The California Consumer Financial Protection Law (“CCFPL”), established in September of 2020 under Governor Newsom, augmented the Department of Financial Protection & Innovation’s (“DFPI”) authoritative ability by increasing the scope of business activity that the entity regulates. This includes, but is not limited to, debt collection, debt settlement, credit repair, check cashing, rent-to-own contracts, retail sales financing, consumer credit reporting, and lead generation.

Proposed on March 7, 2023, and open for comments until May 2, 2023, the proposal specifically impacts debt settlement services, student debt relief services, education financing services, and income-based advancement services. The proposed regulations implement, interpret, and make specific the registration requirements for covered persons under Financial Code section 90009 of the CCFPL and further specify the requirements for exemption from registration under the CCFPL for licensees under the California Financing Law (CFL), California Deferred Deposit Transaction Law (CDDTL), and the Student Loan Servicing Act (SLSA). Lastly, the proposed regulations clarify the regulation of advances pursuant to Financial Code section 22150 of the CFL administered by the Department of Financial Protection and Innovation (“Department”).

Proposal Specifications

Registration Requirements

In its current form, the CCFPL authorizes the Department to require registration of covered persons engaged in the business of offering and providing a consumer financial product or service, but it does not specify requirements for registration. Financial Code section 90009 of the CCFPL delegates to the Department the authority to prescribe rules regarding these requirements. Accordingly, the proposed regulations would clarify and make specific the registration of covered persons, including specifying the persons who are subject to regulation under the CCFPL, establishing the registration application and application process, and specifying the application fee and annual renewal fee.

Under the proposal, the following registration requirements are specified:

• Those engaged in debt settlement, student debt relief, education financing, and income-based advances services are required to register;
• Separate registration is necessary for each subject product offered or provided by an applicant;
• The application must be submitted to the Department through the Nationwide Multistate Licensing System and Registry (“NMLS”) with an application fee of $350; and
• Registrants must establish a designated email address to enable the Department to send notices and other communications to registrants

The proposal further establishes:

• The process for registering with the Department, including the application form and the information that must be submitted as part of the application;
• The processes, including time frames, for approving registrations and the abandonment of registrations;
• The process for registrants to report changes to the application information to the Department and the time frames for reporting the information;
• That the applications and annual reports are not subject to public disclosure; and
• The requirements for revoking and surrendering registration

Registration Exemptions

Financial Code section 90009, subdivision (a)(2)(A), of the CCFPL exempts certain covered persons from registration, provided they offer consumer financial products or services within the scope of their licenses issued in accordance with Department laws. Currently, the code section does not specify who is exempt from registration. The proposed regulations would specify the persons who are exempt and the conditions for exemption.

While existing law exempts certain licensees who provide consumer financial products or services “within the scope of” their licenses issued under other Department laws from CCFPL registration, this proposed regulatory action clarifies the meaning of “within the scope of.” It specifies that:

• Licensees under the CFL and the CDDTL are exempt from registering under the CCFPL;
• Exempt licensees who provide products or services that would otherwise be subject to registration under the CCFPL are to submit supplemental information on these activities in their annual reports required under their license;
• SLSA licensees are exempt from registration requirements for education financing when they meet specified requirements.

Reporting Requirements

Financial Code section 90009, subdivision (f)(2), of the CCFPL permits the Department to require registrants to file annual reports so that the Department may fulfill its responsibilities to monitor, assess, and report on the activities of registrants. In its current form, the code section does not specify the requirements and leaves it to the Department’s discretion to prescribe the form of the report and other reporting requirements. The proposed regulations would officially establish annual reporting requirements and the process for filing annual reports with the Department. This includes specifications such as the reporting period and the information that registrants must provide in the reports.

This proposed regulatory action requires and specifies that:

• Each registrant is to submit annual reports to the Department by March 15 of each year, beginning March 15, 2025.

While the proposal specifies the information that must be included in the annual report, the requirements vary depending on the type of services offered. The specifications are applicable to entities offering:

• Debt settlement services;
• Student debt relief services;
• Education financing services;
• Income-based advancement services.

In the event such reporting requirements are not met, the proposal provides:

• The Department may summarily revoke a registration for failing to file an annual report;
• The Department may permit a registrant whose registration is revoked to reinstate their registration by submitting a written request and paying an administrative fine;
• The time frames for submitting written requests and the amount of the administrative fines.

Reporting Fee Specifications

Financial Code section 90007, subdivision (b), of the CCFPL provides that the Department may charge registrants an annual registration fee for the reasonable costs of the registration program. While this fee may be based on the size or market participation of the registrant, the code section does not currently specify the amount of the fee, the process for paying the fee, or other requirements. The proposed regulations would establish the annual assessment fee and specify the requirements for paying the assessment to the Department.

This proposed regulatory action establishes the amount of the annual assessment:

• Is based on the registrant’s pro rata share of all costs and expenses reasonably incurred in the administration of the California Consumer Financial Protection Law, the pro rata share shall be the proportion that a registrant’s gross income from subject products provided to California residents bears to the aggregate gross income from subject products provided to California residents by all registrants as shown by the annual reports to the Commissioner;
• Is altered to a flat fee of $500 in a situation where a registrant reports no gross income, or a gross income of less than $500 from subject products.

The proposal further sets forth the process and time frames for paying the assessment to the Department, in that:

• On or before November 30 of each year, beginning on November 30, 2024, the Commissioner shall notify each registrant of the amount assessed and levied against it and that amount shall be paid by December 31, 2024.

In the event a registrant fails to remit the annual fee, the proposal provides:

• The Department may by order summarily revoke a registration for failure to payment the annual assessment;
• The Department may permit a registrant whose registration is revoked to reinstate their registration by submitting a written request and paying an administrative fine;
• The time frames for submitting written requests and the amount of the administrative fines.

Advancements Repayment

Financial Code section 22150 authorizes the Commissioner to make rules and regulations to enforce the CFL. The proposed regulations would clarify certain provisions of the CFL relating to advances to be repaid from a consumer’s future earned or unearned pay.

This proposed regulatory action clarifies the applicability of the CFL to certain activities in that it:

• Clarifies that an advance of funds is to be repaid from a consumer’s future earned or unearned pay is a loan subject to the CFL;
• Exempts from licensure under the CFL providers of income-based advances and education financing who are registered under the CCFPL and whose charges do not exceed the charges permitted under the CFL;
• Clarifies that the prohibition on collecting loan payments within 15 days of the date of originating the loan does not apply to loans that are collected in a single payment;
• Clarifies that monthly subscription fees are not charges under the CFL if the fees meet certain consumer protection requirements;
• Clarifies that tips or other voluntary payments are charges under the CFL; and
• Clarifies that a loan contract complies with the CFL’s requirement of equal periodic payments if the contract provides the borrower with the option of making payments based on a fixed percentage of the borrower’s income or making equal periodic payments; and
• Clarifies that a contract complies with the CFL’s requirement that the first loan payment be within one month and 15 days from the date the loan is made if the loan contract does not accrue charges during the period of forbearance.