BILL ANALYSIS
AB 33
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 33 (Nava) - As Amended: March 24, 2009
SUBJECT : Department of Financial Services.
SUMMARY : Creates the California Department of Financial
Services (DFS). Specifically, this bill :
1)Abolishes the Department of Corporations (DOC), Department of
Real Estate (DRE), Department of Financial Institutions (DFI)
and Office of Real Estate Appraisers (OREA).
2)Transfers the powers, duties, purposes, jurisdiction,
responsibilities, and functions of DOC, DRE, DFI and OREA
(agencies) to DFS.
3)Provides that DFS assumes all rights and property of the
agencies, and is subject to their debts and liabilities.
4)States that any legal action by or against the agencies shall
bind DFS in place of the agencies.
5)Specifies that the following funds and accounts shall be under
the jurisdiction of the Commissioner of DFS:
a) The Real Estate Fund;
b) The Education and Research Account, of the Real Estate
Fund;
c) The Recovery Account, of the Real Estate Fund;
d) The Real Estate Appraisers Regulation Fund;
e) The Administration Account, of the Real Estate
Appraisers Regulation Fund;
f) The Recovery Account, of the Real Estate Appraisers
Regulation Fund;
g) The Financial Institutions Fund;
AB 33
Page 2
h) The Credit Union Fund;
i) The Guaranty Corporation Fund;
j) The State Corporations Fund; and,
aa) Any other fund or account under the jurisdiction of the
former agencies.
6)Specifies that any references in the Constitution, statute, or
regulation applying to the agencies shall mean DFS.
7)Provides that and regulation and order issued by or entered
with the agencies to remain in effect by DFS.
8)Makes other conforming changes necessary to create DFS.
9)Makes the following Legislative findings and declarations:
a) The regulation and oversight of financial services in
California are divided among four regulators - DFI, DRE,
OREA, and the DOC;
b) California is one of only a few states that separates
the regulation of financial services among different
licensing agencies;
c) This division of oversight is most apparent in the
regulation of home mortgage lending that is split among
several licensing schemes, including the California Finance
Lenders Law, the California Residential Mortgage Lending
Act, the Real Estate Law, and laws governing the operation
of state and federally chartered banks or credit unions;
d) This partition of regulation dilutes consumer protection
and creates confusion and unnecessary administrative
difficulties for financial services entities; and,
e) The current regulatory system creates licensing
arbitrage, with entities seeking out licenses from various
regulators in order to obtain an advantage.
EXISTING LAW :
1)Provides for the regulation of the following laws and
AB 33
Page 3
licensees by DOC:
a) Broker-dealers and the agents or registered
representatives of broker-dealers;
b) Investment advisers and investment adviser
representatives or associated persons;
c) Capital access companies;
d) The Franchise Investment Law;
e) Check sellers, bill payers, and proraters;
f) Escrow agents;
g) The Finance Lenders Law;
h) Deferred deposit originators;
i) Securities depositories;
j) Business and industrial development corporations; and,
aa) The California Residential Mortgage Lending Act.
2)Provides for the regulation of the following entities by DFI:
a) Banks and trust companies;
b) Foreign Banks;
c) Money transmitters;
d) Issuers of traveler's checks;
e) Bank holding companies;
f) Credit unions;
g) Industrial loan companies; and,
h) Sellers of payment instruments.
3) Empowers DRE to enforce and regulate the following:
AB 33
Page 4
a) Real estate agents and mortgage brokers;
b) Prepaid Rental Listing Services
c) The Subdivided Lands Law; and,
d) The Vacation Ownership and Time-Share Act of 2004.
4)Authorizes OREA to regulate the Real Estate Appraisers'
Licensing and Certification Law.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill . According to the author's office,
"Currently, three agencies regulate financial services activity
in the state. These three agencies are also responsible for the
regulation of various entities involved in mortgage lending.
This tripartite system of regulation leads to consumer confusion
and dilutes regulatory authority and power. On January 6, 2005,
the Governor's California Performance Review (CPR) suggested the
creation of unified regulatory authority. This proposal never
got off the ground. The administration has recently informed
the author that they are in support of the current legislation
and are ready to provide background and technical assistance to
accomplish this reorganization."
The bill consolidates four entities into a single regulator for
financial service entities in California. This bill does not
expand or limit the activities that licensees can carry out
under their existing licensing laws, or the licensing fees
and/or special assessments charged to the entities they
regulate. These fees are placed in specific funds utilized for
the enforcement of that particular licensing law. For example,
state chartered banks pay assessments that go into a fund that
is used solely for the administration of the banking law, and to
ensure the safety and soundness of those institutions.
Similarly, residential mortgage lenders under DOC, pay fees and
assessments that are used to administer their licensing program.
This arrangement would continue to take place under DFS, with
each licensee paying into the fund that is used solely for their
specific regulation and licensing. This is not a case where
banks or credit unions would be paying for the regulation of
AB 33
Page 5
residential mortgage lenders, or vice versa.
The essential example of the split of regulation is mortgage
lending activity. Currently, state chartered banks and credits
unions regulated by DFI offer residential mortgage loans.
Residential mortgage lenders and finance lenders regulated by
DOC also engage in mortgage lending. DRE licensed real estate
brokers also broker mortgage loans, which may even be funded by
the banks, credit unions, residential mortgage lenders or
finance lenders.
The idea to combine regulatory agencies has been previously
raised. In 2005, the CPR published several reports and
documents recommending structural changes to California's
agencies, boards and commissions. In particular, the report
Form Follows Function: A Framework to Improve the Performance
and Productivity of California State Government, recommended
that DOC and DFI should fall under an Undersecretary of
Financial Services Division of a proposed Commerce and Consumer
Protection Department. DRE and OREA would also included under
this department, but would have remained a distinct entity
separate from the Financial Services Division.
The three different existing regulatory departments are
summarized below.
DOC:
Since 2001, the DOC has compelled finance lenders and mortgage
bankers to make over $62.5 million in consumer refunds. DOC has
authority over finance lenders and brokers who, in 2007, made
approximately $202.4 billion in consumer and commercial finance
loans. DOC also regulates mortgage bankers who made $103
billion in home loans and serviced $611 billion in home loans in
2007.
Since 2001, DOC has brought approximately 5,063 enforcement
actions against people or companies performing fraud,
misrepresentation, or predatory practices.
As of January 1, 2009, DOC regulates over 323,150 entities,
including:
AB 33
Page 6
3,473 broker-dealers
265,355 agents or registered representatives
3,023 investment advisers
45,926 investment adviser representatives or associated
persons
831 independent escrow agents
3,744 consumer and commercial finance lenders and 6,281
locations
390 residential mortgage lenders or mortgage bankers
414 deferred deposit originators at 2,386 locations
DFI :
DFI licenses and regulates commercial banks, credit unions,
industrial banks, premium finance companies, trust companies,
agencies, branches and representative offices of foreign banks,
savings and loans associations, money transmitters, issuers of
payment instruments and traveler's checks, and business and
industrial development corporations.
DFI was formed by consolidating the divisions of Credit Unions
and Industrial Loan Companies from the DOC and the Department of
Savings and Loan, and the State Banking Department, some of
which date back to the mid-19th century. Starting in 1857,
banking enterprises in California were granted charters under
the General Corporation Laws. Savings banks were authorized by
an act passed in 1862. The Banking Law was again extensively
revised in 1979 to bring it in line with General Corporate Law
and Generally Accepted Accounting Principles.
AB 33
Page 7
As of November 2008, DFI oversees the operation of approximately
700 financial institutions, including about 187 state banks and
208 state credit unions, with combined assets totaling more than
$290 billion. DFI ensures public confidence in financial
institutions by protecting the interests of depositors,
borrowers, shareholders and consumers through enforcement of
applicable state and federal laws.
DRE :
DRE administers license examinations, issues and regulates real
estate licenses, and qualifies subdivision offerings. DRE is a
special fund agency that derives all its revenues from
examination, license and subdivision fees. DRE is divided into
the following divisions: Licensing, Enforcement, Legal, Audits,
Subdivisions, Legislation and Public Information, and
Administrative Services. As of November 2008, DRE has 152,704
brokers and 383,116 salespersons for a total of 535,822
licensees.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
California Realtors Association
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301