BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 979|
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UNFINISHED BUSINESS
Bill No: SB 979
Author: Vargas (D)
Amended: 7/5/12
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 7-0, 4/18/12
AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla,
Walters
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SENATE FLOOR : 38-0, 5/31/12 (Consent)
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De León, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Harman,
Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Simitian, Steinberg, Vargas, Walters, Wolk, Wright,
Wyland, Yee
NO VOTE RECORDED: Runner, Strickland
ASSEMBLY FLOOR : 77-0, 8/21/12 - See last page for vote
SUBJECT : Financial institutions
SOURCE : Author
DIGEST : This bill requires the Department of Financial
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Institutions to make its formal, final enforcement actions
public, except as specified.
Assembly Amendments make technical nonsubstantive changes.
ANALYSIS : Existing law authorizes the Commissioner of
the Department of Financial Institutions (DFI) to do all of
the following:
1. Issue a cease and desist order to an unlicensed person
who the Commissioner finds is engaging in activities
that require a license from DFI, without having obtained
that license (Financial Code (FIN) Section 567).
2. Issue a cease and desist order to a licensee, officer or
employee of a licensee, or holding company of a
licensee, which the Commissioner finds is violating, or
is about to violate any statute, regulation, or order of
the Commissioner, following notice and an opportunity
for the accused to be heard (FIN Section 580).
3. Issue a cease and desist order to a licensee, officer or
employee of a licensee, or holding company of a
licensee, without prior notice and an opportunity for
the accused to be heard, when the Commissioner finds
that the accused is engaging in, or is about to engage
in a violation that may cause the insolvency of the
institution, significantly dissipate the assets or
earnings of the institution, weaken the institution, or
otherwise prejudice the interests of the customers of
the institution (FIN Section 581).
4. Order a licensee whose books or records are so
incomplete or inaccurate that the Commissioner is unable
to determine the financial condition of the licensee or
the details or purpose of any transaction(s) that may
materially affect the financial condition of the
licensee to cease any activity that gave rise to the
incomplete or inaccurate state of the books or records,
or take affirmative action to restore the books or
records to a complete and accurate state (FIN Section
582).
5. Suspend or remove officers or employees of licensees or
their holding companies, and prohibit them from
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participating in the conduct of the affairs of the
licensee or holding company, if, after notice and an
opportunity for the accused to be heard, the
Commissioner finds that the officer or employee has
violated or caused an institution to violate any
statute, regulation, or order of the Commissioner;
engaged or participated in any unsafe or unsound act in
connection with the business of the licensee, its
holding company, or another business; or breached
his/her fiduciary duty (FIN Section 585).
6. Take the actions described in #5 above, without prior
notice and an opportunity for the accused to be heard,
if the Commissioner finds that such action is necessary
or advisable for the protection of the licensee, its
holding company, or the rights or interests of customers
or members of the licensee (FIN Section 586).
7. Suspend or remove any officer or employee of a licensee
or its holding company, without prior notice or an
opportunity for the accused to be heard, if they have
been indicted or convicted of a criminal violation
involving dishonesty or breach of trust, a criminal
violation of specified provisions of the Financial Code,
a criminal violation of specified federal statutes, or a
criminal violation of a law of any jurisdiction other
than the United States that is substantially similar to
the specified federal statutes, as specified (FIN
Section 587).
8. Modify or rescind an order issued pursuant to FIN
Sections 585 through 587, upon an application from a
licensee or current or former officer or employee of a
licensee to whom/which an order is issued (FIN Section
588).
9. Suspend or revoke any license if, after notice and an
opportunity for the accused to be heard, the
Commissioner makes certain findings (FIN Section 590).
10.Suspend or revoke any license, without prior notice and
opportunity for the accused to be heard, if the
Commissioner finds that any of the factors described
immediately above in #9 is true, and that immediate
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suspension or revocation of a license is necessary for
the protection of the public (FIN Section 591).
11.Take control of the property and business of any
licensee, without prior notice and opportunity for the
accused to be heard, if the Commissioner finds that any
of the factors described immediately above in #9 is true
(Section 592), and notify the fact of that control to
all persons holding or having assets of the licensee in
their possession (FIN Section 594).
This bill:
1. Requires the Commissioner to make public on its Internet
Web site all final actions brought pursuant to FIN
Sections 567, 580, 581, 582, 585, 586, 587, 588, 590,
591, and 594 (see Existing Law for descriptions of each
of these sections).
2. Provides that, if the Commissioner makes a determination
in writing that the publication of one of the final
orders or decisions referenced above would seriously
threaten the safety or soundness of a regulated
institution subject to that order or decision, the
Commissioner may delay publication of that order or
decision for a reasonable time.
3. Provides if the Commissioner makes a determination that
the publication of a final order or decision would
reveal information which would identify a customer of
the institution subject to the order, the Commissioner
may redact from the order, prior to publication, any
information that, in the determination of the
Commissioner, would identify any customer of the subject
institution.
Background
DFI regulates California-chartered banks and credit unions,
as well as several other types of financial and money
services businesses, such as trust companies and money
transmitters. As part of its regulatory duties, DFI
conducts regular examinations of its licensees, and takes
enforcement actions, as necessary to ensure that its
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licensees are operating in a safe and sound manner, and in
accordance with state law. During its examination process,
DFI routinely makes recommendations to licensees regarding
enhancements they can make to their policies, procedures,
internal routines and controls, and comments on other
operational matters, with the aim of ensuring the safety
and soundness of the institution and the state's financial
services system. Often, these recommendations are
informal. However, when more serious failings are
observed, DFI's actions take the form of formal orders.
Informal actions taken by DFI following an examination of a
licensee include making recommendations to the licensee's
board of directors within the Report of Examination that is
sent to each institution following a regulatory
examination. Sometimes DFI requests that the board/
management of an institution respond with an action plan to
address these recommendations. DFI can also require
follow-up reports on the progress an institution is making
in addressing those recommendations. Financial
institutions typically lack any appeal rights related to
these informal actions.
This bill does not propose to require DFI to make the
results of its informal enforcement actions public, because
financial institutions typically lack any appeal rights
related to these informal actions, and because these
actions are typically taken by DFI following the discovery
of relatively minor problems at an institution.
Formal enforcement actions include cease and desist orders,
by which the Commissioner may order an institution to cease
and desist from a specific unsafe or unsound act or a
violation of applicable law. Other formal enforcement
actions include the removal of a person from office at a
licensee, the revocation or suspension of a license held by
a licensee, a decision to take possession of the property
and business of a licensee, a decision to impose civil
penalties on a licensee for a violation or violations of
applicable law, and a decision to refer a licensee to the
State Attorney General for criminal prosecution. These
formal enforcement actions do include appeal rights, and do
not become final, until a licensee either waives its right
to appeal or exhausts its administrative appeal rights
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pursuant to the Administrative Procedures Act. It is these
final, formal enforcement orders that this bill requires
DFI to make public. For historic reasons, DFI does not
currently make these enforcement actions public, nor will
it release them pursuant to Public Records Act requests.
DFI's practices in this area are quite different than those
of federal regulators. All of the federal depository
institution regulators, including the Office of the
Comptroller of the Currency, Federal Reserve Board, Federal
Deposit Insurance Corporation, and National Credit Union
Administration, make their final, formal enforcement
actions public.
This bill also contains an exemption, patterned on a
federal law applicable to the National Credit Union
Administration, which allows the DFI Commissioner to delay
the publication of any final enforcement order or decision,
if the Commissioner believes that such publication is
likely to seriously threaten the safety or soundness of an
institution subject to that order or decision.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee,
potentially more than $150,000 annually to the Financial
Institutions Fund.
$75,000 annually for 1/2 PY (personnel year)
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.
ASSEMBLY FLOOR : 77-0, 8/21/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
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Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell,
Grove, Hagman, Halderman, Hall, Harkey, Hayashi, Hill,
Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara,
Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller,
Mitchell, Monning, Morrell, Nestande, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Portantino, Silva, Skinner,
Smyth, Solorio, Swanson, Torres, Wagner, Wieckowski,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Roger Hernández, Nielsen, Valadao
JJA:mw 8/21/12 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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