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The impact of DFPI on fintech companies

Manuel P. Alvarez, California Department of Financial Protection and Innovation Commissioner, joins Yahoo Finance to discuss the investigation into multiple debt collectors.

Video Transcript

[MUSIC PLAYING]

- Welcome back to "Yahoo Finance Live." Due to legislation in California, we are seeing a stepped up effort by a new department here to push perhaps some efforts here in the unregulated financial products and services space to protect citizens in California. For more on that, I want to bring on the head of the new and improved here effort on that front, California. Department of Financial protection and Innovation Commissioner Manuel P. Alvarez joins us right now, alongside Yahoo Finance's Aarthi Swaminathan.

And Commissioner Alvarez, appreciate you coming on here to chat. A lot of people are talking about this because obviously California is a very big state and no doubt not unique in facing some of these issues that you're trying to address here. What's the biggest effort right now by this new commission being put forward to help consumers in the state of California?

MANUEL P. ALVAREZ: Well, the new law gives us a couple of pretty notable tools. First and foremost, it allows the Department to oversee previously unregulated financial products and services, which would include things like debt collectors, credit repair agencies, just to name a few.

The law allows the Department to better protect consumers from predatory practices, which is certainly especially critical in a time like now. But the law also gives us some tools to help spur responsible innovation and financial services. And it does that by giving us the mandate and the resources to engage with entrepreneurs and other innovators in a collaborative space so that we can work together early on, provide a feedback loop for emerging products and services.

AARTHI SWAMINATHAN: Commissioner Alvarez, so recently you had a subpoena sent a 12 debt collection agencies. And that was pretty significant as an action that you took under this new law. So I'm curious how aggressive, how frequent these investigations going to happen.

And one interesting thing is you actually take into account customer complaints. So how are you seeing through that process? Just any details on that.

MANUEL P. ALVAREZ: Yeah, absolutely. Thanks for the question, Aarthi. Yes. We are-- we issued our first action. We announced our first action where we're going to be taking a pretty hard look at these 12 debt collection companies. Because of the consumer complaints that came in, we had reason to believe that the companies may be engaged in unlawful, unfair, deceptive, or abusive debt collection practices.

And we hope that this early action sends a very clear message that we will take our expanded responsibilities very seriously. And we want to move swiftly to ensure that debt collectors do not violate the rights of Californians, particularly in this vulnerable moment.

As to how frequently we're going to be taking these sorts of steps, it's hard to say. But what I can say is that the Department does intend to use its enforcement tools in a strategic fashion going forward. And it will be working very closely with our Consumer Services Office, which is the function that reviews every single complaint that comes in.

It's also the office that provides translation services for close to a dozen different languages. So the consumer services function really is a critical function to all of the department's work. And again, it's going to continue working closely with enforcement to make sure that we stop those early trends in some of those early hotspots where consumers might be struggling.

- Yeah. The timing of all this is pretty interesting, too, because, you know, obviously a lot of people struggling in the pandemic. But a lot of other rules and regulations being put in place here to maybe help on that front, certainly in the new administration extending some of those things as well.

But some people might say, look, why would California need something that sounds like a mini Consumer Financial Protection Bureau when there already is, of course, a Consumer Financial Protection Bureau? How much that stems from maybe the idea that some of these things are complicated and the stresses are at all-time highs right now? Because I assume that this-- you know, this effort was in place for some time. So maybe what would you say to people who stress that?

MANUEL P. ALVAREZ: Well, I would remind people again, as was noted, California is a large state and a large economy. We are the fifth largest economy in the world. We are a diverse and a complex economy.

And so what I would say is we needed these reforms long before COVID ever emerged. Simply put, California is a world-class economy deserving of a world-class financial regulatory structure. When COVID arrived at our front doorsteps, I think that really just kind of stressed the criticality of some of these efforts.

Now, you note some of the changes at the federal level. And it is absolutely true that we expect to see a change of-- a change in tone and tenor. At the federal level, we here at the state have long had great working partnerships with our federal partners. And we expect it to continue developing a close working relationship with our federal partners.

And what I would say is the fact that there is-- the fact that the Consumer Financial Protection Bureau may get more aggressive under the new administration and new leadership, it does not moot the need for additional resources here at California. More boots on the ground is not a bad thing.

AARTHI SWAMINATHAN: And just following up on that, one of the interesting things about the DFPI is basically your mandate to go after-- rather work with fintech companies. So I'm curious, have you had any conversations? How is that going? How are you fostering innovation at the same time where we're seeing some of these companies?

MANUEL P. ALVAREZ: Absolutely. We get that question a lot. And I'm-- I think those efforts-- I'm pleased with how those efforts are developing. The reality is that we've long had-- the department has long had working relationships with various fintech companies in California.

It's only natural, given that so much of fintech resides here in California. In fact, I would venture to say that California is in many ways, the birthplace of fintech. And so the Department has long had a working relationship with fintech.

With the new law and the new mandate and additional resources, we now have an opportunity to spin up a dedicated office that can more proactively engage with fintech in a non- confrontational manner, but also in an a programmatic way so that we can try and wrap around some of these episodic conversations and really develop-- try to develop a more holistic picture of innovation in financial services, and then let that inform the rest of the department's work, let it inform our supervisory work with respect to even existing licenses like our banks and credit unions.

- All right. Commissioner Manuel P. Alvarez, California Department of Financial protection and Innovation Commissioner. Got to get used to saying that one now that it's out there. Appreciate you coming on here to chat today alongside "Yahoo Finance's" Aarthi Swaminathan. Thanks again.