BILL ANALYSIS Ó
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Glazer, Chair
2015 - 2016 Regular
Bill No: AB 2274 Hearing Date: June 15,
2016
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|Author: |Dababneh |
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|Version: |February 18, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Eileen Newhall |
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Subject: Credit unions
SUMMARY Makes several changes to the California Credit Union Law,
which are intended to provide state-chartered credit unions
greater flexibility to conduct their operations.
DESCRIPTION
1. Requires the board of directors of a credit union to meet
on a regular basis, as reasonably determined by the board,
but not less than quarterly.
2. Upholds the authority of a credit union board of directors
to delegate the power to approve membership applications to
any officer, director, committee member, or employee of that
credit union, pursuant to a written membership plan adopted
by the board of directors, but deletes the requirement that
the board review a report of membership applications
approved by those delegates at least quarterly.
3. Authorizes a credit union to establish an audit committee,
as specified, in lieu of a supervisory committee, and makes
conforming changes.
4. Authorizes a credit union to permit non-members to act as
joint applicants, co-obligors, coborrowers, sureties, or
guarantors on loans or extensions of credit taken out by
members (the language in italics is being added).
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5. Deletes the requirement that a credit union ask loan
applicants and applicants for extensions or guarantees of
credit the purpose for which the loan, extension, or
guarantee is being sought.
6. Clarifies the definition of an official in the provision of
law that imposes conditions on loans made by a credit union
to one of its officials. Under the clarified definition, a
credit union "official" is a director, member of the
supervisory committee, member of the credit committee,
member of the audit committee, credit manager, president, or
chief executive officer of a credit union (the titles in
italics are being added by this bill).
7. Authorizes a credit union to extend a loan to a business
customer, which exceeds that business' investment in the
credit union, without requiring the loan to be authorized in
the credit union's bylaws and approved by the Commissioner
of Business Oversight (commissioner).
EXISTING LAW
8. Is silent on the frequency with which a credit union board
of directors must meet.
9. Authorizes a credit union board of directors to delegate
the power to approve membership applications to any officer,
director, committee member, or employee of that credit
union, pursuant to a written membership plan adopted by the
board of directors, provided the board reviews a report of
membership applications approved by those delegates at least
quarterly (Financial Code Section 14456).
10. Requires every credit union to have a supervisory
committee, as specified (Financial Code Section 14550).
11. Authorizes a credit union to permit non-members to act as
joint applicants and co-obligors on obligations and
extensions of credit to a member (Financial Code Section
14950).
12. Requires a credit union to ask loan applicants and
applicants for extensions or guarantees of credit the
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purpose for which the loan, extension, or guarantee is being
sought (Financial Code Section 14951).
13. Defines an "official," for purposes of the provision of law
that imposes conditions on loans made by a credit union to
one of its officials, as a director, officer, member of the
supervisory committee, or member of the credit committee
(Financial Code Section 15050).
14. Provides that any obligation with a member that is not a
natural person may not result 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 (Financial
Code Section 15100).
COMMENTS
1. Purpose: This bill is sponsored by the California Credit
Union League (CCUL) to update and strengthen the state
credit union charter, make the state charter more
competitive with the federal charter, give state-chartered
credit unions greater flexibility in the ways they may
organize, and improve their ability to serve their members.
2. Background: Like banks, credit unions operate in a
dual-charter system and may, subject to regulatory approval,
choose to operate as either a state-chartered depository
institution or a federally-chartered depository institution.
According to this bill's sponsor, the rules governing
California state-chartered credit unions have not been
significantly modernized in over a decade and are in need of
an update. This bill would accomplish that update.
3. Discussion: Three of this bill's provisions provide parity
between state- and federally-chartered credit unions,
including provisions: a) clarifying which individuals are
"officials" for purposes of the conditions under which a
credit union may lend to one of its officials; b) deleting
the requirement that state-chartered credit unions ask the
purpose of any loan they make; and c) allowing a credit
union's loan to a business to exceed the amount that
business has on deposit with that credit union.
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Provisions of the bill that warrant further discussion include
the following.
a. Authority to establish an audit committee in lieu of
a supervisory committee: This bill's sponsor asserts
that this provision gives credit unions the ability to
focus on complying with their annual audit requirements,
without taking on duplicative oversight functions that
are already performed by the commissioner and credit
union members.
Under existing law, each credit union must have a
supervisory committee, which has several
responsibilities, including: 1) reviewing the credit
union's policies and control procedures to safeguard
against fraud and self-dealing; 2) ensuring that the
books and records of the credit union are audited at
least once a year; and 3) making a full report of the
assets and liabilities, receipts and disbursements of the
credit union to the board of directors of the credit
union at the annual meeting of members. In carrying out
its duties, the supervisory committee may: 1) suspend the
credit committee or any member of that committee, the
credit manager, any member of the board of directors, or
any officer; 2) call a meeting of the members to consider
any violation of the Credit Union Law or the credit
union's bylaws or any practices of the credit union,
which the committee believes are unsafe or unauthorized;
3) inspect the securities, cash, and accounts of the
credit union; and 4) declare and fill vacancies on its
committee, as specified.
If established in lieu of a supervisory committee, an audit
committee will be responsible for: 1) reviewing the
credit union's policies and control procedures to
safeguard against fraud and self-dealing, 2) ensuring
that the books and records of the credit union are
audited at least once a year; 3) making a full report of
the assets and liabilities, receipts, and disbursements
of the credit union to the board of directors of the
credit union at the annual meeting of members; 4)
inspecting the securities, cash, and accounts of the
credit union, and 5) ensuring that the credit union
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maintains an effective internal audit program, including
a system of internal controls and individuals with
sufficient training and experience to adequately and
timely review all key areas of a credit union's
operations.
This bill's sponsor asserts that the responsibilities of
the supervisory committee, which will not be given to the
audit committee, already rest with other entities. For
example, the commissioner already has the authority to
suspend any or all members of the credit committee, any
member of the board of directors, or any other officer of
a credit union. Members of a credit union have the
ability to request a special meeting to remove a director
and to bring a lawsuit against a credit union for
violating its bylaws or operating in an unsafe manner.
b. Authority for non-members to be co-borrowers,
sureties, or guarantors: Existing law allows non-members
to be joint applicants and co-obligors, but does not
expressly clarify that a co-obligor may be a co-borrower,
surety, or guarantor. The clarifying language in this
bill will allow non-members to act as additional security
on more loans, a change that will not only appeal to
credit union customers, but will also improve the safety
and soundness of credit unions' loan portfolios.
c. Allow business loans to exceed a business member's
deposits: Under existing law, credit unions must seek
approval from the commissioner before extending a
business loan that exceeds the amount a business has on
deposit, even if that business otherwise meets applicable
underwriting criteria. This bill will allow member
business loans to exceed a member's cash on deposit,
provided the business meets applicable underwriting
criteria, without the need for commissioner approval.
4. Summary of Arguments in Support: CCUL is sponsoring the
bill "to update and strengthen the state charter credit
union statute....In order to remain competitive in the dual
chartering system, individual states have periodically
updated their charters to meet the needs of state-chartered
credit unions and their credit union members. The
California credit union charter has not been significantly
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modernized in over a decade and must be updated through
legislation to remain competitive with the federal charter."
5. Summary of Arguments in Opposition: None received.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Credit Union League (sponsor)
Opposition
None received
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