BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 979 (Vargas) - Financial Institutions Amended: May 1, 2012 Policy Vote: B&FI 7-0 Urgency: No Mandate: No Hearing Date: May 24, 2012 Consultant: Maureen Ortiz SUSPENSE FILE. Bill Summary: SB 979 requires the Department of Financial Institutions (DFI) to post all final orders to modify, rescind, revoke or suspend a license on its Internet Web site, and makes technical changes to the Money Transmitters Law. Fiscal Impact: Potentially more than $150,000 annually to the Financial Institutions Fund. $75,000 annually for PY programmer/specialist to establish and maintain Web site. $30,000 - $90,000 annually for hearings based on two - six hearings per year. If hearings were highly contested and involve lengthy discovery, costs could be significantly higher. Background: The Department of Financial Institutions regulates California chartered banks and credit unions, as well as several other types of financial and money service businesses, such as trust companies and money transmitters. As part of its regulatory duties, the department conducts regular examinations of its licensees and takes enforcement actions as necessary to ensure that its licensees are operating in a safe and sound manner. Often times, the department makes informal recommendations to licensees regarding enhancements they can make to their policies, procedures, internal routines, etc. Formal enforcement actions include cease and desist orders (C&Ds), the revocation or suspension of a license, a decision to take possession of the property and business of a licensee, a decision to impose civil penalties, or to refer the licensee to the Attorney General for criminal prosecution. Cease and desist orders often result from a safety and soundness examination of the licensee where significant issues related to the licensee's financial condition are uncovered. The C&D outlines the SB 979 (Vargas) Page 1 relevant issues about the licensee's financial condition and sets forth the terms the licensee must meet in order to return to a safe and sound condition. Often these terms involve increasing capital to a specific level, or reducing the volume of non-performing assets. Licensees are able to appeal formal enforcement actions and the action does not become final until the licensee either waives his or her right to an appeal or exhausts its administrative appeal rights. Proposed Law: SB 979 will require the DFI to make public all final enforcement actions by posting them on the department's Internet Web site. Additionally, SB 979 provides that if the commissioner makes a written determination that the publication of a final order would seriously threaten the safety or soundness of a regulated institution, the commissioner may delay publication of the order or decision for a reasonable time. Staff Comments: All of the federal depository institution regulators including the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporations, and National Credit Union Administration make their final, formal enforcement actions public. SB 979 will provide the same transparency to state-chartered financial institutions. However, it is likely that when formal actions are required to be publicized, more licensees will appeal the decision rather than consenting to it which could result in increased costs to the DFI for administration and hearings.