BILL ANALYSIS Ó AB 1076 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1076 (Achadjian) As Amended June 6, 2011 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |78-0 |(May 19, 2011) |SENATE: |38-0 |(August 30, | | | | | | |2011) | ----------------------------------------------------------------- Original Committee Reference: B. & F. SUMMARY : Adapts portions of the California Credit Union Law to the Federal Credit Union Act. Specifically, this bill : 1)Defines an obligation as any loan or approved line of credit, including both used and unused portions, on which an official of a credit union is a borrower, coborrower, cosigner, endorser, or guarantor. 2)Retains the existing law requirement, which prohibits any state-chartered credit union from entering into any obligation with any official of that credit union, directly or indirectly, on terms that are more favorable than those extended to other members of the credit union, as specified. 3)Prohibits a state-chartered credit union from entering into any obligation with any official, directly or indirectly, unless all of the following requirements are satisfied: a) Upon the making of the obligation, the aggregate amount of obligations outstanding to all officials of the credit union, except obligations fully secured by shares, may not exceed 20% of the aggregate dollar amount of all savings capital of the credit union; b) The obligation, except any portion of the obligation fully secured by shares, may not exceed 10% of the aggregate dollar amount of the credit union's savings capital; and, c) Any obligation that would cause the aggregate amount of obligations outstanding to the official to exceed $50,000, excluding any portion fully secured by shares, must be approved by the credit committee or the credit manager and AB 1076 Page 2 by the board of directors. The official would be prohibited from taking part in any credit decision, directly or indirectly, for his or her benefit, and from being present during any portion of any committee or board meeting where his or her credit application is under consideration. The Senate amendments add further clarification to the language passed by the Assembly to conform with the Federal Credit Union Act. 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. Chapter 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, 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 AB 1076 Page 3 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) AS PASSED BY THE ASSEMBLY , this bill made portions of the California Credit Union Law the same as the Federal Credit Union Act. Specifically, this bill allowed a credit union member who is also a member of the credit union's board of directors to borrow money or have credit extended if specified conditions were met and established that obligations in excess of $20,000 must be approved by the board of directors. FISCAL EFFECT : According to the Assembly Appropriations Committee, costs are negligible. COMMENTS : According to the sponsor, the California Credit Union League, this bill 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 1970s. This bill 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 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 AB 1076 Page 4 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. 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 when it comes to attracting qualified members to serve as volunteers on their boards. Analysis Prepared by : Kathleen O'Malley / B. & F. / (916) 319-3081 FN: 0001788