California Department of Business Oversight

Jan Lynn Owen

Commissioner of Business Oversight

September 2013

Effective July 1, 2013, the Department of Business Oversight (DBO) was created by the consolidation of the former Department of Corporations and

the former Department of Financial Institutions.

2

DBO Licensees = >365,000

3

DBO

170 state-chartered banks

3,098 broker-dealer firms and 278,496 broker-dealer agents

151 state-chartered credit unions

Others

1,256 national banks operating in US (43 in CA)

4,430 brokerage firms and 629,530 registered reps (FINRA)

254 federally-chartered credit

unions in California

Note: Numbers are revised on an annual and/or quarterly basis

Licensees and Industries Regulated by DBO

3,677 investment adviser firms,

52,154 investment adviser representatives,

507 exempt reporting advisers,

671 independent escrow agents operating at 931 locations,

8 trust companies with $90 billion in assets under management,

4

Licensees and Industries Regulated by DBO (cont’d)

2,065 consumer and commercial finance lenders and 4,447 locations,

344 residential mortgage lenders or mortgage bankers at 4,035 locations,

327deferred deposit originators at 2,074 locations,

19,664 mortgage loan originators,

5

Licensees and Industries Regulated by DBO (cont’d)

106 premium finance companies with $885 million in assets,

7 industrial banks with $9 billion in assets,

31 foreign banks with $31 billion in assets,

74 money transmitters, operating online, on phones and tablets, and more than 24,000 branch locations with $225 billion in assets, and

1 Business and Industrial Development Corporation.

6

Governor’s Reorganization Plan (GRP)

March 30, 2012 - Governor Brown sent GRP to the Milton Marks “Little Hoover” Commission for public review and comment.

May 2012 – Little Hoover Commission recommended approval to the Legislature.

May 3, 2012 - GRP was introduced in the California State Legislature.

July 3, 2012 – GRP went into effect. July 1, 2013 – DBO begins.

“This plan is another step in my continuing efforts to streamline

government, make it more efficient, and reduce unnecessary spending. Upon implementation, this plan will improve the management and coordination of government activities, which will facilitate further

consolidations and cost savings.” – Gov. Brown

7

DBO Reorganization: What’s changed?

Promise of the Department materializing:

DFI online complaint form: transformed processes by former DOC staff and licenses

Virtual currencies: Money Transmitters Division getting enforcement and rulemaking support.

Staff Familiarization Training

8

DBO Reorganization: Concerns Not Borne Out Concern: Authority of existing deputy

commissioners will be diminished by creation of “Senior Deputy Commissioner” positions Response: Deputy Commissioners retain the same

level of access to the Commissioner by reporting directly to her. Senior Deputy Commissioner positions not filled.

Concern: DFI and DOC will be degraded in eyes of federal co-regulators. Response: Commissioner has finished most meetings with all major stakeholders and federal counterparts and no diminution was identified or suggested.

9

DBO Reorganization: Concerns Not Borne Out (cont’d)

Concern: Examiners will become “interchangeable” and lose expertise in their particular exam area.

Response: While the Department anticipates making cross-training and cross-promotional opportunities available no involuntary duty reassignments will occur.

Concern: Focus on safety and soundness of Division of Financial Institutions (DFI) exams will erode.

Response: All former DFI staff have been retained and no resources will be reassigned or legislation proposed that in any way erodes the central focus of the DBO on the safety and soundness mandates for its state chartered institutions

10

DBO Reorganization: Concerns Not Borne Out (cont’d)

Concern: The risk of a more limited mission will encourage staff to leave for better compensated assignments with federal agencies. Response: While difficult to control when compensation scales favor federal agencies, the DBO has lost no DFI of DOC exam staff since the reorganization occurred.

Concern: Large state licensees will reject the changes and switch to national charters, leading to a stampede of “charter switching.” Response: The value of a state charter has not changed through the reorganization and no switches occurred. The Commissioner has begun meeting personally with all the major state chartered institutions.

11

DBO Reorganization: Concerns Not Borne Out (cont’d)

Concern: The reorganization will yield no savings.

Response: The reorganization yielded nearly $1 million in savings on July 1 by eliminating duplicative positions in the former departments. Additional savings are anticipated as the Department consolidates space and equipment in the coming years. No program staff reductions are intended or expected.

12

DBO Reorganization: Concerns Not Borne Out (cont’d)

Concern: The reorganization will lead to assessment increases.

Response: No assessment increases are anticipated for the current or upcoming 2014-15 fiscal year.

13

Trends in the Financial Services Marketplace

14

California Deferred Deposit Transaction Law (CDDTL)

Financial Code Division 10

Commonly referred to as “payday loans” or “cash advances.”

1,768,051 Californians borrowed 12,255,026 payday loans

totaling $3,229,018,352 in 2012.

15

Trends in Payday Lending: Dangers of Unlicensed Online Lending 21 percent of payday loan customers utilize Internet lenders. – Pew Charitable Trusts Foundation

May collect from bank account without permission.

May charge an interest rate higher than state law allows.

May sell or pirate personal financial information before a loan is agreed to or the borrower opts out.

May be operating out-of-state or overseas.

16

Trends in Payday Lending: Stopping Unlicensed Online Lending

Know who you are borrowing from!

Always check with DBO on a lender’s license before you borrow.

www.dbo.ca.gov/fsd/licensees

1-866-245-2677

17

Trends in Payday Lending: Stopping Unlicensed Online Lending Submit a Complaint!

18

Trends in Payday Lending: Stopping Unlicensed Online Lending Effective Enforcement

Since January 2013, eleven separate companies have been issued citations and penalties to refrain from violations of state law and officially void transactions, to including many Internet-based lenders.

Educating Consumers

19

New Technology: Emerging Trends

Increased use of Internet leading to emerging financial trends and scams – not just unlicensed online payday lending.

JOBS Act Crowd-funding: The new federal JOBS Act exempts some small businesses and entrepreneurs from securities regulations in order to tap into the “crowd” in search of investments to finance their business ventures. Awaiting SEC regulatory scheme.

Virtual Currency: Electronic “money” that can be passed between parties without traditional systems. Bitcoin is the most prominent such currency.

20

21

Recent Achievements

Recent Achievements: Enforcement Actions

July 2013 Took action against East Side Lenders, LLC, a

Delaware limited liability company for making payday loans illegally and without a license. DBO issued an order voiding all illegal transactions with California residents, and issued citations totaling $77,500 for 31 separate violations.

August 2013 – Reached a settlement with Gateway Funding

Diversified Mortgage Services, LP, doing business as Arlington Capital Mortgage, for illegally overcharging borrowers for interest before the disbursement of their loans and for other violations of the law.

22

Recent Achievements: Improving Efficiency by Streamlining

Recognized at Streamline Superstar by Go-Biz

23

“California has always been one of the easiest states to work with because we were always assigned a single examiner for each registration, who helped my firm through the entirety of the registration process. Timely emails, near-immediate response times and helpful reminders on what needed to be done both during and after registration were a tremendous help.”

- Zachary Gronich, a current licensee

Recent Achievements: New Website!

July 2013

Successfully launched www.dbo.ca.gov!

24

The DBO Organization

25

Mission Statement

To regulate state-licensed financial institutions, products and professionals in order to provide

accessibility to a fair and secure financial services marketplace. The Department serves

California by enforcing the state’s financial services laws and providing resources to Californians to make informed financial

decisions.

26

27

Legislation (cont’d)

SB 538 (Hill) would amend the Corporate Securities Law of 1968 and, among other things, provide additional resources for the department to responsibly oversee investment advisors and broker-dealers.

28

Legislation (cont’d)

AB 1091 (Skinner) would direct the Commissioner to issue a written order directing the discontinuance of an unsafe or injurious practice if a person is found to be conducting business under the California Finance Lenders Law in an unsafe or injurious manner,

29

Legislation (cont’d)

AB 786 (Dickinson) would make several changes to the Money Transmission Act, including an exemption from licensure for any person that delivers wages or salaries on behalf of employers to employees or facilitates the payment of payroll taxes to state and federal agencies; and modifications to the Commissioner's authority as it pertains to providing guidance to businesses on licensure.

30

Commitment to Supporting Small Businesses

31

More information: www.dbo.ca.gov/resources/small_businesses

Commitment to Consumer Education and Outreach

The Department’s Education and Outreach team provides information on the importance of consumer education and how to protect oneself from financial fraud by conducting presentations and workshops throughout many of California communities, especially to highly vulnerable populations.

32

Commitment to Consumer Education and Outreach (cont’d)

In just July and August 2013:

8,800 materials have been distributed

14 events staffed by Department representatives with nearly 900 attendees

Shipments of educational materials sent throughout the state

33

34

Department of Business Oversight

Call

1-866-275-2677

Visit www.dbo.ca.gov