Alston & Bird Consumer Finance Blog


A Friendly Reminder of the Importance of Robust Consumer Complaint Handling Processes

What Happened?

On February 27, 2024, the California Department of Financial Protection and Innovation (the Department) entered into a public consent order with a company that provides consumer financial services to California residents. The consent order alleges that between January 2020 and September 2022, the Department received complaints from consumers raising concerns about their accounts and customer service interactions with the company, which the Department forwarded to the company for investigation and response. The Department also investigated the company’s handling of those consumer complaints.

The Department found that the company’s complaint handling was deficient in that “occasional mistakes” that occurred in the Company’s responsiveness to consumer complaints were substantial enough to have violated the California Consumer Financial Protection Law (CCFPL). The Department alleged that as between the company and the consumer, the company was in the better position to accurately evaluate the available information in most cases and to respond to consumers’ complaints in a timely manner and while the number of mistakes during the Department’s investigation period was relatively small in comparison to the overall number of consumer complaints received, the Department concluded that the mistakes were important to the affected consumers.

To resolve these allegations, the company agreed to (1) desist and refrain from violating the CCFPL through its complaint handling processes, (2) pay a penalty of $ 2.5 million, (3) enhance existing customer service procedures or processes, (4) establish, implement, enhance, and maintain testing policies, procedures, and standards reasonably designed to, at a minimum, ensure compliance with the law, and (5) report to the Department annually for two years on these standards. These standards require the company to:

  • Ensure customer service support 24 hours a day, seven days a week;
  • Ensure sufficient customer service support staffing;
  • Ensure sufficient customer service support training; and
  • Investigate and implement policies and procedures to maintain the accurate, prompt and proper handling of consumer complaints.

Why is it Important?

The CCFPL was enacted in September 2020 and grants the Department expanded authority over persons engaged in offering or providing a consumer financial product or service in California and their affiliated service providers. Notably, under the CCFPL, it is unlawful for a “covered person” or “service provider,” to do any of the following:

  • Engage, have engaged, or propose to engage in any unlawful, unfair, deceptive, or abusive act or practice (UDAAP) with respect to consumer financial products or services.
  • Offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law.
  • Fail or refuse, as required by a consumer financial law or any rule or order issued by the Department thereunder, to do any of the following:
    • Permit the Department access to or copying of records.
    • Establish or maintain records.
    • Make reports or provide information to the Department.

The CCFPL defines a “covered person” to mean, to the extent not preempted by federal law, any of the following:

  • Any person that engages in offering or providing a consumer financial product or service to a resident of California.
  • Any affiliate of a person described above if the affiliate acts as a service provider to the person.
  • Any service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.

A “servicer provider” includes any person that provides a material service to a covered person in connection with the offering or provision by that covered person of a consumer financial product or service, including a person that either:

  • Participates in designing, operating, or maintaining the consumer financial product or service.
  • Processes transactions relating to the consumer financial product or service, other than unknowingly or incidentally transmitting or processing financial data in a manner that the data is undifferentiated from other types of data of the same form as the person transmits or processes.

The term “service provider” does not include a person solely by virtue of that person offering or providing to a covered person either a support service of a type provided to businesses generally or a similar ministerial service, or time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.

Notwithstanding the broad definition of “covered person,” the CCFPL contains numerous exemptions, including for banks; licensed escrow agents; licensees under the California Financing Law; licensed broker-dealers or investment advisers; licensees under the Residential Mortgage Lending Act; licensed check sellers, bill payers, or proraters; and licensed money transmitters, among others.

The Department is authorized to impose civil money penalties for any violation of the CCFPL, rule or final order, or condition imposed in writing by the Department in an amount not to exceed the greater of $5,000 for each day during which a violation or failure to pay continues, or $2,500 for each act or omission. Reckless violations are subject to increased penalties not to exceed the greater of $25,000 for each day during which the violation continues, or $10,000 for each act or omission. For knowing violations, the Department is authorized to assess penalties not to exceed the lesser of one percent of the person’s total assets, $1 million for each day during which the violation continues, or $25,000 for each act or omission.

What Do You Need to Do?

It is always important to take consumer complaints seriously and to respond timely and accurately. Now is the time to review your company’s complaint management procedures to make sure they are robust. It is always important to mine your consumer complaints so that you can learn from them and correct errors timely to ensure mistakes don’t recur, and the Department’s latest settlement is a reminder that companies subject to the CCFPL also have a legal obligation to do so.

California DFPI Digital Asset Lending Regulatory Year in Review

A&B ABstract:

In December of 2022 California released an interagency progress report (“Report”) analyzing the current regulatory status of Web3, Crypto Assets, and Blockchain. The report was prepared pursuant to Executive Order N-9-22 (the “Order”) issued by California Governor Gavin Newsome on May 4, 2022, which declared California’s intent to regulate blockchain, including crypto assets and related financial technologies, and directed California state agencies, including the Governor’s Office of Business and Economic Development (“GO-Biz”), the Government Operations Agency, the Business, Consumer Service and Housing Agency, and the Department of Financial Protection and Innovation (“DFPI”) to collect feedback from various stakeholders to understand the risks and explore opportunities for the state. The Order, among other directives, advises these California agencies, led by DFPI, in consultation with GO-Biz, to create a regulatory framework for crypto assets in coordination with federal and state authorities, with the goals of ensuring equity, regulatory clarity, consumer protection, innovation, and job growth. Although these new technologies present some novel questions, for entities engaging in lending backed by digital assets, the DFPI has made clear that the California Financing Law and similar regulatory burdens apply.

Current Registration Requirements

The Report follows earlier requests for public comment, including from the DFPI, which published a request for public comment (the “Request”) stating an intent to develop a comprehensive state regulatory framework for the offering of digital asset related financial products and services in California. Within the previous request for comment, the DFPI states that it possesses the authority to develop comprehensive regulations under the California Consumer Financial Protection Law (CCFPL), which authorizes the DFPI to “prescribe rules regarding registration requirements applicable to a covered person engaged in the business of offering or providing a consumer financial product or service.” Accordingly, the DFPI has put forth that it currently has the authority to require licensing and regulation of crypto asset-related financial products. In the Order issued by Governor Newsom “crypto assets” is defined as “a digital asset, which may be a medium of exchange, for which generation or ownership records are supported through a blockchain technology.” Given this backdrop, we can expect the DFPI to issue regulations without further legislative input.

Public Feedback

Responses to the request for comment and other opportunities to provide public input resulted in several key suggestions for regulation, including the following:

  • Provide regulatory clarity—including by basing regulations on specific types of activities, products, and services (rather than specific entities).
  • Harmonize with federal guidelines—including by modeling key terms and requirements on those used by federal regulators.
  • Avoid over-regulation—including by minimizing compliance costs.

CCFPL Regulation and Supervision

The Report states that DFPI has issued licenses to 10 crypto asset related companies that engage in lending activities under California financial licensing laws. Some make consumer loans that are secured by crypto assets, while others make commercial loans to crypto asset-related companies. In addition to licensing and other compliance activity, the Report further notes that enforcement actions were also underway. The highlighted enforcement actions within the report related to companies allegedly operating crypto deposit accounts that qualified as unregistered securities as well as investment schemes. The Report did not highlight any enforcement actions related to loans secured by crypto assets or other licensing violations.

However, on November 18, 2022 and November 22, 2022, the DFPI suspended California Financing Law licenses for two entities in connection with their crypto asset platforms. In both instances, the entities paused activity on their platforms. The investigation of one entity remains ongoing while the other entered into an agreement to pause collection of repayments and interest on loans belonging to California residents while its CFL License is suspended or as further agreed to between the DFPI and the entity.


While many aspects of Web3, Crypto Assets, and Blockchain regulation remain unclear, it is clear that those engaging in lending activities collateralized or otherwise related to such assets are regulated under the CCFPL and other California law, and must abide by the same strictures as any other lender.