BILL ANALYSIS �
AB 1396
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Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 1396 (Banking & Finance) - As Introduced: March 6, 2013
SUBJECT : Department of Financial Services
SUMMARY : Would change the name of the proposed Department of
Business Oversight (DBO) to the Department of Financial Services
(DFS). Specifically, this bill :
1)Deletes references to DBO in Governor's Reorganization Plan
No. 2 (GRP #2) and would instead transfer the duties of the
Department of Financial Institutions (DFI) and Department of
Corporations (DOC) to DFS.
2)Makes other technical and clarifying changes.
EXISTING LAW provides for the regulation and oversight of state
chartered banks and credits unions and money transmitters under
DFI. Furthermore, DOC is charged with the regulation and
oversight of mortgage loan originators, deferred deposit
transaction licensees, finance lenders, residential mortgage
lenders, escrow agents, securities broker-dealers, and
investment advisors. Effective July 1, 2013 the duties of DFI
and DOC will be combined and moved to DBO.
FISCAL EFFECT : Unknown
COMMENTS :
Last year the legislature acted on GRP #2 which assigns and
reorganizes the functions of state government among executive
offices and agencies by creating the following general agency
structure in the executive branch:
1)Business, Consumer Services, and Housing;
2)Government Operations;
3)Corrections and Rehabilitation;
4)Labor and Workforce Development;
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5)California Health and Human Services;
6)Environmental Protection;
7)Natural Resources; and
8)Transportation.
In creating the new general agency structure listed above, GRP
#2 abolished certain existing state entities and offices,
including, among others, the Business, Transportation and
Housing Agency and its secretary.
GRP process .
The California Constitution authorizes the Legislature to
delegate to the Governor the authority to assign and reorganize
functions among executive branch officers, agencies and their
employees. The Governor's authority to reorganize does not
extend to other constitutional offices. Existing law specifies
the process for a reorganization and places limits on that
authority.
Existing law sets forth the purposes of the Governor's
reorganization authority, providing in the form of a GRP a means
by which the Governor can reorganize government to promote
improved strategies for:
1)Executing the law,
2)Managing state government,
3)Reducing expenditures,
4)Increasing efficiency,
5)Improving coordination among agencies and functions,
6)Reducing the number of agencies, and
7)Eliminating duplication and overlap among agencies.
To achieve those goals, the Governor can use a GRP to transfer
functions among state agencies, eliminate functions or entire
agencies, consolidate operations or specific functions, and
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establish new entities to perform the functions of an existing
entity.
State law prohibits a GRP from:
Extending the authority of an agency or a function beyond the
period authorized by law.
Authorizing any agency to exercise any function not expressly
authorized by law.
Increasing the term of an office beyond what is provided by law,
or abolishing any agency created by the California Constitution
or transferring jurisdiction and control of a function by the
California Constitution.
A reorganization plan may be delivered to the Legislature at any
time during a regular session, provided the Legislature has at
least 60 calendar days of a continuous session to consider the
plan. The Governor's plan becomes effective on the 61st day
after it is given to the Legislature, unless either the Senate
or the Assembly adopts a resolution rejecting the plan. The
resolution requires a majority vote.
At least 30 days prior to submitting a GRP to the Legislature,
the Governor must provide a copy to the Little Hoover
Commission, in its advisory capacity. The Commission must review
the plan and submit a report to the Legislature within 30 days
of transmission to the Legislature.
After the effective date of a GRP, Legislative Counsel prepares
a bill for introduction that would conform the statutes to the
GRP. The GRP itself does not amend the statutes. However, unless
either house of the Legislature does not affirmatively reject
the GRP, it becomes law whether or not an implementing bill is
passed.
Typically, implementing legislation, in one or more bills, is
passed in the year following the effective date of a GRP. While
the GRP itself cannot be amended by the Legislature,
implementing legislation can modify a GRP's provisions.
A GRP may provide for the appointment of individuals, subject to
Senate confirmation, to lead an entity that results from
consolidation or other type of reorganization.
DBO vs DFS .
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In 2009, the Assembly passed AB 33 (Nava), by a vote of 77-0,
which called for the elimination DFI, DOC and the Department of
Real Estate and the creation of DFS. The justification for AB
33 was that California needs a central regulator of financial
services and that a number of other large states within the
United States has one central financial regulator.
Unfortunately, AB 33 stalled in the Senate Banking Committee due
to several disagreements regarding the means and policy of
creating a new department.
Why was the name DBO chosen for the department, tasked with
regulating financial services in California? Unfortunately, the
public analysis of GRP #2 does not reveal any discussion
regarding the name "DBO." Instead the bulk of analysis on this
change focused on the necessity to combine DFI and DOC as the
substance of the reorganization was much more prominent than the
eventual names of the entities that would emerge from the
reorganization. The substance of the reorganization of DOC and
DFI into a new department is vital and necessary for the
financial regulatory environment of California. However, the
name DBO does not delineate or convey in any sense that the new
department is the regulatory of state licensed financial service
entities. During the recent subprime lending/foreclosure crisis
committee staff received numerous inquiries from consumers
unsure of what regulator they should contact regarding a
complaint concerning a mortgage loan originator, a bank, or
other financial services provider. DBO could further lead to
confusion as consumers search for help, or new startup financial
service providers seek a license. Furthermore, other financial
regulators in the United States have a term in their official
title that denotes a concentration on matters concerning finance
and banking. It is for these reasons that changing DBO to DFS
is necessary and fundamental.
Among states with the most significant banking activity, the
names of their banking and financial regulators denote their
respective regulatory purview making it all the more important
that California also has a regulator body with a title that
denotes its function and status. For example,
New York- Department of Financial Services
Delaware-Office of State Banking Commissioner
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Florida- Office of Financial Regulation.
Illinois- Office of Financial and Professional
Regulation.
Texas- Department of Banking
Additionally, in a document released during consideration of GRP
#2, Project Initiation Document, GRP 2, Reorganization of
California Department of Corporations & California Department of
Financial Institutions reveals that the need to change the name
to DFS. Beginning on page 39 of the document:
The creation of a new department affords an important
opportunity to rectify a decades-old problem with the name
"Department of Corporations." Many consumers and businesses
mistakenly contact the Department of Corporations about
matters unrelated to financial services regulation.
Historically, ten percent of all inquiries to the DOC call
center (where reports on fraudulent activity by our
licensees are reported) are referred to the Secretary of
State, who actually issues business licenses to
corporations. The need to accurately "brand" the department
has been identified in past DOC strategic plans as well.
The name "Department of Business Oversight (DBO)" is
unlikely to clarify the purpose of the DOC or DFI. There is
concern that the DBO title will lead to even greater
business and consumer confusion and unnecessary diversions
of state resources. Additionally, the DBO title is not
easily distinguished from the Department of Consumer
Affairs and the term "oversight" is redundant.
It is recommended that GRP2 clean-up legislation include
language to change the name of the new organization from
"Department of Business Oversight" to "Department of
Financial Services (DFS)." This alternative preserves the
vitally-important concept of the new department's role in
regulating all of the state's financial services industry.
The title aptly describes the licensees of the department
with a unique and easily identifiable acronym.
REGISTERED SUPPORT / OPPOSITION :
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Support
None on file
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081