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California mini-CFPB Act highlights interesting insurance nuances

On Behalf of | Feb 12, 2021 | Insurance Law

Recent amendments to California’s financial code clarify sections of the market where the newly renamed Department of Financial Protection and Innovation has oversight. This includes several types of products and services mirrored in the federal Consumer Financial Protection Act, which created the Consumer Financial Protection Bureau.

Insurance Journal reports on how the new state law parallels the federal act and how it differs.

Products and services as “covered entities”

The federal CFPA and California Consumer Financial Protection Law each cover the same 10 categories including debt collection, real estate settlement services and consumer reports. California’s CFPL also covers brokering franchises. This also includes service providers to these covered entities.

Each provides insurance industry exemptions for persons regulated by a state insurance department and any products or services that are the business of insurance. Comparing each statute to see what they do and do not cover brings some curious situations to light.

Insurance situations that raise questions

Even though life settlement providers and brokers must receive licenses from the California Department of Insurance, life settlements themselves do not qualify as the business of insurance. Therefore, these providers and brokers are not currently subject to the California Mini-CFPB Act. But the CFPB could attempt to add them as a covered consumer product.

Likewise, the department of insurance regulates guaranteed asset protection issuers, but GAP products themselves are a consumer financial product, and so fall under the Act for CFPA purposes.

These amendments establish the state’s regulatory authority over certain bodies, but also bring up classification issues that may take time to resolve. Any questions or confusion regarding insurance on the part of covered and uncovered entities may have answers with the help of further research.