BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2274|
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THIRD READING
Bill No: AB 2274
Author: Dababneh (D)
Amended: 8/1/16 in Senate
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 7-0, 6/15/16
AYES: Glazer, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 79-0, 4/21/16 (Consent) - See last page for
vote
SUBJECT: Credit unions
SOURCE: California Credit Union League
DIGEST: This bill makes several changes to the California
Credit Union Law, which are intended to provide state-chartered
credit unions greater flexibility to conduct their operations.
ANALYSIS:
Existing law:
1)Is silent on the frequency with which a credit union board of
directors must meet.
2)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,
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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).
3)Requires every credit union to have a supervisory committee,
as specified (Financial Code Section 14550).
4)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).
5)Requires a credit union to ask loan applicants and applicants
for extensions or guarantees of credit the purpose for which
the loan, extension, or guarantee is being sought (Financial
Code Section 14951).
6)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).
7)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 of Business Oversight
(commissioner; Financial Code Section 15100).
This bill:
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.
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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).
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.
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Background
This bill is sponsored by the California Credit Union League 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.
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 accomplishes
that update.
Comments
Three of this bill's provisions provide parity between state-
and federally-chartered credit unions, including provisions: 1)
clarifying which individuals are "officials" for purposes of the
conditions under which a credit union may lend to one of its
officials; 2) deleting the requirement that state-chartered
credit unions ask the purpose of any loan they make; and 3)
allowing a credit union's loan to a business to exceed the
amount that business has on deposit with that credit union.
Provisions of this bill that warrant further discussion include
the following.
1)Authority to establish an audit committee in lieu of a
supervisory committee. This bill's sponsor asserts that this
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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: a)
reviewing the credit union's policies and control procedures
to safeguard against fraud and self-dealing; b) ensuring that
the books and records of the credit union are audited at least
once a year; and c) 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: a) suspend the credit committee or
any member of that committee, the credit manager, any member
of the board of directors, or any officer; b) 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; c) inspect the securities, cash, and accounts of
the credit union; and d) declare and fill vacancies on its
committee, as specified.
If established in lieu of a supervisory committee, an audit
committee will be responsible for: a) reviewing the credit
union's policies and control procedures to safeguard against
fraud and self-dealing; b) ensuring that the books and records
of the credit union are audited at least once a year; c)
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; d) inspecting the securities, cash, and accounts of
the credit union; and e) ensuring that the credit union
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.
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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.
2)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.
3)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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified7/22/16)
California Credit Union League (source)
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OPPOSITION: (Verified7/22/16)
None received
ARGUMENTS IN SUPPORT: California Credit Union League 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 modernized in
over a decade and must be updated through legislation to remain
competitive with the federal charter."
ASSEMBLY FLOOR: 79-0, 4/21/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,
Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Quirk, Rodriguez, Salas,
Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner,
Waldron, Weber, Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Ridley-Thomas
Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
8/4/16 11:27:45
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