BILL ANALYSIS Ó AB 2364 Page 1 ASSEMBLY THIRD READING AB 2364 (Wagner) As Amended April 30, 2012 Majority vote JUDICIARY 9-1 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Feuer, Wagner, Atkins, |Ayes:|Fuentes, Harkey, | | |Dickinson, Gorell, Huber, | |Blumenfield, Bradford, | | |Jones, Monning, Alejo | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Gatto, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | |-----+--------------------------+-----+--------------------------| |Nays:|Wieckowski | | | | | | | | ----------------------------------------------------------------- SUMMARY : Establishes procedures for service of process and execution of levies at a central location designated by a bank and its other branches. Specifically, this bill : 1)Requires a bank or financial institution that has more than nine branch offices in this state, and authorizes those with less than nine, to designate one or more central locations for service of legal process within the state. Further provides that if the institution fails to make the designation, then each branch shall be deemed to be a central location at which service may be made. 2)Requires the bank to file a notice of its designation with the Department of Financial Institutions (DFI), and requires DFI to update its online records to reflect current designations within 10 days of filing. Further provides that DFI shall provide this information to any person requesting it, and may satisfy this requirement by making the information available for free to the public on its Web site. 3)Clarifies that where a deposit account or property in a safe deposit box is attached or has been levied upon, if the writ of attachment or levy has been served at the designated central location, the information described in the garnishee's memorandum, which otherwise applies only with respect to AB 2364 Page 2 property available at the branch where the levy was made, shall instead apply to all offices and branches of the bank, except as provided. 4)Clarifies that if the bank has designated a central location for service, unless the bank elects to treat legal process served at a branch as effective, that legal process so served on the branch will not reach those accounts or property and need not be reported on the garnishee memorandum. 5)Deletes the requirement that a writ of execution received at the designated central location applies to all deposit accounts held by the financial institution regardless of the location of that property. 6)Clarifies that the effects of service of legal process and execution of levies served within California is limited to accounts and safety deposit boxes maintained at the bank's branches and offices in this state (and not other states or countries.) 7)Increases, from 20 days to 30 days, the time from a judgment creditor's motion of opposition by which a court must hold a hearing to determine a judgment debtor's claim of exemption from levy. 8)Makes corresponding technical changes necessary to allow service of notices of adverse claims upon banks that have, or have not yet, designated a central location for service of process. 9)Makes corresponding technical changes necessary to allow the Employment Development Department (EDD) to serve notice of levy upon deposit accounts or other property held by banks for employers, for the purpose of collecting delinquent employer contributions to unemployment compensation programs. FISCAL EFFECT : According to the Assembly Appropriations Committee, minor absorbable ongoing costs to DFI for filing banks' designations and making this information available on its Web site. (Financial Institutions Fund) COMMENTS : According to the author, this bill is intended to modernize the procedures applicable to service of attachment and AB 2364 Page 3 execution levies against financial institutions. This bill requires all financial institutions with more than nine California branches, and permits smaller financial institutions, to designate a central location at which they will accept service of levies and other process that would be effective as to all accounts statewide. Under current law, a plaintiff or judgment creditor seeking to levy on an account has to identify and separately serve each branch of a bank at which the defendant or judgment debtor maintains accounts to reach all of those deposits. According to the bill's sponsor, the Consumer Financial Services Committee of the Business Law Section of the State Bar (Business Law Section), this is because current rules "reflect the pre-Information Age practice by which all of a bank's customer records were maintained locally at the branch at which the account was maintained, often on index cards. One branch of a bank did not have the tools to readily identify bank-customer relationships at other locations of the same bank. Hence, existing law was crafted to require service of levies on the particular branch at which the account was maintained and serviced." According to the author, this bill seeks to address two problems that arise from these current procedures for service of levies. First, conducting discovery or a debtor's examination to identify the proper branch to serve can add hundreds or even thousands of dollars of unnecessary expenses to the cost of judgment collection, a cost that may be added to the amount owed by the judgment debtor. Second, the current requirement that the judgment creditor serve the proper branch can also facilitate the concealment of assets by a dishonest judgment debtor, because an examination of the debtor to identify the branch can prompt the debtor to move the funds and game the system. By facilitating service of process at a central location instead of at individual branches, the author contends this bill will reduce unnecessary expenses on collection, and will prevent unscrupulous debtors from manipulating the rules to avoid their obligations. For example, given the relatively concentrated nature of the banking industry today, the sponsor estimates that a creditor serving levies on the central locations designated by just a handful of the largest banks would probably capture a sizable majority of all of the deposit accounts and safe deposit boxes in California. AB 2364 Page 4 This bill amends service of process rules for both attachment to and execution of levies upon accounts, safe deposit boxes, and other property held by the debtor or defendant's bank. In short, attachment can be seen as a pre-judgment security device, while execution of levy is a post-judgment collection device. Specifically, attachment is an order by a court, while a civil action is pending, directing that money or property of the defendant be held as security for the eventual satisfaction of a judgment, if one is obtained. In other words, attachment is a provisional remedy to aid the plaintiff in the collection of a money judgment by seizure of the defendant's money or property in advance of a trial or judgment. It is ordered when a court, after a hearing on an application for a writ of attachment, finds that the plaintiff has established the probable validity of the claim, and that other requirements have been met. In contrast, writs of execution are issued only after judgment is entered by the court. They permit the judgment creditor to collect against the property of the judgment debtor, including deposit accounts held by a financial institution. Although current law permits, but does not require, a bank to designate a central location at which it would accept service of levies for accounts throughout its branch system, to date most banks in California have declined to utilize this designation procedure. This is true, according to the sponsor, even though the development of information processing systems has enabled virtually all financial institutions to centrally process transactions, statements, etc., throughout their branch systems, and many banks that operate multiple branches have already elected to process levies on a centralized basis. The Business Law Section suggests two explanations for this curious state. First, under current law, the designation would have the effect of extending the reach of any levy not only statewide, but to accounts located in other states and countries, creating a potential duty to conduct nationwide and worldwide searches of databases that banks have been unwilling to assume. The bill seeks to address this concern by providing that the reach of any levy or writ served upon a bank's central location for California only extends to accounts in California. The second reason cited is that current law lacks specificity as to how the designation would be made or communicated to a creditor seeking to serve the bank with a levy. The bill seeks AB 2364 Page 5 to address this concern by requiring each bank to file a notice of its designation with DFI, and by providing incentives to DFI to maintain and update this information for free on its publically available Web site. Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334 FN: 0003690