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DFPI seeks fee increases as agency warns of looming shortfall; LAO urges short term approval and monitoring
Summary
The Department of Financial Protection and Innovation told the subcommittee that statutory fees have lagged rising costs and expanded responsibilities, leaving its financial protection fund at risk. The department seeks statutory fee changes to stabilize the fund; the LAO recommended a time‑limited approval with required reporting.
The Department of Financial Protection and Innovation (DFPI) told Senate Budget Subcommittee No. 4 it needs statutory fee authority changes to avoid insolvency of its Financial Protection Fund. DFPI staff said long‑stagnant statutory fees, expanded regulatory responsibilities and rising operational costs have produced a structural deficit.
DFPI Chief Deputy Commissioner Suzanne Martindale said the agency is primarily special‑funded and that historical fee schedules—some dating back decades—have not kept pace with workload and inflation. DFPI said it commissioned Crowe LLP to analyze program sustainability; DFPI and Department of Finance officials said that without fee changes the fund could reach a negative balance in FY2025–26 and materially worsen in subsequent years.
LAO recommendations and debate
The Legislative Analyst's Office recommended the legislature approve the department’s proposed fee increases for the programs identified, but on a limited three‑year term. LAO said that short term approval would let the legislature assess the market impact of higher fees, observe actual revenues collected and require DFPI to provide detailed revenue plans for programs not covered by the trailer bill language. DFPI opposed automatic short sunsets, arguing licensees require predictability and the department needs sustainable, ongoing authority to cover program costs.
What the proposal would do
DFPI said the trailer‑bill language targets several licensing programs (broker‑dealer/investment advisors, franchise, California residential mortgage lending, escrow, and others) and would: (1) increase certain statutory assessments to reflect current workload and (2) modify the commissioner’s authority to set hourly examination rates (proposed $120/hour for examinations was discussed as a department‑wide rate for some programs). DFPI estimates the fee package in the bill will address roughly $45.8 million of an identified multi‑year shortfall; other gaps include the cost of new programs and other existing program deficits DFPI says it will address through existing commissioner authority and other measures.
Why it matters
Senators stressed the consumer‑protection role DFPI plays and the risk that sudden, large fee increases can have market effects. LAO urged caution and monitoring: approving fee increases for a limited term would allow the legislature to measure industry response, verify revenue projections and consider adjustments. DFPI countered that a short sunset would hinder recruitment and long‑term planning.
Follow‑ups and public comment
DFPI agreed to annual program reviews and to monitor revenues and expenditures monthly. LAO requested DFPI provide detailed plans for how remaining shortfalls would be addressed. Stakeholders including the California Mortgage Bankers Association attended and sought clarity about how assessments would be calculated and billed for the September assessment cycle.
Ending: The subcommittee held the DFPI fee language open for additional legislative consideration and follow‑up reporting, with members indicating agreement about the agency’s consumer‑protection importance but divergent views about the governance of fee changes.
