BILL NUMBER: AB 2503 CHAPTERED 09/12/00 CHAPTER 411 FILED WITH SECRETARY OF STATE SEPTEMBER 12, 2000 APPROVED BY GOVERNOR SEPTEMBER 11, 2000 PASSED THE ASSEMBLY AUGUST 21, 2000 PASSED THE SENATE AUGUST 18, 2000 AMENDED IN SENATE JULY 6, 2000 AMENDED IN ASSEMBLY MAY 1, 2000 AMENDED IN ASSEMBLY APRIL 10, 2000 INTRODUCED BY Assembly Member Steinberg (Coauthor: Assembly Member Longville) FEBRUARY 24, 2000 An act to amend Sections 14400, 14405, 14800, 14860 of, and to repeal Sections 14864 and 15256 of, the Financial Code, and to amend Section 1648 of the Insurance Code, relating to financial institutions, and declaring the urgency thereof, to take effect immediately. LEGISLATIVE COUNSEL'S DIGEST AB 2503, Steinberg. Financial institutions: electronic contract formation: credit unions. (1) Existing law specifies the accounts which make up the equity capital of a credit union. This bill would revise what makes up the equity capital of a credit union by also permitting the Commissioner of Financial Institutions to approve the inclusion of other forms of capital not specified. (2) Existing law permits a credit union to become a member of any organization or organizations composed of credit unions, credit associations, or chambers of commerce. This bill would additionally permit a credit union to become a member of any organization or organizations composed of financial institutions or nonprofit organizations. (3) Existing law permits a credit union to admit to membership those persons qualified for membership upon the occurrence of either the payment of an entrance fee or upon the purchase of one or more shares in the credit union. This bill would also permit a credit union to admit to membership those persons who purchase a membership in the credit union as provided in the credit union's bylaws. (4) Existing law permits a credit union to issue shares in a revocable trust when the settlor is a member of the credit union issuing the shares in his or her own right. This bill would provide that for a trust that has joint settlers, who are husband and wife, that only one settlor need be a member of the credit union. (5) Existing law provides that the shares and certificates for funds received of members of any credit union and all the accumulation on those shares and certificates are exempt from enforcement of a money judgment in the amount and in the manner provided in specified provisions of the Code of Civil Procedure that relate to exemptions. This bill would repeal that provision. (6) Existing law exempts credit unions from franchise and income taxes. Existing law provides that for the purpose of taxation pursuant to the Bank and Corporation Franchise Tax Law, the corporate existence of any credit union is terminated at the time of the filing of a certificate of election to dissolve with the Secretary of State. This bill would repeal the provision of law specifying when the corporate existence of any credit union is terminated for purposes of the Bank and Corporation Franchise Tax Law. (7) Existing law provides that an unincorporated association or nonprofit corporation that is not the holder of a certificate of authority issued to motor clubs under specified provisions of the Insurance Code is not eligible for an insurance broker or agent production license unless each member thereof possesses an individual license to transact each class of insurance authorized by the license or is a natural person named on the license to transact thereunder. This bill would exempt any state chartered credit union from the above requirements, except that it would require any officer, director, or employee of a state chartered credit union who transacts insurance to be licensed. (8) This bill would declare that it is to take effect immediately as an urgency statute. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 14400 of the Financial Code is amended to read: 14400. (a) The savings capital of a credit union shall consist of the payments made by members on shares as set forth in the credit union's written savings capital structure policy pursuant to Section 14862. (b) The equity capital of the credit union shall consist of the credit union's regular reserve account, the undivided earnings account, any appropriated undivided earnings accounts, and other forms of capital approved by the commissioner. SEC. 2. Section 14405 of the Financial Code is amended to read: 14405. Every credit union may: (a) (1) Become a member of any organization or organizations composed of credit unions, credit associations, chambers of commerce, or financial institutions. (2) Become a member of any nonprofit organization approved by the board of directors. (b) Pay dues and assessments as may be levied upon it by any organization of which it is a member. SEC. 3. Section 14800 of the Financial Code is amended to read: 14800. (a) Every credit union may admit to membership those persons qualified for membership upon the occurrence of any of the following: (1) Upon the purchase of a membership in the credit union as provided in the credit union's bylaws. (2) Upon the payment of an entrance fee established from time to time by the board of directors. (3) Upon the purchase of one or more shares in the credit union as provided in the credit union's bylaws. (b) No officer, director, committee member, or employee of any credit union shall approve a person for admission to membership or admit an applicant for membership in the credit union or extend any benefit or service of the credit union to any person, unless that person is admitted to membership in the credit union pursuant to subdivision (a). (c) Nothing in subdivisions (a) and (b) shall be construed to limit the powers of a credit union to engage in joint service programs or business relationships for the benefit of their members where some incidental benefit may flow to third parties to the transaction or the authority for a credit union to engage in joint loan programs pursuant to Section 14959. (d) Nothing in this section prohibits a credit union from admitting to membership a corporation in which the credit union holds shares pursuant to Section 14650 or a corporation formed to provide services to credit unions or to credit union members in which the credit union holds shares or a limited liability company formed to provide services to credit unions or to credit union members in which the credit union holds membership or economic interests pursuant to Section 14651. SEC. 4. Section 14860 of the Financial Code is amended to read: 14860. Except as provided in this section and Part 2 (commencing with Section 5100) of Division 5 of the Probate Code, no credit union shall exercise trust powers except upon qualifying as a trust company pursuant to Division 1 (commencing with Section 99). (a) Notwithstanding any other provisions of law relating to trusts and trust authority, subject to the regulations of the commissioner, a credit union may act as a trustee or custodian, and may receive reasonable compensation for so acting, under any written trust instrument or custodial agreement created or organized in the United States which is a part of a pension plan for its members or groups or organizations of its members, which qualifies or has qualified for specific tax treatment under Section 401, 408, 408A, 457, or 530 of the Internal Revenue Code, Title 26 of the United States Code, or any deferred compensation plan for the benefit of the credit union's employees, provided the funds received pursuant to these plans are invested as provided in Section 16040 of the Probate Code. All funds held by a credit union as trustee or in a custodial capacity shall be maintained in accordance with applicable laws and rules and regulations as may be promulgated by the Secretary of Labor, the Secretary of the Treasury, or any other authority exercising jurisdiction over the trust or custodial accounts. The credit union shall maintain individual records for each participant or beneficiary that show in detail all transactions relating to the funds of each participant or beneficiary. The trust instrument or agreement shall provide for the appointment of a successor trustee or custodian by a person, committee, corporation, or organization other than the credit union or any person acting in his or her capacity as a director, employee, or agent of the credit union, upon notice from the credit union or the commissioner that the credit union is unwilling or unable to continue to act as trustee or custodian. (b) Shares may be issued in a revocable or irrevocable trust subject to the following: (1) When shares are issued in a revocable trust, the settlor shall be a member of the credit union issuing the shares in his or her own right. If the trust has joint settlers, who are husband and wife, then only one settlor need be a member of the credit union. (2) When shares are issued in an irrevocable trust, the settlor or the beneficiary shall be a member of this credit union in his or her own right. For purposes of this section, shares issued pursuant to a pension plan authorized by this section shall be treated as an irrevocable trust unless otherwise indicated in rules and regulations issued by the commissioner. (3) This subdivision does not apply to trust accounts established prior to the effective date of this subdivision. SEC. 5. Section 14864 of the Financial Code is repealed. SEC. 6. Section 15256 of the Financial Code is repealed. SEC. 7. Section 1648 of the Insurance Code is amended to read: 1648. (a) An unincorporated association or nonprofit corporation that is not the holder of a certificate of authority issued pursuant to Chapter 2 (commencing with Section 12160) of Part 5 of Division 2 is not eligible for a license under this article unless each member thereof possesses an individual license to transact each class of insurance authorized by the license or is a natural person named on the license to transact thereunder. (b) This section is not applicable to any nonprofit cemetery company exempt from the taxes imposed by Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code under the provisions of Section 23701c of the Revenue and Taxation Code. (c) This section is not applicable to any state chartered credit union, except that any officer, director, or employee of the credit union who transacts insurance shall be licensed pursuant to this article. SEC. 8. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to ensure the validity of the increasing number of account agreements or loan agreements entered into through electronic commerce, and to provide credit unions with necessary authority to service their present and future customers, it is necessary that this act take effect immediately.