BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 586 (Pavley) Hearing Date: April 6,
2011
As Amended: March 21, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would impose a series of restrictions on the issuance
of signature stamps by state-chartered banks and credit unions,
add the unauthorized use of a signature stamp to defraud or
steal from an elder or dependent adult to the list of acts
punishable by a fine and imprisonment, and increase the fines
imposed on those convicted of engaging in the abuse of an elder
or dependent adult.
DESCRIPTION
1. Would define a signature stamp as a rubber or other
synthetic stamp or device used to accurately imitate the
signature of an individual, and would require the following,
with respect to any state-chartered bank or state-chartered
credit union that issues a signature stamp:
a. The bank/credit union could only issue a signature
stamp to an existing account holder, if the accountholder
is physically present to request the stamp and an
employee of the bank witnesses and acknowledges in
writing that the signature stamp was requested by the
stampholder, or the accountholder's signature is
notarized on an appropriate form approved and issued by
the bank.
b. The bank/credit union could only open a new account
for a person using a signature stamp to open that
account, if an employee of the bank/credit union
witnesses the prospective accountholder affixing his/her
signature using the stamp, or witnesses a person
assisting the prospective accountholder affix the stamp
in the prospective accountholder's presence.
c. The bank/credit union could only grant a primary
SB 586 (Pavley), Page 2
accountholder's request to allow a second person to
access the account using the accountholder's stamp, if an
employee of the bank witnesses the affixing of the stamp
and acknowledges in writing that the signature stamp was
affixed by the stampholder or person assisting the
stampholder in the stampholder's presence, or the
requesting accountholder's signature is notarized on an
appropriate form approved and issued by the bank.
d. The issuing bank/credit union would have to inform
the accountholder of the risks associated with loss or
misuse of a signature stamp, and would have to specify,
in consultation with the accountholder, both of the
following:
i. A maximum dollar amount per single
transaction that an accountholder could withdraw
using the signature stamp; and
ii. A limit on the total amount of funds that
may be held in an account authorized to be accessed
by use of a signature stamp.
e. If deposits to an account which is accessible
through use of a signature stamp exceed the limit
established by the accountholder with the bank/credit
union, or if such an account becomes overdrawn, the
bank/credit union would have to verify that the
accountholder is aware of the excessive deposits or
overdraft, and would have to take reasonable measures to
ensure the safety of the account, including, but not
limited to, freezing the account until verification is
obtained from the accountholder. This provision of the
bill would also clarify that nothing shall limit the
ability of an accountholder to raise or lower the limit
on an account in consultation with a bank/credit union
employee.
f. A Medallion Signature Guarantee (MSG) would be
defined as a guarantee of authenticity, issued by a
financial institution for an accountholder's signature of
approval, for the transfer of a financial securities
product, including, but not limited to approved signature
guarantees issued pursuant to the Securities Transfer
Agents Medallion Program, Stock Exchanges Medallion
Program, and the New York Stock Exchange Medallion
SB 586 (Pavley), Page 3
Signature Program.
g. A bank/credit union could only issue a MSG to
someone who requested that MSG by use of a signature
stamp, if an employee of the bank/credit union witnessed
the prospective accountholder affixing his/her signature
using the stamp, or witnessed a person assisting the
prospective accountholder affix the stamp in the
prospective accountholder's presence, and acknowledged
having witnessed these events in writing.
2. Would double several existing fines for engaging in the
abuse of an elder or dependent adult, and allocate the
increase to the adult protective services agency, or
equivalent elder abuse prevention agency, in the county
prosecuting the offense.
3. Would add the use of a signature stamp in a financial
transaction, without the knowledge and express written
authorization of the stampholder, to the list of acts
against an elder or dependent adult, which may be prosecuted
as abuse, and which could result in a fine and/or
imprisonment. Would provide that any person who uses a
signature stamp to perpetrate the abuse of an elder or
dependent adult is additionally liable for the restitution
of all funds fraudulently obtained from that elder or
dependent adult, in addition to the penalties otherwise
provided for in connection with elder and dependent adult
abuse.
SB 586 (Pavley), Page 4
EXISTING LAW
4. Allows a mark to be affixed as a signature for a person who
cannot write, as long as it is witnessed and signed by the
witness(es) to the mark (Civil Code Section 14, Code of
Civil Procedure Section 17, Corporations Code Section 17,
Elections Code Section 354.5, Financial Code Section 17,
Fish and Game Code Section 81, Government Code Section 16,
Harbors and Navigation Code Section 18, Labor Code Section
17, Military and Veterans Code Section 17, Penal Code
Section 7, Public Resources Code Section 17, Public
Utilities Code Section 16, Revenue and Taxation Code Section
18, Streets and Highways Code Section 18, Unemployment
Insurance Code Section 17, Vehicle Code Section 17, Water
Code Section 17, and Welfare and Institutions Code Section
17).
5. Any person who has assumed full or intermittent
responsibility for the care or custody of an elder or
dependent adult, whether or not he or she receives
compensation, or any elder or dependent adult care
custodian, health practitioner, clergy member, or employee
of a county adult protective services agency or a local law
enforcement agency, is a mandated reporter. Any one of
these individuals, who observes or has knowledge of an
incident that reasonably appears to be physical abuse,
abandonment, abduction, isolation, financial abuse, or
neglect, or who is told by an elder or dependent adult that
he or she has experienced behavior constituting physical
abuse, abandonment, abduction, isolation, financial abuse or
neglect, or who reasonably suspects that abuse, must report
the known or suspected instance of abuse by telephone
immediately or as soon as reasonably practicable, and in
writing within two working days, as specified (Welfare and
Institutions Code Section 15630).
6. In addition to the provision described above, until January
1, 2013, California's Elder and Dependent Adult Financial
Abuse Reporting Act requires all officers and employees of
financial institutions to act as mandated reporters of elder
and dependent adult financial abuse, as specified (Welfare
and Institutions Code Sections 15630.1, 15633, 15634, 15640,
and 15655.5).
COMMENTS
SB 586 (Pavley), Page 5
1. Background and Discussion: According to AARP and the
California Senior Legislature, co-sponsors of this bill, the
bill seeks to help prevent the fraudulent use of signature
stamps; deter all elder and dependent adult abuse, by
increasing fines associated with these elder and dependent
adult abuse crimes; and respond to the budget cuts of the
last several years by directing the increase in fines for
elder and dependent adult abuse crimes to the agencies that
investigate and prevent elder and dependent adult abuse.
The sponsors state the need for the bill, as follows: "As
happened in Senator Pavley's district, a caretaker or family
member could steal or otherwise fraudulently use a rubber
signature stamp to withdraw or transfer funds from an elder
or dependent adult's bank account. A signature stamp can
also be fraudulently used by a caretaker or other individual
to sign a medallion signature guarantee for large securities
transfers that can have immense monetary value. These are
just a few examples of the myriad ways in which a signature
stamp, in the wrong hands, can be fraudulently used to rob
elder and dependent adults of their hard earned assets."
How big a problem is misuse of signature stamps? Neither the
bill's co-sponsors, nor the California Bankers Association,
nor the California Credit Union League could provide
statistics regarding the frequency with which signature
stamps are used by accountholders in connection with
personal bank accounts, nor how frequently signature stamps
are used to perpetrate fraud or to steal from
accountholders. CBA and CCUL do not believe that signature
stamp usage is common among personal accountholders.
Disability Rights CA estimates that approximately 30,000
disabled persons in California (1% of the disabled
population) possess signature stamps.
Usage in connection with business accounts is believed to be
more common, especially among small business owners who use
the stamps to help sign paychecks.
2. Double-Referral: This bill is double-referred to the Senate
Banking & Financial Institutions Committee and Senate Public
Safety Committee. Because the Public Safety Committee will
review the provisions of this bill which amend the Penal
Code, this analysis will focus on the portions of this bill
that amend the Financial Code.
SB 586 (Pavley), Page 6
3. Will this bill achieve its intended aim? As noted above,
this bill is intended to help eliminate the unauthorized use
of signature stamps that are issued to certain individuals
by their financial institutions. It is unclear, however,
whether the bill will achieve this worthy goal, for all of
the following reasons:
a. Depository institutions are not currently
required to issue signature stamps. They do so, as a
service to those of their customers who request such
stamps. By imposing restrictions on the issuance of
these stamps, and imposing liability (both regulatory
and otherwise) on those who issue the stamps, this
bill could have the unintended effect of limiting the
number of financial institutions that issue these
stamps, thus restricting access to signature stamps by
those who wish to obtain them.
b. This bill applies its provisions separately to
each account held by an accountholder. Thus, if an
accountholder has a checking account, savings account,
and a few certificates of deposit at the same
financial institution, that accountholder would need
to go through the process of applying to use a stamp
separately for each of the accounts, would need to use
a separate process to authorize another person to
stamp on their behalf for each account, and would need
to establish a different maximum dollar amount that
could be withdrawn at any one time from each account,
and a different maximum dollar amount that could be
held in each of the accounts at any one time. This is
not only potentially confusing for accountholders and
bank employees, but it may prove to represent an
unacceptable amount of work for certain
accountholders. If this proves to be the case, the
accountholder would either have to figure out a way of
banking without using a signature stamp, or would have
to go to a financial institution not covered by the
bill, to obtain a stamp. It is unclear that the same
person with multiple accounts at the same bank could
use a stamp for one, but not another.
c. As drafted, this bill requires each depository
institution that issues a signature stamp to an
accountholder to establish a maximum dollar amount per
SB 586 (Pavley), Page 7
transaction that may be withdrawn using the stamp and
a maximum amount of money that may be held in an
account that may be accessed through use of a
signature stamp.
However, nothing in this bill restricts the amount of
money that may be transferred from one account to
another. It is quite possible that the same
individual could have multiple accounts, each with
different withdrawal limits (and potentially with
different persons authorized to withdraw money).
Someone intent on perpetrating fraud or theft could
potentially transfer money from a well-protected
account into a less well-protected account, from which
it could be withdrawn in an unauthorized fashion.
d. As drafted, the signature stamp protections in
this bill are limited to signature stamps issued by
state-chartered banks and credit unions. Because the
bill fails to cover federally-chartered depository
institutions, it fails to afford its protections to
the customers of several of the largest depository
institutions in the state, including Bank of America,
Wells Fargo, Citibank, JP Morgan Chase, and others.
It is unclear whether California has the authority to
apply similar rules to federally-chartered
institutions operating in California (particularly in
the wake of changes to pre-emption rules that were
enacted pursuant to the federal Dodd-Frank Wall Street
Reform and Consumer Protection Act).
4. Summary of Arguments in Support: AARP is co-sponsoring SB
586, a bill it calls the Elder and Disabled Adult Abuse
Prevention Act. In its letter, AARP expresses strong
support for the bill's increase in fines for elder and
dependent adult abuse, and stresses the importance of adding
the fraudulent use of a signature stamp to harm an elder or
dependent adult to the list of crimes punishable as elder or
dependent adult abuse.
The California Senior Legislature is the bill's other
co-sponsor. Its letter of support focuses on the provisions
of the bill that would regulate the issuance and use of a
signature stamp to undertake financial transactions.
SB 586 (Pavley), Page 8
Letters of support echoing the points made by the bill's
co-sponsors were submitted by the Congress of California
Seniors, Consumer Attorneys of California, California School
Employees Association, and AFSCME.
Disability Rights California will support the bill, if it is
amended. The organization estimates that about 30,000
people with disabilities in California (1% of the disability
population) use signature stamps. Disability Rights
California reads SB 586 as rendering signature stamps issued
by financial institutions subject to this bill's provisions
prior to the bill's enactment as unusable by the individuals
to whom they were issued (thus, the disability rights
organization believes that existing accountholders will need
to return to their banks to get new signature stamps on and
after the bill's enactment). For this reason, the
organization recommends an amendment that would authorize an
existing accountholder with a signature stamp to return to
their financial institution and have use of that existing
stamp reauthorized pursuant to the bill's requirements -
rather than return to their financial institution to request
a new signature stamp and have it issued pursuant to the
bill's requirements. Staff notes that, while it is unclear
the bill would have the effect envisioned by Disability
Rights California (rendering existing stamps issued prior to
the bill's enactment as unusable in connection with
financial transactions), the organization's reading of the
bill strongly suggests that the bill should be clarified to
explain how it is intended to apply to stamps in circulation
prior to the bill's enactment.
5. Summary of Arguments in Opposition: The California Bankers
Association (CBA) and California Independent Bankers (CIB)
are opposed to the bill for several reasons. The trade
groups believe that the bill is unnecessary, because
signature stamps are not widely used today, and to the
extent they are use, the banks are aware of very few fraud
problems that customers have as a result of the stamps.
Furthermore, when fraud occurs, there are existing remedies
in law.
CBA and CIB also cite the numerous compliance challenges that
the bill would create, and express the belief that the bill
may reduce customers' ability to obtain signature stamps.
Because of the bill's requirements, many state-chartered
banks may simply stop providing them. The biggest
SB 586 (Pavley), Page 9
compliance challenge involves freezing the account of a
customer whose account is overdrawn of has accumulated
excess funds. Freezing a customer's account in these
situations could result in bounced checks or the rejection
of recurring payments or deposits. CBA and CIB also note
that the bill's requirement to notify stamp holders if an
account is overdrawn is duplicative of existing regulations
that mandate such behavior (Regulation DD) and that require
customers to opt in to overdraft protection (Regulation E).
Finally, CBA and CIB express concern that the bill would create
an unlevel playing field, as it would apply its provisions
only to state-chartered depositories, and not to their
federally-chartered competitors.
6. Amendments:
a. The author plans to propose amendments in
Committee, which are intended to address the
opposition's concerns noted above. Because these
amendments were drafted after this Committee's
amendment deadline, they were not incorporated into
the bill. Instead, they are summarized briefly below.
The author's amendments would do all of the
following:
i. Remove the account limits and
withdrawal limits;
ii. Remove the requirement to freeze an
overdrawn or over-limit account.
iii. Remove the Medallion Signature
Guarantee language;
iv. Limit the Financial Code provisions
of the bill to personal accounts (thus excluding
business purpose accounts from the bill's
requirements).
As proposed to be amended by the author, the bill
would retain its requirements that banks and credit
unions witness the issuance of a signature stamp to an
accountholder and any individual the accountholder
wishes to authorize to use the stamp on their behalf,
SB 586 (Pavley), Page 10
and would retain its requirements that banks and
credit unions inform customers to whom they issue
signature stamps about the risks associated with loss
or misuse of those stamps (as proposed to be amended,
the warning would also have to cover potential theft
of the stamps).
b. Additional amendments are suggested by staff:
i. Amendments would also be valuable
to clarify the way(s) in which this bill is
intended to apply to signature stamps issued
prior to the bill's enactment (see discussion of
Disability Rights California's position on the
bill above, in the Support section of this
analysis).
7. Prior and Related Legislation:
a. AB 18 (Blakeslee), 2007-08 Legislative Session:
Would have expressly authorized a disabled person who is
unable to write to use a signature stamp to sign a
document, whenever a signature is required by law, and
would have established certain allowable and prohibited
acts in connection with the use of signature stamps. In
explaining the need for his bill, the author stated that,
while signature stamps are currently being used in
California, existing law is silent regarding who may use
these stamps, under what conditions, and for what
purposes. He asserted that this lack of clarity results
in confusion and unresolved liability issues. AB 18
passed the Assembly, but was narrowed in the Senate to
authorize the use of signature stamps in instances in
which the Elections Code requires a signature. Thus,
existing law remains silent regarding who may use
signature stamps, under what conditions, and for what
purposes.
b. SB 33 (Simitian), 2011-12 Legislative Session:
Would delete the January 1, 2013 sunset date on the Elder
and Dependent Adult Financial Abuse Reporting Act.
Pending in the Senate Banking & Financial Institutions
Committee.
LIST OF REGISTERED SUPPORT/OPPOSITION
SB 586 (Pavley), Page 11
Support
AARP (co-sponsor)
California Senior Legislature (co-sponsor)
AFSCME
California School Employees Association
Congress of California Seniors
Consumer Attorneys of California
Opposition
California Bankers Association
California Independent Bankers
Consultant: Eileen Newhall (916) 651-4102