SB 825: Expanding state consumer financial protection

The California Legislature is advancing Senate Bill 825 (2025) in response to the Trump administration's rollback of the Consumer Financial Protection Bureau (CFPB). If enacted, the bill would grant the Department of Financial Protection and Innovation (DFPI) enforcement authority over "unfair, deceptive, or abusive acts or practice" across entities licensed by the DFPI or other state agencies, including state-chartered banks, credit unions, independent mortgage companies, nonbank lenders, and payment service providers. (Senate Bill 825 (2025), Legis. Counsel's Dig.) The bill's authors framed Senate Bill 825 as a necessary safeguard against weakened federal oversight, stating that without such protections "consumers will be left with less protections and fewer resources to help them navigate the financial marketplace." (Senate Third Reading, Senate Bill 825, as amended Mar. 24, 2025, p. 2.) Supporters see the bill as closing a regulatory gap. Critics, however, warn that it risks regulatory overreach and injects uncertainty.

Expanding DFPI's authority under Senate Bill 825

In 2020, the California Legislature enacted the California Consumer Financial Protection Law (CCFPL) as part of a broader effort to expand state oversight of financial services in response to federal regulatory rollbacks. (Assembly Bill 1864 (2020), Stats. 2020, ch. 157.) Modeled on Title X of the federal Dodd-Frank Act, the CCFPL makes it unlawful for a "covered person" or "service provider" to engage in any unfair, deceptive, or abusive act or practice in offering or providing consumer financial products or services. (Cal. Fin. Code § 90003(a)(1), 90005(k).) At the same time, the statute provides several exemptions. Under California Financial Code section 90002, the law does not apply to entities already licensed by another state agency when acting under that license, to certain categories of entities regulated by the DFPI, or to banks, credit unions, and other financial institutions operating under federal law or a license issued by another state.

Senate Bill 825 amends certain exemptions for entities licensed by the DFPI, permitting the department to pursue enforcement actions against entities that engage in unfair, deceptive, or abusive acts or practices outside the scope of their existing license or regulatory authority. This expansion subjects state-chartered banks, state credit unions, independent mortgage companies, nonbank lenders, and payment service providers to heightened compliance risks (Senate Third Reading, SB 825, as amended Mar. 24, 2025, p. 2). Importantly, the bill does not expand DFPI's jurisdiction over national banks or other federally chartered institutions. (Cal. Fin. Code § 90002(c).)

Implications for financial institutions

The CCFPL grants the DFPI broad powers to investigate unfair, deceptive, or abusive acts or practices. The DFPI may issue subpoenas to produce documentary material for inspection and copying. (Cal. Fin. Code § 90011(a), (b).) It may institute administrative proceedings or civil actions against a covered person or service provider to enforce the CCFPL and seek relief, including restitution, rescission, injunctive relief, appointment of a receiver, and civil penalties. (Cal. Fin. Code §§ 326(b); 90012(a)-(c); 90013(a); 12 U.S.C. § 5552(a)(1).)

Senate Bill 825 heightens the significance of these enforcement powers by eliminating the exemptions under California Financial Code section 90002. Entities acting under the authority of a license "of any state agency" and certain categories of DFPI licensees were largely shielded from DFPI action. (Cal. Fin. Code §§ 90002(a), (b).) Under Senate Bill 825, these entities will now be subject to DFPI regulation and investigation if those entities engage in unfair, deceptive, or abusive conduct, thereby causing overlapping regulatory oversight, duplicative investigations, and increased compliance costs. Under the CCFPL, the DFPI must interpret "unfair" and "deceptive" consistent with Section 17200 of the Business and Professions Code. (Cal. Fin. Code § 90009(c)(1).) However, Section 17200's coverage is "broad" and "sweeping." (Capito v. San Jose Healthcare Sys., LP, 17 Cal. 5th 273, 284, (2024) (setting forth various standards). Section 17200 "does not proscribe specific practices" and provides that a practice is prohibited as 'unfair' or 'deceptive' even if not unlawful. (Ibid.) It also "does not define 'unfair,' and the 'standard for determining what business acts or practices are 'unfair' in consumer actions under the UCL is currently unsettled.'" (Ibid.)

Similarly, the DFPI must construe "abusive" consistent with Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. (12 U.S.C. § 5481; Cal. Fin. Code § 90009(c)(3).) This act defines "abusive" only in broad terms, covering conduct that "materially interferes with the ability of a consumer to understand" a product's terms or that takes "unreasonable advantage" of a consumer's lack of understanding, inability to protect themselves, or reasonable reliance. (12 U.S.C. § 5531(d).)

As a result, financial institutions will be required to navigate an uncertain standard, exposing them to potential enforcement even when their practices comply with existing regulatory requirements. This uncertainty increases compliance costs, heightens litigation risks, and creates the possibility that otherwise legitimate business practices permitted by one state agency may nevertheless be second-guessed by the DFPI under the CCFPL.

Conclusion

Senate Bill 825 represents a significant expansion of DFPI's enforcement authority by narrowing long-standing exemptions under the CCFPL. While supporters view this as a necessary response to weakened federal oversight, the bill exposes state-chartered banks, credit unions, and nonbank lenders to heightened regulatory risk under unsettled legal standards for "unfair" and "abusive" practices. The resulting uncertainty will likely increase compliance costs, raise the risk of enforcement, and complicate the regulatory environment for financial institutions operating in California.