Legal Update: California's Senate Bill 825 and Its Potential Negative Impacts on Lending Practices

In the ever-evolving landscape of California's financial regulations, Senate Bill 825 (SB 825) represents a significant development that could reshape oversight of lending activities. Introduced in the 2025-2026 legislative session, this bill seeks to expand the enforcement powers of the Department of Financial Protection and Innovation (DFPI) under the California Consumer Financial Protection Law (CCFPL). While purportedly aimed at enhancing consumer protections, it may impose additional burdens on lenders, potentially increasing compliance costs and regulatory risks. This update outlines the bill's key elements, its current status, and how it could adversely affect lending practices if enacted. As always, this is for informational purposes only and not legal advice—please consult with our firm for personalized guidance.

Overview of Senate Bill 825

SB 825, authored by Senators Monique Limón and Grayson, amends Sections 90002 and 22304.5 of the Financial Code. The bill primarily clarifies and expands the DFPI's authority to enforce prohibitions against unfair, deceptive, or abusive acts or practices (UDAAP) in consumer financial services, even for entities otherwise exempt under state licensing laws. It addresses perceived gaps in enforcement, particularly in light of potential federal rollbacks in consumer protections under the Consumer Financial Protection Bureau (CFPB). Additionally, the bill refines requirements for credit education programs offered by finance lenders for loans between $2,500 and $10,000, mandating prior DFPI approval and ensuring no-cost access for borrowers.

Current Legislative Status

As of August 14, 2025, SB 825 is pending in the Assembly Appropriations Committee, with a hearing scheduled for August 20, 2025. The bill was introduced on February 21, 2025, amended in the Senate on March 24, 2025, and passed the Senate on June 3, 2025, by a vote of 28-10. It advanced through the Assembly Banking and Finance Committee on July 7, 2025 (7-1 vote), before being referred to Appropriations. If it clears the Assembly and returns to the Senate for concurrence on any amendments, it could proceed to the Governor for signature. The bill's progress reflects ongoing efforts to bolster state-level consumer safeguards amid federal uncertainties.

Key Provisions

The core of SB 825 focuses on eliminating ambiguities in the CCFPL's exemptions:

• Expansion of DFPI Enforcement Authority: Currently, licensed entities such as finance lenders, mortgage brokers, escrow agents, and others are exempt from certain CCFPL provisions when operating within their license scope. The bill specifies that these exemptions do not bar the DFPI from pursuing UDAAP violations, allowing for broader investigations, civil penalties, and remedies like restitution or injunctions.

• Credit Education Requirements: For loans in the $2,500–$10,000 range, finance lenders must offer DFPI-approved credit education programs or seminars at no cost, whether provided in-house or via third parties. Lenders are also required to report borrower payment performance to at least one major credit bureau, with interest caps remaining at 36% plus the Federal Funds Rate.

  
  

These changes aim to align state enforcement with federal standards while closing loopholes that might allow abusive practices to go unchecked.

Potential Negative Impacts on Lending Practices

If enacted, SB 825 could introduce several challenges for lenders, particularly in a state already known for stringent financial regulations:

• Increased Regulatory Scrutiny and Enforcement Risks: By empowering the DFPI to apply UDAAP standards to licensed activities, the bill may lead to more frequent investigations and enforcement actions, even for practices previously considered compliant under specific licenses. This could result in higher legal fees, penalties, and reputational damage, deterring innovation in lending products.

• Elevated Compliance Costs: Lenders may need to overhaul compliance programs, marketing materials, and customer interactions to avoid UDAAP claims. The requirement for DFPI-approved credit education adds administrative burdens, potentially increasing operational expenses that could be passed on to borrowers through higher fees or interest rates.

• Uncertainty and Chilling Effect on Lending: The broader interpretation of "abusive" practices might create ambiguity, leading lenders to restrict offerings or exit certain markets to minimize risk. Third-party service providers could also face liability, complicating partnerships and raising costs across the lending ecosystem.

• Broader Market Implications: In the context of reduced federal oversight, this state-level expansion could position California as a more aggressive regulator, potentially driving lenders to favor other states and reducing credit availability for California consumers.

  
  

While proponents argue it strengthens consumer protections, critics may view it as overreach that stifles competition and economic growth in the lending sector.

Best Practices to Prepare

To mitigate potential risks from SB 825, consider the following steps:

1. Review Compliance Frameworks: Conduct internal audits to ensure practices align with UDAAP standards, focusing on transparency in marketing, fee structures, and customer communications.

2. Update Credit Education Programs: For applicable loans, verify that programs meet DFPI approval criteria and document borrower participation.

3. Monitor Legislative Developments: Stay informed on the bill's progress, as amendments could alter its scope. Engage industry associations for advocacy.

4. Enhance Risk Management: Train staff on UDAAP risks and consider insurance or reserves for potential enforcement actions.

5. Seek Expert Advice: Partner with legal counsel to assess how the bill might affect your specific operations and develop proactive strategies.

   
   

Conclusion

Senate Bill 825 underscores California's commitment to robust consumer financial protections but at the potential cost of heightened burdens on lenders. As the bill advances, its enactment could fundamentally alter lending dynamics in the state. Our firm is closely tracking this and related developments to help you navigate these changes. Contact us today to discuss implications for your business.