The next couple of years at the federal level are going to be interesting. Republicans have taken control of the United States House of Representatives but Democrats continue to hold the Senate and the White House. The tension and inter-party fighting will only intensify leading into the 2024 Presidential Election.
While most of California’s Congressional incumbents who ran were re-elected, there are a handful of new California representatives. Accordingly, we will travel to Washington, D.C. in February for a freshman fly-in with the goal of conducting meet-and-greets with these newly elected non-incumbent Congressional Representatives. The CBA advocacy team will increase its presence in D.C. by making a few more visits throughout the year, including our CBA Annual Visit in March and our Joint Visit with the Florida Bankers Association in September.
California continues to benefit from having Congressional Representatives in leadership roles, including Kevin McCarthy who ascended to Speaker of the House, but will likely struggle to keep his party aligned given internal factions. Maxine Waters will pivot from the chair to vice-chair of the House Financial Services Committee.
With Republicans in charge of the House, there will be a focus on oversight and investigatory hearings. While much of this may not pertain to the banking industry, some of it will. Federal regulators appointed by President Biden will likely get a more challenging reception in the House Financial Services Committee and it’s likely that the industry will be whipsawed on fair lending criticisms, a no-win conflict that pits banks between conservative and progressive elected officials and between red and blue states on whether the industry finances fossil fuels and firearms companies.
So, while there may be a number of banking-related measures introduced, the possibility of many of these measures reaching the President is unlikely. Instead, we will likely see more regulatory activity as the current Administration will look to achieve its public policy results through rulemaking and enforcement instead of pursuing legislative vehicles.
What happens, or doesn’t happen, in Washington, D.C. will influence legislative activity at the state level. We’ve seen this in the past. Consumer advocates who are frustrated with the inability to advance reforms at the federal level, will appeal to the California Legislature to take action. There are a number of areas where this could be true.
Establishing a licensing and regulatory framework for entities issuing cryptocurrency will be a priority despite the governor vetoing a measure from last year. Recent events will only amplify the desire to enact meaningful consumer protections. CBA supported the measure from last year which included an exemption for banks. A new measure was introduced the first day the California Legislature convened for the new session just a few weeks ago.
Irrespective of what the SEC adopts as a final rule for climate disclosures, the California Legislature will re-introduce a measure requiring certain companies doing business in California to report Scope 1, 2 and 3 greenhouse gas emissions. We anticipate the California measure going beyond the federal requirements. It goes without saying that this will create substantial compliance burdens as reporting requirements will be duplicative in some regards, conflicting or expansive in other ways, and will most certainly have liability ramifications for failures to comply.
California has historically been a pioneer in advancing consumer privacy protections, evidenced in the past couple of years through the enactment of the California Consumer Privacy Protection Act of 2018 and the voter-approved strengthening of the Act through California Privacy Rights Act (CPRA) of 2020. Meanwhile, a national privacy standard has stalled in Congress. The California Privacy Protection Agency, created by the CPRA, is near finalizing its initial rulemaking, albeit late. The Agency still needs to promulgate regulations on the use of automated decision-making, an issue that has received heightened legislative attention regarding the technology’s use in various consumer products and services.
All of these public policy issues will unfold in a Legislature that has a sizeable new freshman class and where Republicans have fewer seats. Democrats held supermajorities in the state Senate and Assembly prior to the November General election and that stronghold wasn’t expected to materially change afterward. With the election behind us, Democrats have ultimately gained two seats in the Assembly, bringing their total to 62 members compared to 18 for the Republicans. Similarly, Republicans lost a seat in the Senate bringing their caucus to a total of eight members compared to 32 for the Democrats. All statewide Constitutional offices remain held by Democrats.
The February 17 bill introduction deadline is a few weeks away. We will see approximately 2,500 measures introduced. We will then have a better perspective on the Legislature’s priorities for the year. Having said that, a significant number of measures will initially serve as placeholders for more substantive public policy and will therefore fail at the outset to truly reveal the author’s ultimate intent.
Legislative efforts at the federal level and in California are intertwined. Many times, California is a pioneer and is a catalyst for public policy discussions at the federal level. Other times, action is California is taken because of paralysis federally. No matter the motivation, this year promises to be active. Stay tuned.