments to increase efficiency and cost effectiveness; to honor their original missions both became divisions within the DBO.
The DBO is led by Commissioner Jan Owen, appointed by the governor and approved by the state Senate.
All consumers, but especially consumers of color, need a vigilant consumer watchdog in order to fully and fairly participate in California’s prosperous economy.
For instance, studies show that people of color still face redlining in the mortgage market, racism in small business lending, credit card redlining, and other barriers to credit. At a time when the Trump administration has scaled back federal fair lending enforcement and investigations into predatory practices. California needs to stand strong in advancing a sound and inclusive economy.
The DBO staff of 641 has oversight of over 360,000 lenders and 40 million consumers, with a budget of about $90 million per year. In its consumer protection capacity, the DBO oversees, and regulates institutions including banks, credit unions, savings associations, trust companies, securities brokers and dealers, and commercial and consumer lenders such as mortgage lenders, payday, and online lenders — commonly referred to as financial technology, or FinTech, lenders.
The DBO’s oversight of FinTech is particularly important because the federal government has failed to issue responsible regulations that ensure transparency and address algorithmic redlining, among other harmful business practices. Algorithmic redlining can be defined as the systemic denial of products and services by machines replicating the biases of their human creators. Instead, the federal government has given FinTech companies the option of an OCC charter that circumvents state-level consumer protections.
This doesn’t mean that all online lenders are bad. For instance, several publicly endorsed and even informed the Small Business Borrowers’ Bill of Rights and were leaders in passing SB 1235, the nation’s first small business truth-in-lending law, through the California legislature.
More industry leadership is needed, DBO regulation and oversight remain necessary to shed light on lending practices across the industry. To quote Justice Louis Brandeis, “Sunlight is said to be the best disinfectant; electric light the most efficient policeman.”
In terms of consumer protection, the DBO ranks second in importance only to California’s attorney general. In similar fashion to the federal consumer watchdog, the Consumer Financial Protection Bureau (now being gutted by the Trump administration), the DBO provides financial education and alerts to consumers, as well as a complaint database where consumers can report harmful financial practices so these can be investigated. As a mini-CFPB, the DBO also pursues enforcement actions against abusive lenders.
How can our next governor support the DBO? By taking the lead on increasing the DBO’s budget, increasing enforcement resources, supporting the hiring of more analysts and investigators, investing in DBO staff, providing the technology for the DBO to evaluate FinTech algorithms, bolstering the DBO’s regulatory power, and amending the California Financial Code to clarify the DBO’s mission as a consumer protector.
The Trump Administration has made its disinterest in consumer protection clear. CFPB Acting Director Mick Mulvaney has openly expressed that he will move the CFPB less aggressively in enforcement matters and will leave matters to the state regulators and attorneys general. Now more than ever, working families look towards their state leadership to step in and protect consumers when the federal government can’t or won’t.