BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1076
                                                                  Page  1

          Date of Hearing:   May 2, 2011

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                                   Mike Eng, Chair
                   AB 1076 (Achadjian) - As Amended:  April 4, 2011
           
          SUBJECT  :   Credit unions.

           SUMMARY  :   Adapts portions of the California Credit Union Law to 
          the Federal Credit Union Act.  Specifically,  this bill  :  

          1)Requires the money borrowed/credit extended (obligation) to be 
            approved by the board of directors if either of the following 
            apply:

             a)   The obligation or the aggregate is in excess of $20,000 
               plus pledged shares.

             b)   The obligation is guaranteed or endorsed by the official 
               and the obligation or aggregate of obligations are 
               guaranteed or endorsed by the official in excess of 
               $20,000.  

          1)Deletes the current requirements of basing the obligation off 
            a tiered system based on the asset size of the credit union. 

           EXISTING FEDERAL LAW  establishes the federal Credit Union Act 
          with the purpose to make credit available and promote thrift 
          through a national system of nonprofit, cooperative credit 
          unions. (12 U.S.C. Ch.14)

           EXISTING STATE LAW:

           1)Establishes the California Credit Union Law.  (Financial Code, 
            Section 14000)

          2)Defines a "credit union" as a cooperative, organized for the 
            purposes of promoting thrift and savings among its members, 
            creating a source of credit for them at rates of interest set 
            by the board of directors, and providing an opportunity for 
            them to use and control their own money on a democratic basis 
            in order to improve their economic and social conditions. As a 
            cooperative, a credit union conducts its business for the 
            mutual benefit and general welfare of its members with the 
            earnings, savings, benefits, or services of the credit union 
            being distributed to its members as patrons.  (Financial Code, 







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            Section 14002)

          3)Provides for the regulation and certification of 
            state-chartered credit unions by the Department of Financial 
            Institutions (DFI).  Financial Code, Section 14003)

          4)Defines "official" as a director, officer, or member of the 
            supervisory committee or the credit committee of a credit 
            union.  (Financial Code, Section 15050)

          5)Regulates loans to officials of a credit union.  (Financial 
            Code, Section 15050)

          6)Defines "obligation" as any contractual obligation to the 
            credit union for money borrowed or credit extended or 
            guaranteed from its members, including, but not limited to, 
            loans, lines of credit, and agreements to extend credit, and 
            lease agreements. (Financial Code, Section 14007)

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   

          According to the sponsor, the California Credit Union League, AB 
          1076 would establish parity between loans to officials of 
          state-licensed and federally chartered credit unions by removing 
          the tiered loan limits that have applied to officials with 
          state-chartered credit unions since the 1970's.  AB 1076 would 
          replace the outdated tiered limits with language identical to 
          the limitations established by the federal Credit Union Act.  

          Credit unions are not-for-profit financial institutions that 
          serve their members' financial needs.  Credit unions are 
          governed by a volunteer board of directors. Credit unions are 
          either federally chartered through the National Credit Union 
          Administration (NCUA) or licensed by the state through DFI. 

          In the 1970s the Legislature capped the amount of a loan that 
          can be granted by a state licensed credit union to a credit 
          union member who also serves on that credit union's board of 
          directors. The loan limits are tiered based on the asset size of 
          the credit union. 

          While the intent to ensure that board members do not receive 
          special treatment of the loan caps was good, in reality the caps 
          have been limiting and provide a disincentive for members to 







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          serve on a state-licensed credit union board. The caps have 
          resulted in a situation where many credit union board members 
          are unable to obtain loans, especially large loans such as a 
          mortgage, even in cases where they meet the same loan 
          eligibility requirements as other members. 

          Board members of federally chartered credit unions are not 
          subject to these same tiered caps that apply to board members of 
          state licensed credit unions. 

          Instead, the federal Credit Union Act requires the board of 
          directors of a federally chartered credit union to approve or 
          disapprove a loan of greater than $20,000 to an individual 
          official. 

          As a result of the lack of parity with the regulations imposed 
          on federally chartered credit union, state-licensed credit 
          unions are placed at a disadvantage compared when it comes to 
          attracting qualified members to serve as volunteers on their 
          boards.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Credit Union League - Sponsor

           Opposition 
           
          None on file.
           
          Analysis Prepared by  :    Kathleen O'Malley / B. & F. / (916) 
          319-3081