BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1076
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 1076 (Achadjian)
          As Amended  June 6, 2011
          Majority vote
           
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          |ASSEMBLY:  |78-0 |(May 19, 2011)  |SENATE: |38-0 |(August 30,    |
          |           |     |                |        |     |2011)          |
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           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 








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               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 








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            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 








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          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