In the vast economic expanse of California, Clothilde Hewlett's approach to her role as Commissioner of the California Department of Financial Protection and Innovation (DFPI) exemplifies purpose-driven leadership. Her career path was driven by childhood experiences of hardship and a deep-seated sense of fairness and ultimately led to her current role in championing and safeguarding economic justice in the world’s fifth-largest economy.
Growing up in extreme poverty, Hewlett’s early experiences ignited a passion for justice and fairness, propelling her toward a career in law. "One of the ways that I was able to get through a period of extraordinary suffering was a dream of being an attorney and being in a position of helping to relieve that suffering myself," Hewlett recalls in an interview with Alphy.
As an attorney, she was driven by a mission to use the law as a tool for change. She does the same as a high-level executive with the state of California, overseeing an economy where the stakes are immense, with responsibilities stretching across a financial landscape that impacts "everyday people on a national level ... [and] on a global level."
Hewlett's tenure as top official at the DFPI, a division with 1,000 employees, has been marked by significant efforts to protect the most vulnerable. She has spearheaded initiatives to combat predatory lending, recognizing that "what happens in underserved communities is many people don't have access to the traditional banking system." Under her leadership, California has introduced caps on interest rates for small loans, a direct challenge to exploitative practices that ensnare the poor in cycles of debt.
The DFPI, formerly known as the Department of Business Oversight, plays a crucial role in regulating financial services and products. It oversees a wide range of financial institutions, including state- and foreign-chartered banks, credit unions, securities broker-dealers, investment advisors, payday lenders, fintech companies, PayPal, Apple Pay, and student loan servicing, among others, as well as trillions of dollars in transactions. The DFPI’s mission is multifaceted, aimed at protecting consumers, fostering responsible innovation, and enhancing the stability of California's financial system. It ensures that financial products and services are offered in a fair, transparent, and accessible manner, safeguarding the public from fraudulent, abusive, and predatory practices.
Here are a few examples highlighting the challenges that individuals in underserved communities face, underscoring the importance of the work being done at the DFPI under Hewlett's direction.
1. Redlining Practices by Banks
Redlining, a discriminatory practice where banks refuse or limit loans, mortgages, or insurance within specific geographic areas based on race or ethnicity, has a long and troubling history in the United States. A notable case involved the Justice Department settling with a major bank for $335 million over charges that it discriminated against minority borrowers by offering them more expensive mortgages than white borrowers. The bank’s practices led to higher loan rates for Black and Hispanic borrowers, regardless of their creditworthiness.
2. Predatory Lending in the Subprime Mortgage Crisis
The subprime mortgage crisis, which peaked in 2008, revealed extensive racial disparities in mortgage lending. Investigations and reports found that African American and Latino borrowers were more likely to be steered towards subprime loans, even when they qualified for prime rates. A study revealed that in 2006, African American and Hispanic borrowers were about 30% more likely to receive higher-rate subprime loans than white borrowers with similar financial profiles. This led to disproportionately higher rates of foreclosure and financial instability in minority communities, illustrating how predatory lending practices have long-term devastating effects on racial and ethnic minorities.
3. Discrimination in Auto Lending
Beyond the housing market, racial discrimination in auto lending has also been a significant issue. In one instance, a large auto financing company agreed to a $98 million settlement with the Justice Department for charging higher interest rates to Black and Hispanic borrowers than white borrowers, regardless of their credit scores. The investigation found that the company’s loan pricing policies allowed dealers to mark up interest rates based on subjective criteria, which resulted in discriminatory pricing. This case underscores the broader issue of racial bias in lending practices across different types of financial products.
Hewlett’s focus extends beyond traditional financial products to include emerging areas like cryptocurrencies. Her proactive stance against fraudulent practices in the cryptocurrency space is indicative of a broader commitment to ensuring that financial innovation benefits consumers instead of exploiting them. By pursuing companies that prey on vulnerable populations — “to the end of the earth,” she vows — Hewlett’s DFPI sends a strong message about California’s commitment to ethical financial oversight.
“It's very rare that we're given this opportunity to make this type of systemic change in people's lives,” Hewlett says. “And so if you get that opportunity, run with it. Don't be afraid to use your power.”
Amanda Nurse is the editorial and operations coordinator at Alphy.
Reflect AI by Alphy is an AI communication compliance solution that detects and flags language that is harmful, unlawful, and unethical in digital communication. Alphy was founded to reduce the risk of litigation from harmful and discriminatory communication while helping employees communicate more effectively.