Amended in Senate August 1, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2274


Introduced by Assembly Member Dababneh

February 18, 2016


An act to amend Sectionsbegin insert 14103, 14252,end insert 14453, 14456, 14550, 14804, 14950, 15050, and 15100 of,begin delete andend delete 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 amended, 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 anbegin delete officer,end deletebegin insert official,end insert 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    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 14103 of the end insertbegin insertFinancial Codeend insertbegin insert is amended
2to read:end insert

P3    1

14103.  

The bylaws shall prescribe the manner in which the
2business of the credit union shall be conducted with reference to
3the following matters:

4(a) The purpose of the credit union.

5(b) The qualification for membership.

6(c) Determination of the month, time and place of the annual
7meeting; the manner of conducting meetings; the method by which
8members shall be notified of meetings; and the number of members
9which shall constitute a quorum.

10(d) The authorized number of directors, the number of directors
11necessary to constitute a quorum, and the powers and duties of
12officers elected by the directors.

13(e) The membership, powers, and duties of the supervisory
14
begin delete committee.end deletebegin insert or audit committee, as applicable.end insert

15(f) The membership, powers, and duties of the credit committee
16or if applicable, the general powers, responsibilities and duties of
17the credit manager.

18(g) The manner in which the bylaws may be amended.

19begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 14252 of the end insertbegin insertFinancial Codeend insertbegin insert is amended to
20read:end insert

21

14252.  

(a) A credit union with total assets equal to or greater
22than ten million dollars ($10,000,000) shall, within 105 days after
23the end of each fiscal year or within any extended time that the
24commissioner may specify, file with the commissioner an audit
25report for the fiscal year.

26(b) The audit report called for in subdivision (a) shall comply
27with all of the following provisions:

28(1) The audit report shall contain the audited financial statements
29of the credit union for, or as of the end of, the fiscal year, prepared
30in accordance with generally accepted accounting principles that
31the commissioner may specify, and any other information that the
32commissioner may specify.

33(2) The audit report shall be based upon an audit of the credit
34union, conducted in accordance with generally accepted auditing
35standards, and any other requirements that the commissioner may
36specify.

37(3) The audit report shall be prepared by an independent certified
38public accountant or independent public accountant who is
39acceptable to the commissioner.

P4    1(4) The audit report shall include, or be accompanied by, a
2certificate or opinion of the independent certified public accountant
3or independent public accountant that is satisfactory in form and
4content to the commissioner. If the certificate or opinion is
5qualified, the commissioner may order the credit union to take any
6action that the commissioner may find necessary or advisable to
7enable the independent certified public accountant or independent
8 public accountant to remove the qualification.

9(c) A credit union with total assets of less than ten million dollars
10($10,000,000) shall, within 105 days after the end of each fiscal
11year or within any extended time that the commissioner may
12specify, file with the commissioner an audit report for the fiscal
13year.

14(d) The audit report called for in subdivision (c) may comply
15with all the provisions of subdivision (b), or may consist of
16alternative procedures acceptable to the commissioner. An
17alternative procedures audit may be performed by any of the
18following:

19(1) An independent certified public accountant.

20(2) An independent public accountant.

21(3) The credit union’s supervisorybegin insert or auditend insert committee,begin insert as
22applicable,end insert
provided that the audit complies with the requirements
23of Section 14253.

24(e) Notwithstanding subdivision (d), the commissioner may
25reject an alternative procedures audit that he or she determines is
26not satisfactory. If the commissioner rejects an alternative
27procedures audit for any reason, he or she may order a credit union
28to obtain an audit that is satisfactory to the commissioner.

29(f) The commissioner may, by order or regulation, either
30unconditionally or upon specified terms and conditions, grant an
31exemption from this section in any case where the commissioner
32finds that the requirements of this section are not necessary or
33advisable.

34

begin deleteSECTION 1.end delete
35
begin insertSEC. 3.end insert  

Section 14453 of the Financial Code is amended to
36read:

37

14453.  

The board of directors of every credit union shall have
38the general management of the affairs, funds, and records of the
39credit union. The board shall meet on a regular basis, not less than
40quarterly, as reasonably determined by the board. The board may
P5    1appoint an executive committee of no fewer than three directors,
2to serve at its pleasure, to act as expressly approved by the board
3of directors in accordance with the laws and regulations.

4

begin deleteSEC. 2.end delete
5
begin insertSEC. 4.end insert  

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 directors.

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

17(1) Conviction of a criminal offense involving moral turpitude.

18(2) Failure to carry out contracts,begin delete agreementsend deletebegin insert agreements,end insert or
19obligations with the credit union.

20(3) Refusal to comply with the provisions of this division or of
21the bylaws.

22Any members who are expelled by the board of directors have
23the right to appeal therefrom to the members, in which event, after
24hearing, the order of suspension may be revoked by a two-thirds
25vote of the members present at a special meeting to consider the
26matter.

27(c) To determine from time to time the interest rate on
28obligations with members and to authorize the payment of interest
29refunds to borrowing members.

30(d) To fix the maximum number of shares which may be held
31by, and, in accordance with Section 15100, establish the maximum
32amount of obligations which may be entered into with, any one
33member.

34(e) To declare dividends on shares in accordance with the credit
35union’s written capital structure policy and to determine the interest
36rate or rates which will be paid on certificates for funds.

37(f) To amend the bylaws, except where membership approval
38is required.

39(g) To fill vacancies in the credit committee, and to temporarily
40fill vacancies caused by the suspension of any or all members of
P6    1the credit committee, pending a meeting of the members to
2determine whether to affirm the suspension and vacate the office,
3or to reinstate the member or members.

4(h) To direct the deposit or investment of funds, except loans
5to members.

6(i) To designate alternate members of the credit committee who
7shall serve in the absence or inability of the regular members to
8perform their duties.

9(j) To perform or authorize any action not inconsistent with law
10or regulation and not specifically reserved by the bylaws for the
11members, and to perform any other duties as the bylaws may
12prescribe.

13

begin deleteSEC. 3.end delete
14
begin insertSEC. 5.end insert  

Section 14550 of the Financial Code is amended to
15read:

16

14550.  

Every credit union shall have a supervisory committee
17of at least three persons, provided that the number of members on
18the committee is an odd number, each of whom shall be a member
19of the credit union and elected by the members of the credit union.
20In the alternative, the board of directors may establish an audit
21committee subject to the requirements of Section 14556.

22

begin deleteSEC. 4.end delete
23
begin insertSEC. 6.end insert  

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

24

14556.  

(a) The board of directors may, by resolution, establish
25an audit committee in lieu of a supervisory committee. An audit
26committee that meets all the requirements of this section shall be
27deemed to satisfy the requirements for a supervisory committee
28set forth in Sections 14550 to 14555, inclusive, or in any applicable
29bylaw provision.

30(b) The vote of the board of directors to establish an audit
31committee in lieu of a supervisory committeebegin delete mustend deletebegin insert shallend insert be
32affirmed bybegin delete membership vote.end deletebegin insert a majority vote of members voting.end insert
33 Following the affirmative vote of the membership, the supervisory
34committee shall be deemed dissolved upon the appointment of an
35audit committee by the board of directors.

36(c) The audit committee shall consist of at least three persons,
37provided that it is an odd number, each of whom shall be a member
38of the credit union and appointed by a majority of the board of
39directors. At least one member of the audit committee shall be a
40member of the board of directors. No member of the audit
P7    1committee shall serve as a member of the credit committee, as the
2credit manager, as the board chairman, or as an employee of the
3credit union.

4(d) The audit committee shall carry out the responsibilities set
5forth in subdivision (c) of Section 14551 and Sections 14551.5
6and 14553begin delete of this divisionend delete and shall:

7(1) Ensure that the credit union complies with Sectionbegin delete 14252
8of this division.end delete
begin insert 14252.end insert

9(2) Ensure that the credit union maintains an effective internal
10audit program, including a system of internal controls and
11individuals with sufficient training and experience to adequately
12and timely review all key areas of a credit union’s operations.

13(e) The board of directors may, by subsequent resolution,
14begin delete re-establishend deletebegin insert reestablishend insert a supervisory committee in lieu of an audit
15committee, whichbegin delete mustend deletebegin insert shallend insert be affirmed by membership vote.
16The audit committee shall be deemed dissolved upon the election
17of a supervisory committee by the membership.

18

begin deleteSEC. 5.end delete
19
begin insertSEC. 7.end insert  

Section 14804 of the Financial Code is amended to
20read:

21

14804.  

The members of a credit union shall hold an annual
22meeting for the election of: (a) directors; (b) a supervisory
23committee, unless the board of directors has appointed an audit
24committee pursuant to Section 14556; andbegin delete (b)end deletebegin insert (c) aend insert credit
25committee, if provided for in its bylaws. The annual meeting shall
26be held upon such notice and at such time and place as the bylaws
27provide.

28

begin deleteSEC. 6.end delete
29
begin insertSEC. 8.end insert  

Section 14950 of the Financial Code is amended to
30read:

31

14950.  

(a) Every credit union may enter into obligations with
32its members upon the approval of the credit committee or, in the
33alternative, the credit manager, subject to the terms and conditions
34established by the board of directors pursuant to Section 15100.

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

39(2) No credit union may accept notes receivable from
40nonmembers as consideration for the sale of assets owned by the
P8    1credit union except in accordance with a policy adopted by the
2board of directors pursuant to paragraph (1).

3(3) Transactions subject to this subdivision shall not be deemed
4to be loans to nonmembers for purposes of Section 14750.

5(c) Notwithstanding subdivision (a), a credit union may permit
6a nonmember to participate in an obligation or extension of credit
7to a member as a joint applicant, co-obligor, coborrower, surety,
8or guarantor. An obligation or extension of credit made pursuant
9to this subdivision shall not be deemed a violation of subdivision
10(b) of Section 14800. Except as otherwise permitted by statute or
11regulation, the credit union shall not extend any other benefit or
12service of the credit union to the nonmember solely as a result of
13participation as a joint applicant, co-obligor, coborrower, surety,
14or guarantor unless the nonmember is thereafter admitted to
15membership.

16

begin deleteSEC. 7.end delete
17
begin insertSEC. 9.end insert  

Section 14951 of the Financial Code is repealed.

18

begin deleteSEC. 8.end delete
19
begin insertSEC. 10.end insert  

Section 15050 of the Financial Code is amended to
20read:

21

15050.  

(a) For purposes of this section, the following
22definitions shall apply:

23(1) “Credit manager” means any individual, regardless of title,
24designated pursuant to Section 14600 to fulfill the duties of a credit
25manager.

26(2) “Obligation” means any loan or approved line of credit,
27including both used and unused portions, on which the official is
28a borrower, coborrower, cosigner, endorser, or guarantor.

29(3) “Official” means a director, member of the supervisory
30committee, member of the audit committee, member of the credit
31committee, credit manager, president, or chief executive officer
32of a credit union.

33(b) No credit union shall enter into any obligation with any
34official, directly or indirectly, unless (1) the obligation complies
35with all lawful requirements of this division with respect to
36obligations permitted for other members of the credit union, (2)
37the obligation is not on terms more favorable than those extended
38to other members of the credit union, and (3) the obligation is
39entered into in accordance with a written policy adopted by the
P9    1directors establishing that all officials shall have an equal
2opportunity to enter into obligations with the credit union.

3(c) No credit union shall enter into any obligation with any
4official, directly or indirectly, unless all of the following
5requirements are satisfied:

6(1) Upon the making of the obligation, the aggregate amount
7of obligations outstanding to all officials, except obligations fully
8secured by shares, shall not exceed 20 percent of the aggregate
9dollar amount of all savings capital of the credit union.

10(2) The obligation, except any portion of an obligation fully
11secured by shares, shall not exceed the maximum obligation to the
12credit union set forth in subdivisions (b) and (c) of Section 15100.

13(3) Any obligation that would cause the aggregate amount of
14obligations outstanding to the official to exceed fifty thousand
15dollars ($50,000), excluding any portion fully secured by shares,
16shall be approved by the credit committee or the credit manager,
17and by the board of directors. An official shall not take part in any
18credit decision, directly or indirectly, for his or her benefit and
19shall not be present during any portion of any committee or board
20meeting where his or her credit application is under consideration.

21(4) The names of members of the credit committee, the credit
22manager, and board of directors who voted to authorize or ratify
23the obligation shall be entered in their respective minutes.

24(d) No credit union shall permit an official to become surety
25for any obligation created by the credit union for anyone other
26than a member of his or her immediate family.

27(e) No credit union shall enter into any obligation with any
28credit manager or any officer employed by the credit union unless
29the obligation is in compliance with all requirements of this
30division with respect to obligations permitted for other
31nonemployee members, and not on terms more favorable than
32those extended to other employees, and approved by the board of
33directors.

34

begin deleteSEC. 9.end delete
35
begin insertSEC. 11.end insert  

Section 15100 of the Financial Code is amended to
36read:

37

15100.  

(a) The board of directors shall establish written
38policies which shall set forth the policies of the credit union with
39respect to any obligation that is offered to the members of the
40credit union. The written policies shall set forth the maximum
P10   1amounts and terms for any obligation offered to the members,
2including, but not limited to, the following information:

3(1) For loans, the written policies shall set out the terms for
4unsecured loans, the maximum amount and terms for secured
5loans, the schedule of interest rates established pursuant to Section
615000 for each type or class of unsecured and secured loan offered
7to members, the maximum maturity for any loan, or, in the case
8of an open-end loan, the rate of repayment for any type or class
9of open-end loan, the limitations, if any, which shall be placed on
10the authority of any loan officer appointed pursuant to Sections
1114602 and 14603, and, subject to the provisions of subdivisions
12(b) and (c), the individual limits on obligations that are applicable
13to all members of the credit union. Any policy developed pursuant
14to this section by the board of directors shall, insofar as possible,
15and, subject to individual creditworthiness, ensure equal access to
16funds available for obligations with credit union members.

17(2) For obligations other than those set out in paragraph (1), the
18board of directors shall set out the interest rates and essential terms
19of the obligations offered to the members and any other information
20as may be required pursuant to regulations that may be adopted
21by the commissioner.

22(b) Notwithstanding subdivision (a), no credit union policy shall
23permit a credit union to enter into obligations with an individual
24credit union member whereby the total obligations of that member,
25exclusive of amounts secured by shares or certificates for funds,
26exceed 10 percent of the aggregate dollar amount of the credit
27union’s savings capital.

28(c) Notwithstanding subdivision (b), no credit union policy shall
29permit a credit union to enter into obligations with any one family
30whereby the total obligations of the family would be greater than
31the amount permitted by subdivision (b). For purposes of this
32article, “family” means the marital couple or any head of household
33together with those dependents residing with the marital couple
34or the head of household and those dependents attending school
35away from the principal residence of the marital couple or head
36of household.



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