BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       AB 2416|
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                                      CONSENT 


          Bill No:  AB 2416
          Author:   Wilk (R) 
          Amended:  6/21/16 in Senate
          Vote:     21 

           SENATE JUDICIARY COMMITTEE:  7-0, 6/14/16
           AYES:  Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,  
            Wieckowski

           ASSEMBLY FLOOR:  76-0, 5/2/16 (Consent) - See last page for  
            vote

           SUBJECT:   Escrow agent rating service


          SOURCE:    California Escrow Association


          DIGEST:  This bill extends, until January 1, 2022, a requirement  
          that escrow agent rating services comply with specified portions  
          of the California Consumer Credit Reporting Agencies Act, as  
          well as specified policies and procedures intended to safeguard  
          from theft or misuse any personally identifiable information  
          such a service obtains from an escrow agent.


          ANALYSIS:  


          Existing law:


          1)Defines, in the Escrow Law, which is administered by the  
            Department of Corporations, the following:









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                 "escrow" is any transaction in which one person, for the  
               purpose of effecting the sale, transfer, encumbering, or  
               leasing of real or personal property to another person,  
               delivers any written instrument, money, evidence of title  
               to real or personal property, or other thing of value to a  
               third person to be held by that third person until the  
               happening of a specified event or the performance of a  
               prescribed condition, when it is then to be delivered by  
               that third person to a grantee, grantor, promisee,  
               promisor, obligee, obligor, bailee, bailor, or any agent or  
               employee of any of the latter (Fin. Code Sec. 17003); and


                 an escrow agent is any person engaged in the business of  
               receiving escrows for deposit or delivery (Fin. Code Sec.  
               17004).


          1)Exempts the following from the Escrow Law:


                 any person doing business under any state or federal law  
               relating to banks, trust companies, building and loan or  
               savings and loan associations, or insurance companies;


                 any person licensed to practice law in California who  
               has a bona fide client relationship with a principal in a  
               real estate or personal property transaction and who is not  
               actively engaged in the business of an escrow agent;


                 any person whose principal business is that of preparing  
               abstracts or making searches of title that are used as a  
               basis for the issuance of a policy of title insurance by a  
               company doing business under any law of this state relating  
               to insurance companies; and  


                 any broker licensed by the Real Estate Commissioner  
               while performing acts in the course of or incidental to a  








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               real estate transaction in which the broker is an agent or  
               a party to the transaction and in which the broker is  
               performing an act for which a real estate license is  
               required.  (Fin. Code Sec. 17006).


          1)Establishes, in the Consumer Credit Reporting Agencies Act  
            (CCRAA), obligations of consumer credit reporting agencies,  
            requirements for users of consumer credit reports, obligations  
            of furnishers of credit information, and provides for remedies  
            available to persons harmed through violations of the CCRAA,  
            as specified.  (Civ. Code Sec. 1785.1 et seq.)


          2)Requires an escrow agent rating service to comply with and be  
            subject to the following provisions of the CCRAA:


                 upon request and proper identification of any consumer,  
               allow the consumer to visually inspect all files maintained  
               regarding that consumer at the time of the request;


                 inform a consumer of their right to request a decoded  
               written version of the file a consumer credit reporting  
               agency has on that consumer;


                 disclose the recipients of any consumer credit report on  
               the consumer which the consumer credit reporting agency has  
               furnished within two-years preceding the consumer's  
               request;


                 only furnish a consumer credit report in accordance with  
               the written instructions of the consumer to whom it  
               relates;


                 prohibit a consumer credit report from containing:  
               bankruptcies that antedate the report by more than 10  
               years; suits and judgments that antedate the report by more  








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               than seven years; unlawful detainer actions, unless the  
               lessor was the prevailing party; paid tax liens that  
               antedate the report by more than seven years; accounts  
               placed for collection or charged to profit or loss that  
               antedate the report by more than seven years; and records  
               of arrest or other adverse information that antedates the  
               report by more than seven years;


                 maintain reasonable procedures to ensure that consumer  
               credit reports are furnished only to persons entitled to  
               receive them;


                 allow a consumer to request and receive either a decoded  
               written version of their file or a written copy of their  
               file, including all information in the file at the time of  
               the request, with an explanation of any code used;


                 allow a consumer to dispute the completeness or accuracy  
               of any item of information in his or her credit file,  
               require the consumer credit reporting agency to  
               reinvestigate information that is disputed, allow a  
               consumer to include a note in his or her file disputing  
               certain information, and require the consumer credit  
               reporting agency to include a consumer's note in any  
               consumer credit report it provides that includes  
               information being disputed by that consumer; and


                 specify the source of any public records they include in  
               their credit reports.  (Civ. Code Sec. 1785.28 (b).)


          1)Provides that an escrow agent rating service that acts as a  
            reseller of credit information shall comply with the  
            following:


                 only procure a consumer credit report for the purpose of  
               reselling the report or any information therein if the  








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               person discloses to the consumer credit reporting agency  
               which issues the report the identity of the ultimate end  
               user and each permissible purpose for which the report is  
               furnished to the end user of the consumer credit report or  
               information therein; and


                 if the report is procured for the purpose of reselling  
               the report or any information in the report, the service  
               must establish and comply with reasonable procedures  
               designed to ensure that the report or information is resold  
               by the person only for a purpose for which the report may  
               legally be furnished.  (Civ. Code Sec. 1785.28 (c).)


          1)Requires an escrow agent rating service to establish policies  
            and procedures reasonably intended to safeguard from theft or  
            misuse any personally identifiable information it obtains from  
            an escrow agent.  (Civ. Code Sec. 1785.28 (d).)


          2)Provides that an escrow agent who suffers damages as a result  
            of the failure of an escrow agent rating service to comply  
            with the above requirements may bring an action and recover  
            the following:


                 in the case of a negligent violation: actual damages,  
               including court costs, loss of wages, attorney's fees and  
               costs, and, when applicable, pain and suffering;


                 in the case of a willful violation: actual damages,  
               including court costs, loss of wages, attorney's fees and  
               costs, plus punitive damages between $100 and $5,000 per  
               violation, as the court deems proper, plus any other relief  
               the court deems proper;


                 in the case of a class action alleging a willful  
               violation:  punitive damages in an amount that the court  
               may allow, plus attorney's fees and costs; and








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                 in the case of injunctive relief to compel compliance  
               with the above requirements:  court costs and attorney's  
               fees.  (Civ. Code Sec. 1785.28 (e).)


          1)Provides that if an escrow agent rating service is also a  
            consumer credit reporting agency, as specified, it must also  
            comply with other provisions of the CCRAA applicable to  
            consumer credit reporting agencies.  (Civ. Code Sec. 1785.28  
            (f).)


          2)Specifies that the above provisions shall remain in effect  
            only until January 1, 2017, and on that date shall be  
            repealed.  (Civ. Code Sec. 1785.28.6.)


          This bill extends the above sunset provision to January 1, 2022.








          Background


          The federal Consumer Financial Protection Bureau (CFPB),  
          established by the Dodd-Frank Wall Street Reform and Consumer  
          Protection Act of 2010, supervises over 100 depository  
          institutions and their affiliates.  On April 13, 2012, the CFPB  
          released a bulletin to clarify that institutions under CFPB  
          supervision may be held responsible for the actions of companies  
          with which they contract.  That bulletin, in part, stated:
          
            The CFPB recognizes that the use of service providers is often  
            an appropriate business decision for supervised banks and  
            nonbanks.  Supervised banks and nonbanks may outsource certain  








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            functions to service providers due to resource constraints,  
            use service providers to develop and market additional  
            products or services, or rely on expertise from service  
            providers that would not otherwise be available without  
            significant investment.

            However, the mere fact that a supervised bank or nonbank  
            enters into a business relationship with a service provider  
            does not absolve the supervised bank or nonbank of  
            responsibility for complying with Federal consumer financial  
            law to avoid consumer harm.  A service provider that is  
            unfamiliar with the legal requirements applicable to the  
            products or services being offered, or that does not make  
            efforts to implement those requirements carefully and  
            effectively, or that exhibits weak internal controls, can harm  
            consumers and create potential liabilities for both the  
            service provider and the entity with which it has a business  
            relationship.  Depending on the circumstances, legal  
            responsibility may lie with the supervised bank or nonbank as  
            well as with the supervised service provider.
            . . .
            The CFPB expects supervised banks and nonbanks to have an  
            effective process for managing the risks of service provider  
            relationships.  The CFPB will apply these expectations  
            consistently, regardless of whether it is a supervised bank or  
            nonbank that has the relationship with a service provider.   
            (CFPB, CFPB Bulletin 2012-03 (Apr. 13, 2012)  
             
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          information that these third party vetting companies have  
          collected about them, as well as to challenge information they  
          believe is incorrect or misleading.

          By its terms, the safeguards enacted by AB 1169 will sunset on  
          January 1, 2017.  This bill extends that sunset date to January  
          1, 2022.


          Comments


          According to the author:

            In 2013, the Legislature enacted Assembly Bill 1169 (Daly),  
            which created . . . Chapter 3.6, commencing with Section  
            1785.28 to the California Civil Code.  The intent of the bill  
            was to apply provisions of California's credit reporting law  
            to "escrow agent rating services" which purport to evaluate  
            the suitability of escrow professionals to close transactions.  
             The bill was approved unanimously in both houses.  The bill  
            contains a January 1, 2017 sunset clause, codified at Section  
            1785.28.6.  

            Without the protections provided by existing provisions of the  
            Civil Code, escrow agent rating services could incorporate  
            inaccurate credit or bankruptcy data in evaluations of escrow  
            agent settlement services providers, effectively putting these  
            escrow agents out of business based upon inaccurate data.  As  
            noted in the analysis of AB 1169 prepared by the Assembly  
            Banking and Finance Committee, these companies are clearly  
            evaluating credit information in assigning a low, medium or  
            high risk index score to be made available to lenders and  
            others in the mortgage industry.  These index scores are thus  
            not unlike credit scores in the consumer context.  The law  
            does not prohibit the evaluative process; in fact lenders have  
            been evaluating settlement service providers for many years  
            and new rules promulgated pursuant to Dodd-Frank obligate  
            lenders to perform due diligence on vendors.  Existing law  
            also does not affect evaluations performed by lenders  
            themselves.  Instead, the law applies to third-party  
            evaluation entities.








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          Related/Prior Legislation


          AB 1169 (Daly, Chapter 380, Statutes of 2013) required, until  
          January 1, 2017, an escrow agent rating service to comply with  
          specified portions of the California Consumer Credit Reporting  
          Agencies Act, and established policies and procedures reasonably  
          intended to safeguard from theft or misuse any personally  
          identifiable information obtained from an escrow agent.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified6/14/16)


          California Escrow Association (source)
          Escrow Institute of California


          OPPOSITION:   (Verified6/14/16)


          None received

          ASSEMBLY FLOOR:  76-0, 5/2/16
          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,  
            Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, 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, Wood,  
            Rendon








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          NO VOTE RECORDED:  Beth Gaines, Roger Hernández, Ridley-Thomas,  
            Williams


          Prepared by:Tobias Halvarson / JUD. / (916) 651-4113
          6/22/16 15:14:53


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