BILL ANALYSIS Ó AB 2006 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2006 (John A. Pérez) As Amended August 6, 2012 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |57-13|(April 26, |SENATE: |35-4 |(August 9, | | | |2012) | | |2012) | ----------------------------------------------------------------- Original Committee Reference: B. & F. 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)Clarifies that the fee shall not exceed the cost of providing the services. 2)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. 3)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." The Senate amendment clarifies that the fee under this measure shall not exceed the cost of providing the services. EXISTING FEDERAL LAW : 1)Amends the Financial Services Regulatory Relief Act of 2006 (Act) 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 United AB 2006 Page 2 States Code (U.S.C.) 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 U.S.C. 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: 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; and, 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. (12 U.S.C. 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, AB 2006 Page 3 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. (12 U.S.C. 1759) EXISTING STATE LAW : 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. (Financial 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. (Financial Code, Section 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. (Financial 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; or, c) The purchase of one or more shares in the credit union AB 2006 Page 4 as provided by the credit union's bylaws. (Financial 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." (Commercial Code, Section 3104) 6)Provides any officer, director, member of a committee of a credit union, loan officer appointed, or employee who 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. (Financial Code, Section 14750) AS PASSED BY THE ASSEMBLY , this bill was substantially similar to the version passed by the Senate. 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. AB 2006 Page 5 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 state chartered and 267 are federally chartered. The 424 credit unions carry $129 billion in total assets in California. This bill 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. To make this point clear, nationwide, every federally chartered credit union can provide these services in their respective states. Currently, seven 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 statutes, 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 Federal Deposit Insurance Corporation (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 AB 2006 Page 6 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. 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 Act 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. This bill would codify state law with 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. Analysis Prepared by : Kathleen O'Malley / B. & F. / (916) 319-3081 FN: 0004533