California Legislature—2015–16 Regular Session

Assembly BillNo. 2274


Introduced by Assembly Member Dababneh

February 18, 2016


An act to amend Sections 14453, 14456, 14550, 14804, 14950, 15050, and 15100 of, and to add Section 14556 to, and to repeal Section 14951 of, the Financial Code, relating to credit unions.

LEGISLATIVE COUNSEL’S DIGEST

AB 2274, as introduced, Dababneh. Credit unions.

(1) The California Credit Union Law provides for the regulation of credit unions within the state by the Commissioner of Business Oversight. The law requires a credit union to be directed by a board of directors consisting of an odd number of directors, at least 5 in number, each of whom are a member of the credit union, to be elected by the members at their annual meeting. The law requires a credit union to have a supervisory committee of at least 3 persons, each of whom is a member of the credit union. The law authorizes the directors to delegate the approval of applications for new memberships to any officer, director, committee member, or employee pursuant to a written membership plan adopted by the board, provided the board reviews, at least quarterly, a report of membership applications approved by an officer, director, committee member, or employee.

This bill would require the board to meet on a regular basis, not less than quarterly, as reasonably determined by the board. The bill would require the membership of the supervisory committee to be an odd number and would authorize, in lieu of the requirement for a supervisory committee, the establishment of an audit committee and the selection of the members of the audit committee. The bill would remove the requirement for the directors to, at least quarterly, review a report of membership applications approved by an officer, director, committee member, or employee to whom the directors delegated the authority to approve applications for new membership.

(2) The California Credit Union Law prohibits an obligation with a member that is not a natural person and results in liability to the credit union in excess of that member’s investment in the credit union unless an exception is authorized in the credit union’s bylaws and approved by the commissioner. The law authorizes any lending activity permitted pursuant to this provision to be terminated by the commissioner pursuant to a specific procedure.

This bill would repeal this prohibition.

(3) The California Credit Union Law limits the circumstances when a nonmember may participate in an obligation or extension of credit to a member as a joint applicant or co-obligor.

This bill would include the terms coborrower, surety, and guarantor within these provisions.

(4) The California Credit Union Law limits a credit union from entering, directly or indirectly, into any obligation with an officer, and defines that term to mean a director, officer, member of the supervisory committee, or member of the credit committee of a credit union.

This bill would modify that definition to remove the position of an officer, and to include the positions of a member of the audit committee, credit manager, president, and chief executive officer of a credit union.

(5) The California Credit Union Law requires any application for any loan or extension or guarantee of credit, except as specified, to state in writing the purpose for which the loan or extension or guarantee of credit is desired, and, if applicable, describe the property that is proposed to secure the loan or extension or guarantee of credit.

This bill would repeal this requirement.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 14453 of the Financial Code is amended
2to read:

3

14453.  

The board of directors of every credit union shall have
4the general management of the affairs, funds, and records of the
5credit union.begin insert The board shall meet on a regular basis, not less
P3    1than quarterly, as reasonably determined by the board.end insert
The board
2may appoint an executive committee of no fewer than three
3directors, to serve at its pleasure, to act as expressly approved by
4the board of directors in accordance with the laws and regulations.

5

SEC. 2.  

Section 14456 of the Financial Code is amended to
6read:

7

14456.  

Unless the bylaws expressly reserve any or all of the
8following duties to the members, the directors have all of the
9following special duties:

10(a) To act upon all applications for membership. The directors
11may delegate the power to approve applications for new
12membership to: (1) the chairperson of a membership committee
13or to an executive committee; or (2) any officer, director,
14committee member, or employee, pursuant to a written membership
15plan adopted by the board of begin delete directors, provided the board of
16directors reviews at least quarterly a report of membership
17applications approved by an officer, director, committee member,
18or employee.end delete
begin insert directors.end insert

19(b) To expel members for any of the following causes:

20(1) Conviction of a criminal offense involving moral turpitude.

21(2) Failure to carry out contracts, agreements or obligations
22with the credit union.

23(3) Refusal to comply with the provisions of this division or of
24the bylaws.

25Any members who are expelled by the board of directors have
26the right to appeal therefrom to the members, in which event, after
27hearing, the order of suspension may be revoked by a two-thirds
28vote of the members present at a special meeting to consider the
29matter.

30(c) To determine from time to time the interest rate on
31obligations with members and to authorize the payment of interest
32refunds to borrowing members.

33(d) To fix the maximum number of shares which may be held
34by, and, in accordance with Section 15100, establish the maximum
35amount of obligations which may be entered into with, any one
36member.

37(e) To declare dividends on shares in accordance with the credit
38union’s written capital structure policy and to determine the interest
39rate or rates which will be paid on certificates for funds.

P4    1(f) To amend the bylaws, except where membership approval
2is required.

3(g) To fill vacancies in the credit committee, and to temporarily
4fill vacancies caused by the suspension of any or all members of
5the credit committee, pending a meeting of the members to
6determine whether to affirm the suspension and vacate the office,
7or to reinstate the member or members.

8(h) To direct the deposit or investment of funds, except loans
9to members.

10(i) To designate alternate members of the credit committee who
11shall serve in the absence or inability of the regular members to
12perform their duties.

13(j) To perform or authorize any action not inconsistent with law
14or regulation and not specifically reserved by the bylaws for the
15members, and to perform any other duties as the bylaws may
16prescribe.

17

SEC. 3.  

Section 14550 of the Financial Code is amended to
18read:

19

14550.  

Every credit union shall have a supervisory committee
20of at least three persons,begin insert provided that the number of members on
21the committee is an odd number,end insert
each of whom shall be a member
22of the creditbegin delete union.end deletebegin insert union and elected by the members of the credit
23union. In the alternative, the board of directors may establish an
24audit committee subject to the requirements of Section 14556.end insert

25

SEC. 4.  

Section 14556 is added to the Financial Code, to read:

26

14556.  

(a) The board of directors may, by resolution, establish
27an audit committee in lieu of a supervisory committee. An audit
28committee that meets all the requirements of this section shall be
29deemed to satisfy the requirements for a supervisory committee
30set forth in Sections 14550 to 14555, inclusive, or in any applicable
31bylaw provision.

32(b) The vote of the board of directors to establish an audit
33committee in lieu of a supervisory committee must be affirmed by
34membership vote. Following the affirmative vote of the
35membership, the supervisory committee shall be deemed dissolved
36upon the appointment of an audit committee by the board of
37directors.

38(c) The audit committee shall consist of at least three persons,
39provided that it is an odd number, each of whom shall be a member
40of the credit union and appointed by a majority of the board of
P5    1directors. At least one member of the audit committee shall be a
2member of the board of directors. No member of the audit
3committee shall serve as a member of the credit committee, as the
4credit manager, as the board chairman, or as an employee of the
5credit union.

6(d) The audit committee shall carry out the responsibilities set
7forth in subdivision (c) of Section 14551 and Sections 14551.5
8and 14553 of this division and shall:

9(1) Ensure that the credit union complies with Section 14252
10of this division.

11(2) Ensure that the credit union maintains an effective internal
12audit program, including a system of internal controls and
13individuals with sufficient training and experience to adequately
14and timely review all key areas of a credit union’s operations.

15(e) The board of directors may, by subsequent resolution,
16re-establish a supervisory committee in lieu of an audit committee,
17which must be affirmed by membership vote. The audit committee
18shall be deemed dissolved upon the election of a supervisory
19committee by the membership.

20

SEC. 5.  

Section 14804 of the Financial Code is amended to
21read:

22

14804.  

The members of a credit union shall hold an annual
23meeting for the electionbegin delete of directors and a supervisory committee
24and,end delete
begin insert of: (a) directors; (b) a supervisory committee, unless the
25board of directors has appointed an audit committee pursuant to
26Section 14556; and (b) credit committee,end insert
if provided for in its
27begin delete bylaws, the election of a credit committee,end deletebegin insert bylaws. The annual
28meeting shall be heldend insert
upon such notice and at such time and place
29 as the bylaws provide.

30

SEC. 6.  

Section 14950 of the Financial Code is amended to
31read:

32

14950.  

(a) Every credit union may enter into obligations with
33its members upon the approval of the credit committee or, in the
34alternative, the credit manager, subject to the terms and conditions
35established by the board of directors pursuant to Section 15100.

36(b) (1) The board of directors of a credit union shall adopt a
37policy governing the acceptance by the credit union of notes
38receivable from nonmembers as consideration for the sale of assets
39owned by the credit union through bona fide transactions.

P6    1(2) No credit union may accept notes receivable from
2nonmembers as consideration for the sale of assets owned by the
3credit union except in accordance with a policy adopted by the
4board of directors pursuant to paragraph (1).

5(3) Transactions subject to this subdivision shall not be deemed
6to be loans to nonmembers for purposes of Section 14750.

7(c) Notwithstanding subdivision (a), a credit union may permit
8a nonmember to participate in an obligation or extension of credit
9to a member as a jointbegin delete applicant or co-obligor.end deletebegin insert applicant,
10co-obligor, coborrower, surety, or guarantor.end insert
An obligation or
11extension of credit made pursuant to this subdivision shall not be
12deemed a violation of subdivision (b) of Section 14800. Except as
13otherwise permitted by statute or regulation, the credit union shall
14not extend any other benefit or service of the credit union to the
15nonmember solely as a result of participation as a jointbegin delete applicant
16or co-obligorend delete
begin insert applicant, co-obligor, coborrower, surety, or
17guarantorend insert
unless the nonmember is thereafter admitted to
18membership.

19

SEC. 7.  

Section 14951 of the Financial Code is repealed.

begin delete
20

14951.  

Any application for any loan or extension or guarantee
21of credit, except an application for an extension of a loan, shall be
22in writing, shall state the purpose for which the loan or extension
23or guarantee of credit is desired, and, if applicable, shall describe
24the property that is proposed to secure the loan or extension or
25guarantee of credit.

end delete
26

SEC. 8.  

Section 15050 of the Financial Code is amended to
27read:

28

15050.  

(a) For purposes of this section, the following
29definitions shall apply:

30(1) “Credit manager” means any individual, regardless of title,
31designated pursuant to Section 14600 to fulfill the duties of a credit
32manager.

33(2) “Obligation” means any loan or approved line of credit,
34including both used and unused portions, on which the official is
35a borrower, coborrower, cosigner, endorser, or guarantor.

36(3) “Official” means a director,begin delete officer, orend delete member of the
37supervisory committee,begin delete orend deletebegin insert member of the audit committee,end insert member
38of the credit committeebegin insert, credit manager, president, or chief
39executive officerend insert
of a credit union.

P7    1(b) No credit union shall enter into any obligation with any
2official, directly or indirectly, unless (1) the obligation complies
3with all lawful requirements of this division with respect to
4obligations permitted for other members of the credit union, (2)
5the obligation is not on terms more favorable than those extended
6to other members of the credit union, and (3) the obligation is
7entered into in accordance with a written policy adopted by the
8directors establishing that all officials shall have an equal
9opportunity to enter into obligations with the credit union.

10(c) No credit union shall enter into any obligation with any
11official, directly or indirectly, unless all of the following
12requirements are satisfied:

13(1) Upon the making of the obligation, the aggregate amount
14of obligations outstanding to all officials, except obligations fully
15secured by shares, shall not exceed 20 percent of the aggregate
16dollar amount of all savings capital of the credit union.

17(2) The obligation, except any portion of an obligation fully
18secured by shares, shall not exceed the maximum obligation to the
19credit union set forth in subdivisions (b) and (c) of Section 15100.

20(3) Any obligation that would cause the aggregate amount of
21obligations outstanding to the official to exceed fifty thousand
22dollars ($50,000), excluding any portion fully secured by shares,
23shall be approved by the credit committee or the credit manager,
24and by the board of directors. An official shall not take part in any
25credit decision, directly or indirectly, for his or her benefit and
26shall not be present during any portion of any committee or board
27meeting where his or her credit application is under consideration.

28(4) The names of members of the credit committee, the credit
29manager, and board of directors who voted to authorize or ratify
30the obligation shall be entered in their respective minutes.

31(d) No credit union shall permit an official to become surety
32for any obligation created by the credit union for anyone other
33than a member of his or her immediate family.

34(e) No credit union shall enter into any obligation with any
35credit manager or any officer employed by the credit union unless
36the obligation is in compliance with all requirements of this
37division with respect to obligations permitted for other
38nonemployee members, and not on terms more favorable than
39those extended to other employees, and approved by the board of
40directors.

P8    1

SEC. 9.  

Section 15100 of the Financial Code is amended to
2read:

3

15100.  

(a) The board of directors shall establish written
4policies which shall set forth the policies of the credit union with
5respect to any obligation that is offered to the members of the
6credit union. The written policies shall set forth the maximum
7amounts and terms for any obligation offered to the members,
8including, but not limited to, the following information:

9(1) For loans, the written policies shall set out the terms for
10unsecured loans, the maximum amount and terms for secured
11loans, the schedule of interest rates established pursuant to Section
1215000 for each type or class of unsecured and secured loan offered
13to members, the maximum maturity for any loan, or, in the case
14of an open-end loan, the rate of repayment for any type or class
15of open-end loan, the limitations, if any, which shall be placed on
16the authority of any loan officer appointed pursuant to Sections
1714602 and 14603, and, subject to the provisions of subdivisions
18(b) and (c), the individual limits on obligations that are applicable
19to all members of the credit union. Any policy developed pursuant
20to this section by the board of directors shall, insofar as possible,
21and, subject to individual creditworthiness, ensure equal access to
22funds available for obligations with credit union members.

23(2) For obligations other than those set out in paragraph (1), the
24board of directors shall set out the interest rates and essential terms
25of the obligations offered to the members and any other information
26as may be required pursuant to regulations that may be adopted
27by the commissioner.

28(b) Notwithstanding subdivision (a), no credit union policy shall
29permit a credit union to enter into obligations with an individual
30credit union member whereby the total obligations of that member,
31exclusive of amounts secured by shares or certificates for funds,
32exceed 10 percent of the aggregate dollar amount of the credit
33union’s savings capital.

34(c) Notwithstanding subdivision (b), no credit union policy shall
35permit a credit union to enter into obligations with any one family
36whereby the total obligations of the family would be greater than
37the amount permitted by subdivision (b). For purposes of this
38article, “family” means the marital couple or any head of household
39together with those dependents residing with the marital couple
40or the head of household and those dependents attending school
P9    1away from the principal residence of the marital couple or head
2of household.

begin delete

3(d) Notwithstanding subdivisions (a), (b) and (c), any obligation
4with a member which is not a natural person shall not result in
5liability to the credit union in excess of that member’s investment
6in the credit union unless an exception is authorized in the credit
7union’s bylaws and approved by the commissioner. Any lending
8activity permitted pursuant to this subdivision may be terminated
9by an order issued by the commissioner pursuant to Sections 14200
10and 14204.

end delete


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