On October 15, the California DFPI and the California Business and Consumer Services Agency ordered financial institutions to report on how they handle insurance payouts to survivors of the 2025 Eaton and Palisades fires in Los Angeles. The agencies are investigating whether lenders delayed payments, failed to offer a timely appeal process for fund-release decisions, or kept insurance money after a loan had been fully paid off. Lenders that fail to comply are subject to state enforcement, and firms found to have delayed or withheld funds may face enforcement under state and federal consumer protection laws. The order requires lenders to disclose in the report the size and distribution of insurance proceeds received for survivors’ property loss or damage, including personal property and living expenses. Licensees must also provide written explanations of whether the funds have been fully disbursed, the amount of time each disbursement took, and the cause of any delays or withholding, as of September 30. The DFPI said it has received more than 160 consumer complaints about delayed or problematic insurance disbursements since January 2025. The October 15 announcement also referenced a state law signed in August 2025 that requires lenders to pay homeowners the interest earned on post-loss insurance proceeds held in escrow while they await full disbursement (previously covered by InfoBytes here).

The order follows a July 14 letter from Governor Gavin Newsom to state associations representing banks, credit unions, and mortgage lenders. While noting that lenders typically release escrowed proceeds in tranches during construction and that loan agreements give them certain rights to withhold funds, which can help guard against fraud and abuse, the governor cited survivor reports of “unnecessary red tape” and delayed releases. Newsom directed the two agencies to collect data on three practices: (i) institutions that fail to release proceeds within 10 business days of a request once mortgage conditions are met; (ii) firms without expedited appeal pathways; and (iii) firms holding escrowed proceeds above unpaid loan balances.