Alston & Bird Consumer Finance Blog

Department of Financial Protection and Innovation

California Enacts AB 801, the Fair Lending Examination Act: What Banks, Credit Unions, and Mortgage Licensees Need to Know

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On September 30, 2026, California Governor Gavin Newsom signed Assembly Bill 801 (AB 801), the California Fair Lending Examination Act. Effective January 1, 2027, AB 801 requires the California Department of Financial Protection and Innovation (DFPI) to incorporate compliance with federal and California mortgage nondiscrimination laws into recurring examinations of covered state-chartered banks, California credit unions, and California Residential Mortgage Lending Act (CRMLA) licensees. Under the Act, a violation of an applicable mortgage nondiscrimination law becomes independently enforceable under the institution’s governing California financial law.

What Happened?

AB 801 adds a formal fair lending examination framework to the Banking Law and California Credit Union Law and expands the existing scope of examinations required under the CRMLA. For covered banks and credit unions, the DFPI Commissioner generally must conduct a mortgage fair lending examination at least once every four years. For CRMLA-licensed residential mortgage lenders and servicers, DFPI must include fair lending compliance within the examination already required at least once every 48 months.

The examination scope expressly includes the federal Equal Credit Opportunity Act (ECOA), the federal Fair Housing Act, the California Fair Employment and Housing Act (FEHA), the Holden Act, and the Unruh Civil Rights Act. A violation of any applicable nondiscrimination law is treated as a violation of the Banking Law, California Credit Union Law, or CRMLA, as applicable, allowing DFPI to use its existing supervisory and enforcement authority or its authority under the California Consumer Financial Protection Law.

Which Institutions Are Covered?

AB 801 does not apply the same threshold to every institution. The new four-year examination requirement applies to a state-regulated bank or California credit union that satisfies at least one criterion in the federal Regulation C definition of a “financial institution” at 12 C.F.R. § 1003.2(g)(1)(v). In practical terms, the institution must meet the applicable federal loan-volume threshold referenced by that provision. By contrast, AB 801 amends the CRMLA to require a fair lending review as part of the regular examination of each residential mortgage lender and servicer licensee. Notably, the statutory text does not import the Regulation C threshold for CRMLA licensees.

What Laws Will DFPI Examine?

The Act identifies five central fair lending statutes, while preserving DFPI authority to examine for compliance with any other federal or California nondiscrimination law applicable to mortgage lending:

  • ECOA (and implementing regulation, Regulation B). Prohibits discrimination in any aspect of a credit transaction on a prohibited basis, including race, color, religion, national origin, sex, marital status, age, receipt of public assistance, and the good-faith exercise of rights under the Consumer Credit Protection Act.
  • Federal Fair Housing Act. Prohibits discrimination in residential real estate-related transactions based on race, color, religion, sex, familial status, national origin, and handicap.
  • California FEHA. Prohibits specified discriminatory housing and housing-finance practices and recognizes discriminatory-effect liability. For banks and credit unions, AB 801 specifically directs DFPI to require correction of a discriminatory effect under FEHA that is not attributable to the institution’s legitimate business interest.
  • Holden Act. Prohibits discrimination in the availability or terms of financial assistance for housing based on specified protected characteristics and certain neighborhood conditions. It also restricts consideration of a neighborhood’s racial, ethnic, religious, or national-origin composition in appraisal and credit decisions.
  • Unruh Civil Rights Act. Requires full and equal accommodations, advantages, facilities, privileges, and services in all business establishments and prohibits arbitrary discrimination, including discrimination based on characteristics enumerated in Civil Code § 51.

How Will the Examination Framework Operate?

DFPI may review records, examine personnel under oath, coordinate with state and federal agencies, Fannie Mae, and Freddie Mac, and accept another entity’s examination unless it lacks information DFPI needs. For covered banks and credit unions, DFPI must coordinate fair lending examinations with other scheduled examinations when practicable but may conduct targeted or off-schedule reviews for due cause. DFPI may also exempt a bank or credit union, or examine it less frequently, following a fully compliant examination. No parallel exemption applies to CRMLA licensees.

DFPI must provide written findings and ensure correction of violations. Findings are confidential but may be shared with law enforcement and regulators. Affiliates of banks and credit unions may be examined when documented evidence shows qualifying unlawful activity involving the affiliate. Examination fees may not exceed reasonable examination expenses.

Why Does It Matter?

AB 801 makes California mortgage nondiscrimination laws part of routine DFPI supervision and renders any such violations enforceable under each covered institution’s governing financial statute.

For covered banks and credit unions, the Act expressly requires correction of unjustified discriminatory effects under FEHA. DFPI may therefore assess whether facially neutral practices produce discriminatory outcomes in underwriting, pricing, exceptions, marketing, redlining, servicing, loss mitigation, and other mortgage activities. This state-law focus is especially significant because the CFPB’s 2026 amendments to Regulation B state that ECOA does not authorize disparate-impact liability. That federal position does not displace FEHA, which may also apply to CRMLA licensees engaged in covered housing-finance activities.

Covered banks and credit unions also face examination risk outside the ordinary four-year cycle: complaints or other evidence of possible discrimination may support a targeted or off-schedule examination.

What Do I Need to Do?

Covered institutions should use the period before January 1, 2027 to evaluate whether their fair lending compliance management systems are prepared for examination by the DFPI. This should include the following steps:

  • Map California-law requirements. Update fair lending policies and risk assessments to address FEHA, the Holden Act, and Unruh in addition to ECOA and the federal Fair Housing Act. The analysis should identify California-specific protected classes, prohibited geographic considerations, and discriminatory-effect risk.
  • Maintain comprehensive records. Document all facts surrounding inquiries, applications, and decisions. If a complaint is received, having a clean, transparent audit trail is critical because written findings from DFPI exams go directly to principals, officers, or directors, and violations become actionable breaches under the Banking Law, Credit Union Law, or the CRMLA. Also retain current policies, risk assessments, loan-level data, exception reports, complaint logs, management reporting, and remediation evidence in an exam-ready format.
  • Scrub and geocode loan data. Assemble comprehensive loan datasets and ensure every single record is accurately geocoded, and track marketing footprints and branch locations by geography.
  • Run statistical testing on underwriting and pricing. Conduct periodic (at least annually) risk-based testing of underwriting, pricing, exceptions, steering, redlining, marketing, servicing, and loss-mitigation outcomes, controlling for legitimate factors supported by policy and loan-level records.
  • Document business justifications for disparities. If the statistical review flags any disparities, pull comparative files, review exceptions and manual overrides, and document a clear legitimate business interest for any remaining variance.
  • Prepare for state-level disparate impact scrutiny. Evaluate whether neutral policies or automated underwriting/pricing rules inadvertently generate a disparate impact against protected groups, and review pricing exception reports for trends in magnitude or frequency of exceptions. Unlike recent federal rollbacks, the new statute explicitly requires the DFPI to address discriminatory effect (disparate impact) under California fair housing and civil rights laws unless it is justified by a legitimate business interest.
  • Treat complaints as exam triggers. Escalate and route complaints immediately to the compliance officer or legal counsel to review whether the complaint highlights systemic patterns, steering, redlining, or inconsistent application of underwriting standards. The DFPI explicitly uses incoming discrimination complaints as cause to launch off-schedule or targeted fair lending examinations outside of the standard four-year examination cycle.
  • Prepare for examinations. The new statute authorizes the DFPI to conduct examinations under oath and issue formal written statements of findings requiring direct correction of violations. Therefore, covered institutions should maintain materials for efficient production and readiness for sworn examinations, written findings, and corrective action.

Alston & Bird’s Consumer Financial Services team is available to assist banks, credit unions, and mortgage lenders and servicers in assessing AB 801 coverage, evaluating California fair lending risk, and preparing for DFPI examinations.

The California Financial Protection Bureau? California Moves to Fill the CFPB Void

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What Happened?

On May 12, 2026, California Governor Gavin Newsom announced the appointment of former Consumer Financial Protection Bureau (“CFPB”) Director Rohit Chopra as Secretary of the newly created California Business and Consumer Services Agency (“BCSA”).

The BCSA is a cabinet-level reorganization that will officially launch on July 1, 2026, consolidating a wide range of licensing, regulatory, and enforcement functions across numerous consumer-facing sectors of the California economy. These include oversight bodies such as the Department of Financial Protection and Innovation (“DFPI”), Department of Consumer Affairs, and other key regulators impacting financial services, real estate, and technology markets.

Governor Newsom framed the move explicitly as a response to the federal government’s retrenchment in consumer financial protection under the Trump administration, positioning California to “strengthen the state’s efforts to protect consumers and honest businesses” as federal enforcement is scaled back.

Chopra, who previously led the CFPB and served as a Federal Trade Commission commissioner, is widely known for aggressive enforcement initiatives targeting “junk fees,” repeat offenders, and unfair or abusive practices in consumer finance.

Why Does It Matter?

The creation of the BCSA—and the selection of Chopra to lead it signals a deliberate effort by California to function as a state-level analogue to a weakened CFPB. As federal consumer protection oversight contracts, California is positioning itself to step into the resulting regulatory vacuum.

This mirrors broader state-level trends, where states are expanding their authority and enforcement posture to address unfair, deceptive, and abusive acts and practices (“UDAAP”) in the absence of robust federal oversight. For example, as we have noted in prior posts, New York has moved to modernize its UDAAP framework in anticipation of increased enforcement and oversight of the financial services industry. California now appears poised to follow a similar path, albeit through a different structural approach.

Unlike a single regulator the BCSA is structured as a coordinating “umbrella” agency that brings together dozens of previously fragmented entities. This consolidation is designed to align enforcement priorities, streamline supervision, and enable coordinated rulemaking across industries that increasingly intersect (e.g., fintech, payments, and digital platforms).

For financial services companies, the most significant implication is the integration of the DFPI into a broader enforcement framework. The DFPI already exercises expansive authority over mortgage banking and finance lending activities and, under the California Consumer Financial Protection Law (“CCFPL”), supervises a broad spectrum of nonbank financial products, including lending, payments, and emerging fintech offerings. The new structure allows California to pursue cross-sector enforcement strategies, particularly where financial products intersect with technology platforms, data practices, or broader consumer marketplaces.

Chopra’s appointment strongly suggests that California enforcement will reflect the priorities and philosophy that characterized his tenure at the CFPB. During that time, the Bureau emphasized:

  • Aggressive enforcement against “junk fees” and pricing practices;
  • Scrutiny of repeat offenders and systemic compliance failures;
  • Focus on unfairness and abusiveness theories, not just deception; and
  • Increased attention to digital platforms, data usage, and algorithmic decision-making.

Expect these same themes to shape California’s enforcement agenda, with a particular emphasis on identifying “pattern and practice” violations affecting broad segments of consumers, rather than isolated compliance issues.

What Do You Need to Do?

In light of California’s evolving regulatory posture, financial services companies should take proactive steps to reassess their compliance frameworks with an eye toward increased state-level scrutiny.

First, companies should assume that CFPB-style UDAAP standards will remain highly relevant and ensure that policies and controls are calibrated to address unfair and abusive practices, not just deception.

Second, institutions should evaluate their operations holistically, recognizing that California regulators may take a “full lifecycle” view of consumer interactions. This includes:

  • Product design and pricing;
  • Marketing and disclosures;
  • Servicing and communications; and
  • Complaint handling and remediation practices.

Third, companies should prepare for greater inter-agency coordination within California, which may lead to:

  • More complex and multi-dimensional investigations; and
  • Parallel scrutiny across licensing, conduct, and consumer protection regimes.

Finally, organizations should closely monitor developments from the BCSA and its component agencies, particularly the DFPI, as enforcement priorities and rulemaking agendas begin to take shape under Chopra’s leadership.

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

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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.