BILL ANALYSIS Ó
AB 2006
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Date of Hearing: April 16, 2012
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2006 (John A. Perez) - As Amended: April 11, 2012
SUBJECT : Credit union services.
SUMMARY : Authorizes a state-chartered credit union to sell
checks, money transfer instruments including international and
domestic electronic fund transfers to non-members for a fee.
Specifically, this bill :
1)Allows a state chartered credit union to cash checks and
similar money transfer instruments and receive international
and domestic electronic fund transfers for a fee to
non-members.
2)Defines "checks" as a draft, other than a documentary draft,
payable on demand and drawn on a bank, a cashier's check or
teller's check, or a demand draft. An instrument may be a
check even though it is described on its face by another term,
such as "money order."
EXISTING FEDERAL LAW
1)Amends the Financial Services Regulatory Relief Act of 2006 in
July of 2011. The Act was amended to correlate with the
Dodd-Frank Act and made the following minor amendments:
a) To sell, to persons in the field of membership,
negotiable checks (including travelers checks), money
orders, and other similar money transfer instruments
(including international and domestic electronic fund
transfers and remittance transfers, as defined in section
1693o-1 of title 15 ); and,
b) To cash checks and money orders for persons in the field
of membership for a fee. (12 USC 1757) (Federal Register/
Vol. 76, No.230/ Wednesday, November 30, 2011)
2)Establishes the Financial Services Regulatory Relief Act of
2006 (Public Law 109-351) which allows federally-chartered
credit unions to:
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a) Sell, to persons in the field of membership, negotiable
checks, including traveler's checks, and money orders, and
other similar money transfer instruments, including
international and domestic electronic fund transfers.
b) Cash checks and money orders and receive international
and domestic electronic fund transfers for persons in the
field of membership for a fee.
3)Defines "remittance transfer" as an electronic (as defined in
section 106(2) of the Electronic Signatures in Global and
National Commerce Act ( 15 U.S.C. 7006 (2) )) transfer of funds
requested by a sender located in any State to a designated
recipient that is initiated by a remittance transfer provider,
whether or not the sender holds an account with the remittance
transfer provider or whether or not the remittance transfer is
also an electronic fund transfer.
4)Defines a "Federal credit union" as a cooperative association
organized in accordance with federal law for the purpose of
promoting thrift among its members and creating a source of
credit for provident or productive purposes. Ý12 USC 1752]
5)Provides that the membership of any Federal credit union shall
be limited to the membership described in one of the following
categories:
a) Single common-bond credit union-One group that has a
common bond of occupation or association.
b) Multiple common-bond credit union-More than one group--
i) each of which has (within the group) a common bond
of occupation or association; and
ii) the number of members, each of which (at the time
the group is first included within the field of
membership of a credit union described in this paragraph)
c) Community credit union-Persons or organizations within a
well-defined local community, neighborhood, or rural
district. Ý12 USC 1759]
EXISTING STATE LAW
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1)Establishes that a credit union is 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.
ÝFinancial Code, Section 14002]
2)Provides in the California Credit Union Law that it is
applicable to any person, other than a federal credit union
engaging in the business of a credit union in this state.
ÝFinancial Code, 14001.1]
3)Prohibits an officer, director, committee member, or employee
of any credit union from approving a person for admission to
membership or admit an applicant for membership in the credit
union or extends any benefit or service of the credit union to
any person, unless that person is admitted to membership in
the credit union. ÝFinancial Code, Section 14800]
4)Provides that every credit union may admit to membership those
persons eligible for membership, upon any of the following:
a) The purchase of a membership in the credit union as
provided in the credit union's bylaws;
b) The payment of an entrance fee established from time to
time by the board of directors;
c) The purchase of one or more shares in the credit union
as provided by the credit union's bylaws. ÝFinancial Code,
Section 14800]
5)Defines "check" as a draft, other than a documentary draft,
payable on demand and drawn on a bank, a cashier's check or
teller's check, or a demand draft. An instrument may be a
check even though it is described on its face by another term,
such as "money order." ÝCommercial Code, Section 3104]
6)Provides any officer, director, member of a committee of a
credit union, loan officer appointed, or employee who
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knowingly permits the creation of an obligation with, or
participates in the creation of an obligation with, a
nonmember of the credit union, or knowingly permits the
creation of an obligation or participates in the creation of
an obligation which is not made in conformity with the
requirements of this division, is guilty of a misdemeanor.
ÝFinancial Code, Section 14750]
FISCAL EFFECT : None.
COMMENTS :
According to the Federal Credit Union Act of 1934, the American
credit union movement began as a cooperative effort to serve the
productive and provident credit needs of individuals of modest
means. Credit unions are created to promote thrift and credit
extension, a meaningful affinity and bond among members,
manifested by a commonality of routine interaction, shared and
related work experiences, interests, or activities, or the
maintenance of an otherwise well understood sense of cohesion or
identity is essential to the fulfillment of the public mission
of credit unions.
Credit unions, unlike many other participants in the financial
services market, are exempt from Federal and most State taxes
because they are member-owned, democratically operated,
not-for-profit organizations generally managed by volunteer
boards of directors and because they have the specified mission
of meeting the credit and savings needs of consumers, especially
persons of modest means. Improved credit union safety and
soundness provisions will enhance the public benefit that
citizens receive from these cooperative financial services
institutions.
Credit union members are united by a common bond of association
(also known as a field of membership), and democratically
operate the credit union. Credit unions can be chartered by the
federal or state government. Members of each credit union must
share a "common bond," such as the same workplace, church,
fraternal organization, or neighborhood.
As of December 2011, there are 7,324 credit unions in the United
States. About 424 of these are in California. Of the 92.6
million credit union members nationwide, 9.59 million are in
California. Of the 424 credit unions in California, 157 are
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state chartered and 267 are federally chartered. The 424 credit
unions carry $129.0 billion in total assets in California. AB
2006 would allow 157 state chartered credit unions to provide
services that 267 federally chartered credit unions can already
provide. If anything, this measure takes away confusion and
provides parity. Consumers needing these services do not
understand the difference between a state chartered credit union
and a federally chartered credit union. It would not make sense
to a consumer to be turned away because the credit union was
state chartered rather than federally chartered. Also, just to
make this point clear, nationwide, every federally chartered
credit union can provide these services in their respective
states.
Currently, six states allow state chartered credit unions to
provide services to non-members. These states include:
Connecticut, Georgia, Michigan, New Mexico, Ohio, Virginia, and
Wisconsin. Most state acts such as Florida, New York and
Maryland, allow for credit unions to engage in activities that
are permissible to federal credit unions but require additional
approval by the state regulator. The provisions in the state
credit union acts of Alabama, Arizona, Illinois, Iowa,
Louisiana, Maine, Missouri, Nebraska, Oklahoma, Rhode Island,
Texas, and Washington do not require approval.
According to the FDIC in October 2010, 1,013,000 households in
California were unbanked, 7.7% of all households in the state.
Unbanked individuals generally find themselves having to pay
exorbitant fees to cash checks or conduct other financial
transactions. Permitting state chartered credit unions to
provide these individuals with additional ways to transact basic
financial services could assist these individuals and ultimately
lead to their full participation in the legitimate financial
marketplace. The unique structure and mission of credit unions
make them the ideal arena to help transition the "unbanked" into
full partnership in the California dream.
In 2006, President Bush signed the Financial Services Regulatory
Relief Act. The stated purpose of that legislation was "to
lessen the regulatory burden, so banks, thrifts, and credit
unions can better serve their customers and communities." An
element of the Act is intended to address the issue of the
"unbanked" by authorizing federal credit unions to provide check
cashing, money order, and money transmittal services to
individuals within a federal credit unions' field of membership.
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This was an important step that provided additional options for
people to cash checks, purchase money orders, and send money to
family back home. However, the bill only applied to federal
credit unions. Leveling the playing field for the remaining
credit unions in California, those operating under a state
charter, will create even more choices for those who are
unbanked.
AB 2006 would codify state law into the version of the Financial
Services Regulatory Relief Act passed in 2006. Since the
enactment of the Financial Services Regulatory Relief Act, the
National Credit Union Administration decided to amend its rules
to conform to amendments made to the Federal Credit Union Act by
the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Final rule adds remittance transfers as now defined under
the Electronic Fund Transfer Act, as an example of money
transfer instruments credit unions may provide to persons within
their fields of membership. The Dodd-Frank Act also removed the
reference to the receipt of the international and domestic
electronic fund transfers to simply eliminate a redundancy.
TAX STATUS :
In 1937, Congress granted credit unions with a federal
tax-exempt status based upon their cooperative structure.
Credit unions are operated entirely by and for their members.
According to the Credit Union National Association, credit
unions do pay taxes such payroll taxes, real estate taxes, and
some property taxes. In addition, dividends paid to credit
union members are taxed as ordinary income.
CREDIT UNIONS VS. BANKS
-------------------------------------------------
| Credit Unions | Banks |
|------------------------+------------------------|
| Member Owned | Publicly Owned |
|------------------------+------------------------|
| Serve only members |In the business to make |
| | a profit. |
|------------------------+------------------------|
|Not for profit, not for |Serve two groups: stock |
| charity, credit unions | holders and customers |
| exist solely for | |
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| service. | |
|------------------------+------------------------|
|Focus solely on serving | Banks can serve anyone |
| their members. |in the general public. |
|------------------------+------------------------|
| As a not-for-profit, | Only investors get a |
| any income is returned | share of the profits. |
| to members in the form | |
| of low or no service | |
| fees, lower rates on | |
| loans and higher | |
| deposit rates. | |
|------------------------+------------------------|
| Members elect a | Have a paid Board of |
| volunteer Board of | Directors who |
| Directors to represent | represents the |
| their interests. Each | investors. Only |
| member is an equal | investors have voting |
| owner. | rights. Customers have |
| | no voting rights, and |
| | have no authority in |
| | the governance of the |
| |bank. |
|------------------------+------------------------|
| Deposits are federally | Deposits are federally |
|insured by the National | insured up to $250,000 |
| Credit Union | by the Federal Deposit |
| Administration (NCUA) | Insurance Corporation |
| to at least $250,000 | (FDIC). |
| and backed by the full | |
|faith and credit of the | |
| United States | |
| Government. | |
|------------------------+------------------------|
| Like other | Like other for-profit |
| not-for-profit | businesses, banks must |
| institutions, credit | pay taxes to the |
| unions are exempt from | government. |
| paying federal income | |
| tax. Credit unions do | |
| pay property and state | |
| taxes. | |
|------------------------+------------------------|
|Financial cooperatives. | Commercial businesses. |
| Members pool their |Banks offer services to |
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| savings to provide |make a profit. |
| low-cost loans and | |
| low-fee services to | |
| each other. | |
-------------------------------------------------
ARGUMENTS IN SUPPORT :
According to the California Credit Union League, AB 2006 creates
parity with federally chartered credit unions that have been
providing these basic services for the past five years.
It is estimated that more than one million Californian
households are unbanked - that's nearly eight percent of
Californian households. These percentages are more than doubled
in lower-income households as well as African American and
Latino households. These individuals generally use fringe
financial services that do not encourage healthy financial
habits that are associated with a traditional banking
relationship. AB 2006 will provide those individuals with
additional ways to transact basic financial services in a
setting that leads to full participation in the legitimate
financial marketplace.
AB 2006
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ARGUMENTS IN OPPOSITION :
According to the California Bankers Association, the purpose of
this credit union expansion is to address the issue of unbanked
Californians; however, the bill does nothing to reduce the
number of unbanked people. The bill has the perverse effect of
promoting an unbanked lifestyle by providing banking services
without establishing accounts. If credit unions want to serve
the unbanked, then they should make them members. Becoming a
member is as easy as breathing because of the proliferation of
community based credit unions. All you have to do is live,
work, or worship within a credit union's field of membership and
you can sign up for an account.
PREVIOUS LEGISLATION:
SB 638 (Romero) (2007 Legislative Session) would have authorized
a credit union to sell, to persons in the field of membership,
negotiable checks, money orders, and other similar money
transfer instruments. The bill would also authorize a credit
union to, for a fee, cash checks and money orders and receive
international and domestic electronic fund transfers for persons
in the field of membership. Remained in Senate Banking and
Financial Institutions.
SB 1292 (Dunn) (2004 Legislative Session) would have until
January 1, 2012, authorized a credit union to cash checks, sell
negotiable instruments, and sell money transfer instruments to
any credit union member, depositor, or person within the field
of membership. Failed Passage in Assembly Banking and Finance.
REGISTERED SUPPORT / OPPOSITION :
Support
California Credit Union League
California Labor Federation
California School Employees Association
Center for Responsible Lending
Consumer Federation of California
Silicon Valley Community Foundation
Opposition
California Bankers Association (CBA)
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California Independent Bankers (CIB)
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081