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)
Page 8
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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Page 10
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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