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 an official, 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:
Section 14103 of the Financial Code is amended
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
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
14audit committee, as applicable.
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.
Section 14252 of the Financial Code is amended to
(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
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
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
19(1) An independent certified public accountant.
20(2) An independent public accountant.
21(3) The credit union’s supervisory or audit committee, as
22applicable, 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
Section 14453 of the Financial Code is amended to
The board of directors of every credit union shall have
37the general management of the affairs, funds, and records of the
38credit union. The board shall meet on a regular basis, not less than
39quarterly, as reasonably determined by the board. The board may
40appoint an executive committee of no fewer than three directors,
P5 1to serve at its pleasure, to act as expressly approved by the board
2of directors in accordance with the laws and regulations.
Section 14456 of the Financial Code is amended to
Unless the bylaws expressly reserve any or all of the
6following duties to the members, the directors have all of the
7following special duties:
8(a) To act upon all applications for membership. The directors
9may delegate the power to approve applications for new
10membership to: (1) the chairperson of a membership committee
11or to an executive committee; or (2) any officer, director,
12committee member, or employee, pursuant to a written membership
13plan adopted by the board of directors.
14(b) To expel members for any of the following causes:
15(1) Conviction of a criminal offense involving moral turpitude.
16(2) Failure to carry out contracts, agreements, or obligations
17with the credit union.
18(3) Refusal to comply with the provisions of this division or of
20Any members who are expelled by the board of directors have
21the right to appeal therefrom to the members, in which event, after
22hearing, the order of suspension may be revoked by a two-thirds
23vote of the members present at a special meeting to consider the
25(c) To determine from time to time the interest rate on
26obligations with members and to authorize the payment of interest
27refunds to borrowing members.
28(d) To fix the maximum number of shares which may be held
29by, and, in accordance with Section 15100, establish the maximum
30amount of obligations which may be entered into with, any one
32(e) To declare dividends on shares in accordance with the credit
33union’s written capital structure policy and to determine the interest
34rate or rates which will be paid on certificates for funds.
35(f) To amend the bylaws, except where membership approval
37(g) To fill vacancies in the credit committee, and to temporarily
38fill vacancies caused by the suspension of any or all members of
39the credit committee, pending a meeting of the members to
P6 1determine whether to affirm the suspension and vacate the office,
2or to reinstate the member or members.
3(h) To direct the deposit or investment of funds, except loans
5(i) To designate alternate members of the credit committee who
6shall serve in the absence or inability of the regular members to
7perform their duties.
8(j) To perform or authorize any action not inconsistent with law
9or regulation and not specifically reserved by the bylaws for the
10members, and to perform any other duties as the bylaws may
Section 14550 of the Financial Code is amended to
Every credit union shall have a supervisory committee
15of at least three persons, provided that the number of members on
16the committee is an odd number, each of whom shall be a member
17of the credit union and elected by the members of the credit union.
18In the alternative, the board of directors may establish an audit
19committee subject to the requirements of Section 14556.
Section 14556 is added to the Financial Code, to read:
(a) The board of directors may, by resolution, establish
22an audit committee in lieu of a supervisory committee. An audit
23committee that meets all the requirements of this section shall be
24deemed to satisfy the requirements for a supervisory committee
25set forth in Sections 14550 to 14555, inclusive, or in any applicable
27(b) The vote of the board of directors to establish an audit
28committee in lieu of a supervisory committee shall be affirmed by
29a majority vote of members voting. Following the affirmative vote
30of the membership, the supervisory committee shall be deemed
31dissolved upon the appointment of an audit committee by the board
33(c) The audit committee shall consist of at least three persons,
34provided that it is an odd number, each of whom shall be a member
35of the credit union and appointed by a majority of the board of
begin delete At least one member of the audit committee shall be a No
37member of the board of directors.end delete
P7 1 member of the audit committee shall serve as a member of the
2credit committee, as the credit manager, as the board chairman, or
3as an employee of the credit union.
4(d) The audit committee shall carry out the responsibilities set
5forth in subdivision (c) of Section 14551 and Sections 14551.5
6and 14553 and shall:
7(1) Ensure that the credit union complies with Section 14252.
8(2) Ensure that the credit union maintains an effective internal
9audit program, including a system of internal controls and
10individuals with sufficient training and experience to adequately
11and timely review all key areas of a credit union’s operations.
12(e) The board of directors may,
by subsequent resolution,
13 reestablish a supervisory committee in lieu of an audit committee,
14which shall be affirmed by membership vote. The audit committee
15shall be deemed dissolved upon the election of a supervisory
16committee by the membership.
Section 14804 of the Financial Code is amended to
The members of a credit union shall hold an annual
20meeting for the election of: (a) directors; (b) a supervisory
21committee, unless the board of directors has appointed an audit
22committee pursuant to Section 14556; and (c) a credit committee,
23if provided for in its bylaws. The annual meeting shall be held
24upon such notice and at such time and place as the bylaws provide.
Section 14950 of the Financial Code is amended to
(a) Every credit union may enter into obligations with
28its members upon the approval of the credit committee or, in the
29alternative, the credit manager, subject to the terms and conditions
30established by the board of directors pursuant to Section 15100.
31(b) (1) The board of directors of a credit union shall adopt a
32policy governing the acceptance by the credit union of notes
33receivable from nonmembers as consideration for the sale of assets
34owned by the credit union through bona fide transactions.
35(2) No credit union may accept notes receivable from
36nonmembers as consideration for the sale of assets owned by the
37credit union except in accordance with a policy adopted by the
38board of directors pursuant to paragraph (1).
39(3) Transactions subject to this subdivision shall not be deemed
40to be loans to nonmembers for purposes of Section 14750.
P8 1(c) Notwithstanding subdivision (a), a credit union may permit
2a nonmember to participate in an obligation or extension of credit
3to a member as a joint applicant, co-obligor, coborrower, surety,
4or guarantor. An obligation or extension of credit made pursuant
5to this subdivision shall not be deemed a violation of subdivision
6(b) of Section 14800. Except as otherwise permitted by statute or
7regulation, the credit union shall not extend any other benefit or
8service of the credit union to the nonmember solely as a result of
9participation as a joint applicant, co-obligor, coborrower, surety,
10or guarantor unless the nonmember is thereafter admitted to
Section 14951 of the Financial Code is repealed.
Section 15050 of the Financial Code is amended to
(a) For purposes of this section, the following
16definitions shall apply:
17(1) “Credit manager” means any individual, regardless of title,
18designated pursuant to Section 14600 to fulfill the duties of a credit
20(2) “Obligation” means any loan or approved line of credit,
21including both used and unused portions, on which the official is
22a borrower, coborrower, cosigner, endorser, or guarantor.
23(3) “Official” means a director, member of the supervisory
24committee, member of the audit committee, member of the credit
25committee, credit manager, president, or chief executive officer
26of a credit union.
27(b) No credit union shall enter into any obligation with any
28official, directly or indirectly, unless (1) the obligation complies
29with all lawful requirements of this division with respect to
30obligations permitted for other members of the credit union, (2)
31the obligation is not on terms more favorable than those extended
32to other members of the credit union, and (3) the obligation is
33entered into in accordance with a written policy adopted by the
34directors establishing that all officials shall have an equal
35opportunity to enter into obligations with the credit union.
36(c) No credit union shall enter into any obligation with any
37official, directly or indirectly, unless all of the following
38requirements are satisfied:
39(1) Upon the making of the obligation, the aggregate amount
40of obligations outstanding to all officials, except obligations fully
P9 1secured by shares, shall not exceed 20 percent of the aggregate
2dollar amount of all savings capital of the credit union.
3(2) The obligation, except any portion of an obligation fully
4secured by shares, shall not exceed the maximum obligation to the
5credit union set forth in subdivisions (b) and (c) of Section 15100.
6(3) Any obligation that would cause the aggregate amount of
7obligations outstanding to the official to exceed fifty thousand
8dollars ($50,000), excluding any portion fully secured by shares,
9shall be approved by the credit committee or the credit manager,
10and by the board of directors. An official shall not take part in any
11credit decision, directly or indirectly, for his or her benefit and
12shall not be present during any portion of any committee or board
13meeting where his or her credit application is under consideration.
14(4) The names of members of the credit committee, the credit
15manager, and board of directors who voted to authorize or ratify
16the obligation shall be entered in their respective minutes.
17(d) No credit union shall permit an official to become surety
18for any obligation created by the credit union for anyone other
19than a member of his or her immediate family.
20(e) No credit union shall enter into any obligation with any
21credit manager or any officer employed by the credit union unless
22the obligation is in compliance with all requirements of this
23division with respect to obligations permitted for other
24nonemployee members, and not on terms more favorable than
25those extended to other employees, and approved by the board of
Section 15100 of the Financial Code is amended to
(a) The board of directors shall establish written
30policies which shall set forth the policies of the credit union with
31respect to any obligation that is offered to the members of the
32credit union. The written policies shall set forth the maximum
33amounts and terms for any obligation offered to the members,
34including, but not limited to, the following information:
35(1) For loans, the written policies shall set out the terms for
36unsecured loans, the maximum amount and terms for secured
37loans, the schedule of interest rates established pursuant to Section
3815000 for each type or class of unsecured and secured loan offered
39to members, the maximum maturity for any loan, or, in the case
40of an open-end loan, the rate of repayment for any type or class
P10 1of open-end loan, the limitations, if any, which shall be placed on
2the authority of any loan officer appointed pursuant to Sections
314602 and 14603, and, subject to the provisions of subdivisions
4(b) and (c), the individual limits on obligations that are applicable
5to all members of the credit union. Any policy developed pursuant
6to this section by the board of directors shall, insofar as possible,
7and, subject to individual creditworthiness, ensure equal access to
8funds available for obligations with credit union members.
9(2) For obligations other than those set out in paragraph (1), the
10board of directors shall set out the interest rates and essential terms
11of the obligations offered to the members and any other information
12as may be required pursuant to regulations that may be adopted
13by the commissioner.
14(b) Notwithstanding subdivision (a), no credit union policy shall
15permit a credit union to enter into obligations with an individual
16credit union member whereby the total obligations of that member,
17exclusive of amounts secured by shares or certificates for funds,
18exceed 10 percent of the aggregate dollar amount of the credit
19union’s savings capital.
20(c) Notwithstanding subdivision (b), no credit union policy shall
21permit a credit union to enter into obligations with any one family
22whereby the total obligations of the family would be greater than
23the amount permitted by subdivision (b). For purposes of this
24article, “family” means the marital couple or any head of household
25together with those dependents residing with the marital couple
26or the head of household and those dependents attending school
27away from the principal residence of the marital couple or head