BILL ANALYSIS �
AB 1169
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1169 (Daly)
As Amended August 28, 2013
Majority vote
-----------------------------------------------------------------
|ASSEMBLY: |75-0 |(April 25, |SENATE: |37-0 |(September 9, |
| | |2013) | | |2013) |
-----------------------------------------------------------------
Original Committee Reference: B. & F.
SUMMARY : Provides, until January 1, 2017, that an escrow agent
rating service comply with portions of the Consumer Credit
Reporting Agencies Act (CCRAA). Specifically, this bill :
1)Defines an "escrow agent rating service" as a person or entity
that prepares a report for compensation, or in expectation of
compensation, for use by a creditor in evaluating the capacity
of an escrow agent to perform escrow services in connection
with an extension of credit. An escrow agent rating service
does not include a creditor or an employee of a creditor
evaluating an escrow agent in connection with an extension of
credit by that creditor, or an entity for which a natural
person performs escrow services as an employee of an
independent contractor.
2)Defines an "escrow agent" as a natural person described in
Financial Code (FIN) Section 17004 who performs escrow
services pursuant to the Escrow Law (FIN Chapter 1 of Division
6); a natural person performing escrow services for a title
insurer, as specified, or an underwritten title company
licensed pursuant to Insurance Code (INS) Article 3.7 of
Chapter 1 of Part 6 of Division 2; a natural person performing
escrow services for a controlled escrow company, as defined in
INS Section 12340.6; or a natural person licensed pursuant to
Business and Professions Code Division 4, who performs escrow
services in accordance with FIN Section 17006.
.
3)Requires an escrow agent rating service to comply with and be
subject to all of the following portions of the CCRAA; all
code section references are to the Civil Code:
a) Section 1785.10 (a) (requirement to allow a consumer,
who presents proper identification, to visually inspect all
AB 1169
Page 2
files maintained by a credit reporting agency regarding
that consumer at the time of the consumer's request).
b) Section 1785.10 (b), limited to the obligation to inform
a consumer of his or her right to a decoded written version
of a file (requirement to inform a consumer of their right
to request a decoded written version of the file a consumer
reporting agency has on that consumer).
c) Section 1785.10 (d) (requirement that a consumer credit
reporting agency disclose the recipients of any consumer
credit report on the consumer that it furnishes for
employment purposes, within the two-year period preceding a
consumer's request for such information).
d) Section 1785.11 (a)(2) (requirement that a consumer
credit reporting agency furnish a consumer credit report
only in accordance with the written instructions of the
consumer to whom it relates).
e) Section 1785.13 (prohibition against including certain
types of adverse information [such as bankruptcies,
accounts sent to collection, records of arrest, etc.] that
exceed a certain age [seven years in some cases; 10 years
in other cases] in a consumer's credit report).
f) Section 1785.15 (a)(1) (requirement to allow a consumer
to request and receive either a decoded written version of
their file or a written copy of their file, including all
information in the file at the time of the request, with an
explanation of any code used).
g) Section 1785.16 (requirement to allow a consumer to
dispute the completeness or accuracy of any item of
information in his or her credit file, requirement of the
consumer credit reporting agency to reinvestigate
information that is disputed, requirement to allow a
consumer to include a note in his or her file disputing
certain information, and requirement for the consumer
credit reporting agency to include a consumer's note in any
consumer credit report it provides that includes
information being disputed by that consumer).
h) Section 1785.18 (requirement for consumer credit
reporting agencies to specify the source of any public
AB 1169
Page 3
records they include in their credit reports).
4)Requires an escrow agent rating service to establish policies
and procedures reasonably intended to safeguard from theft or
misuse any personally identifiable information it obtains from
an escrow agent.
5)Provides that an escrow agent rating service is a reseller of
credit information if it assembles and merges information
contained in the database(s) of a consumer credit reporting
agency. Requires an escrow agent rating service that acts as
a reseller of credit information to comply with Civil Code
(CIV) Section 1785.22, which states both of the following:
a) No person may procure a consumer credit report for the
purpose of reselling it or any information contained in it
unless it discloses to the consumer credit reporting agency
that issues the report the identity of the ultimate end
user and each permissible purpose for which the report is
furnished to the end user.
b) A person that procures a consumer credit report for the
purpose of reselling the report or any information in the
report must establish and comply with reasonable procedures
designed to ensure that the report or information is resold
by the person only for a purpose for which the report may
legally be furnished.
6)Authorizes an escrow agent who suffers damages as a result of
the failure of an escrow agent rating service to comply with
the provisions of the bill to bring an action in a court of
competent jurisdiction in accordance with the provisions of
CIV Section 1785.31, which provides for all of the following:
a) In the case of a negligent violation: actual damages,
including court costs, loss of wages, attorney's fees and
costs, and, when applicable, pain and suffering.
b) In the case of a willful violation: actual damages,
including court costs, loss of wages, attorney's fees and
costs, plus punitive damages between $100 and $5,000 per
violation, as the court deems proper, plus any other relief
the court deems proper.
c) In the case of a class action alleging a willful
AB 1169
Page 4
violation: punitive damages in an amount that the court
may allow, plus attorney's fees and costs.
d) In the case of injunctive relief to compel compliance
with the bill: court costs and attorney's fees.
7)Provides that nothing in this bill shall be construed to
authorize a person, who was not otherwise legally authorized
to perform escrow services prior to the effective date of this
bill, to legally perform escrow services.
The Senate amendments delete the contents of the bill and
replace them with a new Civil Code chapter addressing escrow
agent rating services. The subject matters of the Assembly
version and the current version are the same, however they
differ in how they address the underlying issue.
EXISTING LAW :
1)Regulates consumer credit reporting agencies via the CCRAA
(Civil Code, Section 1785.1 et seq. All further references
are to the Civil Code.)
2)Defines consumer credit report as any written, oral, or other
communication of any information by a consumer credit
reporting agency (CRA) bearing on a consumer's credit
worthiness, credit standing, or credit capacity, which is used
or is expected to be used, or collected in whole or in part,
for the purpose of serving as a factor in establishing the
consumer's eligibility for: a) credit to be used primarily
for personal, family, or household purposes; b) employment
purposes; c) hiring of a dwelling unit, as defined in
subdivision (c) of Section 1940; or, d) other purposes
authorized in Section 1785.11. (Section 1785.3)
3)Requires that every CRA shall, upon request and proper
identification of any consumer, allow the consumer to visually
inspect all files maintained regarding that consumer at the
time of the request. (Section 1785.10)
4)Specifies the circumstances under which a CRA shall furnish a
consumer credit report. (Section 1785.11)
FISCAL EFFECT : None
AB 1169
Page 5
COMMENTS : On April 13, 2012, the Consumer Financial Protection
Bureau (CFPB) issued Bulletin 2012-03 (Bulletin) designed to
clarify provisions of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) relating to appropriate
third party vendor risk management by supervised banks and
nonbank entities. In California these non-bank entities would
include mortgage lenders consumer finance lenders, credit
unions, warehouse lenders, and other entities licensed to
originate loans securing real property.
The provision of the Dodd-Frank Act inspiring clarification in
Section 1002(26) concerning the definition of "service provider"
which is defined as "any person that provides a material service
to a covered person in connection with the offering or provision
of such covered person of a consumer financial product or
service." The CFPB Bulletin acknowledges that supervised
entities may need to use the services of third party service
providers, but that such use, does not absolve the covered
entities from their responsibility for complying with federal
consumer protection laws. Furthermore, CFPB urged supervised
banks and nonbanks to have effective procedures for managing the
risk of service provider relationships. The Bulletin provides
several steps that could be taken to minimize risks, including,
but not limited to:
1)Conducting thorough due diligence to verify that a service
provider understands and can comply with federal consumer
financial law;
2)Request and review the service providers policies, procedures,
controls and training materials;
3)Include in contracts with service providers clear compliance
expectations;
4)Establish internal controls and ongoing monitoring; and,
5)Taking prompt action to address any problems discovered from
the monitoring process.
Subsequent to the release of the Bulletin a new type of entity
emerged to handle the due diligence review process. Companies
describing themselves as risk management providers (RMPs)
emerged to provide a layer of protection for supervised entities
when they use third parties for settlement services such as
AB 1169
Page 6
escrow agents.
How do these RMPs work? For a fee, a settlement provider, such
as an escrow agent, sign up to be included on a database managed
by the RMP that generates a low, medium or high risk index score
that is made available to lenders and others in the mortgage
industry. Settlement service providers are told that they will
receive preference by lenders for the use of their services
because of the special vetting process. The fee for each
settlement service provider is several hundred dollars per year
to maintain "accreditation." A failure to maintain
"accreditation" could lead a provider to lose business from
lenders as these RMPs use information on settlement providers to
create lists of vetted agents that are made available to
supervised entities. As one company advertises, "These lenders
and underwriters utilize the?list as their key source of closing
professionals?" The implication here appears to be that either
through a bad review or no review at all, a settlement service
provider runs the risk of being pushed out of their industry.
The reports done by RMPs are prepared using a combination of
public and private data, including credit reports, civil cases,
arrest records, bankruptcy, unlawful detainer actions and more.
On December 5, 2012, the Commissioner of the Department of
Corporations issued Commissioner's Bulletin No: 001-12. The
Commissioner's Bulletin addressed the rise of concerns relating
to RMPs.
This bill attempts to address the issue of RMPs by ensuring that
these entities must comply with California's credit reporting
laws. A major issue of concern raised by settlement service
providers is that the RMPs use credit information in addition to
other sources of information in order to evaluate the settlement
service provider for risk. Among the Frequently Asked Questions
on the Web site of Secure Settlements is the following,
"Attorneys and settlement agents must pass a list of
credentialing criteria that covers everything from E&O [Errors
and Omissions] coverage, proven industry experience, valid
licensing and bonding where required, clean credit, criminal and
litigation backgrounds, trust account safety, and other
proprietary criteria." Clearly this company is evaluating and
reviewing credit information and "other proprietary criteria."
AB 1169
Page 7
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN:
0002381