The state of California’s new Department of Financial Protection and Innovation (DFPI), a reorganization of the previous Department of Business Oversight (DBO), will not have enforcement authority over the state’s reverse mortgage businesses according to officials with both the new DFPI, and the California Department of Real Estate (DRE).
Though modeled after the federal Consumer Financial Protection Bureau (CFPB) – which maintains enforcement authority over the reverse mortgage industry at the national level – the new agency’s broad powers to enforce existing laws and regulations do not extend to the realm of reverse mortgages specifically, which leaves the authority of the currently-established entity overseeing reverse mortgage companies in the state intact.
DFPI: no ‘new regulatory authority’ over reverse mortgages
On track to become officially enacted with the start of 2021, the new state-run DFPI has broad enforcement authority over a wide variety of different businesses within California including banks; credit unions; finance lenders and brokers; traditional mortgage lenders and servicers; or other entities which provide consumer financial products or services within the borders of California.
The state’s governor, Gavin Newsom (D), recently signed a series of bills which allows the old DBO to be consolidated and expanded under the new DFPI, but the primary law which establishes the DFPI as a new entity does not expand DFPI’s authority to cover the reverse mortgage industry. This is according to an official with the DFPI itself.
“The California Consumer Financial Protection Law (CCFPL) does not give the Department of Financial Protection and Innovation (DFPI) new regulatory authority over the reverse mortgage industry,” said Mark Leyes, director of communications with the California DFPI in an email to RMD. “The CCFPL does not address reverse mortgages so it leaves intact current oversight responsibility which resides primarily with the California Department of Real Estate (DRE).”
DRE will maintain authority over reverse mortgages
While it may have initially seemed like the DFPI’s authority over traditional mortgages could have also applied to companies operating on the reverse side, the DRE’s autonomy will be maintained in its current form as it pertains to authority over the reverse mortgage industry at the state level. This is according to Shelly Wilson, assistant commissioner of communications and publications and public information officer at the California DRE in Sacramento.
“DFPI’s authority will not affect the authority DRE currently has over mortgage brokers and lenders licensed and acting under the authority of a real estate license, including those who originate reverse mortgages,” Wilson told RMD in an email. “DRE has the authority to discipline a real estate license for violations of the real estate law, including misrepresentation, fraud, and dishonest dealing in reverse mortgage transactions.”
In order to maintain its own mission in relation to protection of the state’s consumers, the DRE will continue its oversight of the reverse mortgage industry and, where necessary, partner with local officials to ensure Californians are protected against bad actors, Wilson said.
“DRE will continue to cooperate with law enforcement, federal, and state agency partners to fulfill our mission of consumer protection.”
Recent history
Members of the California state assembly have recently contended that the state needs to take its own action to protect its consumers since the federal CFPB has become “paralyzed” under the leadership and direction of the Trump Administration, and that the pandemic has created additional urgency by placing Californians in poor financial health which makes them more vulnerable to predatory practices and scams, according to state legislators in support of the proposal in interviews with NPR.
To that end, Governor Newsom recently signed a legislation package, reorganizing the existing state DBO into the new DFPI, vastly expanding its enforcement authority. The new laws aim to take on several new tasks related to business oversight and consumer protection, including the addition of dozens of investigators and attorneys to supervise financial institutions; establishing a team to monitor markets and identify emerging risks to consumers; and creating a team dedicated to consumer education and outreach while listening to those in specific communities.
Federal CFPB industry oversight
Having been modeled off of the original intention behind the establishment of the CFPB raised initial questions about how the new DFPI would interact with the reverse mortgage industry, as the federal Bureau’s oversight of the financial sector has led it to have regulatory enforcement authority over the reverse mortgage industry.
“This new regulator has authority over financial services generally, and a specific office that is charged with overseeing consumer protection for the elderly,” said Peter Bell, CEO and then-president of the National Reverse Mortgage Lenders Association (NRMLA) in a 2011 email to RMD. “Furthermore, the enabling legislation that created the agency explicitly requires it to evaluate current practices and consumer safeguards for reverse mortgages and report on that within a year. Obviously, the results of that study and any new recommendations it might lead to are of interest to reverse mortgage lenders.”
By and large, CFPB enforcement actions have decreased during the Donald Trump Administration when directly compared with the enforcement actions instituted under the Barack Obama Administration. However, during the COVID-19 coronavirus pandemic, reverse mortgage-related complaints to the Bureau have also noticeably slowed.
CFPB Director Kathleen Kraninger also recently expressed that she expects the Bureau’s enforcement actions to rise throughout the remainder of the 2020 fiscal year.
