BILL ANALYSIS Ó
AB 2274
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
2274 (Dababneh)
As Amended August 10, 2016
Majority vote
--------------------------------------------------------------------
|ASSEMBLY: |79-0 |(April 21, |SENATE: | 38-0 |(August 15, |
| | |2016) | | |2016) |
| | | | | | |
| | | | | | |
--------------------------------------------------------------------
Original Committee Reference: B. & F.
SUMMARY: Makes changes to the California Credit Union Law.
Specifically, this bill:
1)Requires the credit union's board of directors to meet on a
regular basis, not less than quarterly, as determined by the
board.
2)Removes a 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.
3)Requires the membership of the supervisory committee to be an
odd number and would authorize, in lieu of the requirement for
AB 2274
Page 2
a supervisory committee, the establishment of an audit
committee and the selection of the members of the audit
committee.
4)Deletes a provision requiring any application for any loan or
extension or guarantee of credit, 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.
5)Permits a nonmember to participate in an obligation or
extension of credit to a member as a co-borrower, surety, or
guarantor.
6)Modifies the definition of "official" to include member of the
audit committee, credit manager, president, or chief executive
officer of a credit union and to remove the position of an
officer.
7)Removes a provision that would prohibit 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 Senate amendments are technical and clarifying changes.
EXISTING LAW:
1)Establishes the California Credit Union Law. (Financial Code,
Section (FIN) 14000)
2)Defines a "credit union" as a cooperative, organized for the
purposes of promoting thrift and savings among its members,
creating a source of credit for them at rates of interest set
AB 2274
Page 3
by the board of directors, and providing an opportunity for
them to use and control their own money on a democratic basis
in order to improve their economic and social conditions. As
a cooperative, a credit union conducts its business for the
mutual benefit and general welfare of its members with the
earnings, savings, benefits, or services of the credit union
being distributed to its members as patrons. (FIN 14002)
3)Provides for the regulation and certification of
state-chartered credit unions by the Department of Business
Oversight (DBO). (FIN 14003)
4)Defines "official" as a director, officer, or member of the
supervisory committee or the credit committee of a credit
union. (FIN 15050)
5)Regulates loans to officials of a credit union. (FIN 15050)
FISCAL EFFECT: According to the Assembly Appropriations
Committee, negligible state costs.
COMMENTS: This bill, sponsored by the California Credit Union
League, updates various provisions of California's Credit Union
Law. Credit unions operate in a dual chartering system,
allowing them to be chartered by either the National Credit
Union Administration (NCUA) or their state supervisory agency,
for California credit unions, this is the DBO. The California
credit union state charter has not been significantly modernized
in over a decade and must be updated through this legislation to
remain competitive with the federal charter.
This bill updates and strengthens the California state charter
credit union statute, giving credit unions new options in the
way they are organized and allows them to better serve their
members.
AB 2274
Page 4
This bill accomplishes seven goals:
1)Allows member business loans to exceed a member's deposits.
For example, if Pete's Pizza has $10,000 deposited at the
credit union, the most the credit union may loan to Pete's
Pizza is $10,000. This bill would allow Pete's to receive a
loan of more than $10,000 (upon credit qualifying under normal
business lending standards and requirements). This will give
state-chartered credit unions parity with federally chartered
credit unions and state chartered banks.
2)Eliminates board review of membership applications. This will
remove an old requirement that the credit union board review a
membership report at least quarterly when they have delegated
membership application approval to the appropriate staff, as
currently permitted.
3)Allows for an audit committee in lieu of a supervisory
committee. Duties of the audit committee are different than
those of the supervisory committee in that they are specific
to the audit function. These duties include inspecting the
securities, cash, and accounts of the credit union, reviewing
the credit union's policies and control procedures, performing
audit requirements, and filing an audit report with the
Commissioner of DBO, as applicable. The duties omitted are
supervisory in nature and appropriately held by the DBO or the
membership. The migration to using an audit committee in lieu
of a supervisory committee would require an affirmative vote
by the membership.
4)Allows non-members to act as the co-borrower, surety, or
guarantor of a loan made to a member. Clarifies existing
language that permits a non-member to be a joint applicant or
co-obligor on a loan by expressly identifying other similar
relationships. For example, this will allow for situations
such as a member's father to be a guarantor on an auto loan.
This adds to the safety and soundness of a credit union by
permitting a guarantor or other responsible party on the loan.
AB 2274
Page 5
5)Redefines which credit union officials' loans are subject to
certain limitations and are required to be reviewed by the
board. The new definition removes the term "officers" which
is undefined in this section and could potentially include a
significant number of staff. The revised definition provides
parity with federal credit unions and restricts "officials" of
the credit union to those who have authority to make decisions
on the credit union's lending policies.
6)Allows credit union boards to determine the frequency of board
meetings while still fulfilling their duties. Currently
boards meet monthly. This change will allow boards to convene
less frequently, but at least quarterly. The necessary credit
union bylaw change would ultimately require approval from the
DBO commissioner.
7)Removes unnecessary loan documentation requirements. Current
law requires state- chartered credit unions to ask the purpose
of any loan they make, including unsecured loans. This bill
would remove this requirement and provide consistency with
other applicable laws and regulations, including in federal
Regulation Z and its definition of a lending application.
As of third-quarter 2015, there were 143 state-chartered credit
unions headquartered in California and 210 federally chartered
credit unions (total of 353 credit unions).
Analysis Prepared by:
Kathleen OMalley / B. & F. / (916) 319-3081 FN:
0003693
AB 2274
Page 6