BILL ANALYSIS
SB 204
Page 1
SENATE THIRD READING
SB 204 (Benoit)
As Amended December 25, 2009
Majority vote
SENATE VOTE : 33-1
BANKING & FINANCE 10-1 APPROPRIATIONS 16-0
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|Ayes:|Nava, Gaines, Evans, |Ayes:|De Leon, Nielsen, |
| |Fong, Fuentes, Mendoza, | |Ammiano, Charles |
| |Ruskin, Swanson, Torres, | |Calderon, Coto, Davis, |
| |Tran | |Duvall, Fuentes, Hall, |
| | | |Harkey, Miller, John A. |
| | | |Perez, Skinner, Solorio, |
| | | |Audra Strickland, |
| | | |Torlakson |
|-----+--------------------------+-----+--------------------------|
|Nays:|Anderson | | |
| | | | |
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SUMMARY : Enacts changes to the Escrow Law, relating to annual
fees, audit frequency, and license surrender. Specifically,
this bill :
1)Deletes the January 1, 2010 sunset date on the Escrow Law
annual assessment, thus permanently capping it at $2,800, and
deletes the section of law that provides for a pro rata
licensee assessment if the $2,800 annual assessment were to
sunset.
2)Increases the amount of the special assessment the
Commissioner of the Department of Corporations (DOC) may levy,
if the annual assessment is insufficient to cover his/her
annual expenses related to administering the Escrow Law, from
$500 to $1,000, and increases the amount of time that
licensees have to pay that assessment from 30 to 60 days after
notification by the Commissioner.
3)Deletes from current law the requirement that every person
acting as an escrow agent must furnished their books, records
and accounts at any time and without notice for inspection by
DOC.
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4)Deletes from current law that the Commissioner of DOC must
conduct an examination as often as necessary but not less than
once every 24 months.
5)Deletes the requirement that the Commissioner of DOC conduct a
preliminary examination of any new licensee or change of
ownership.
6)Deletes the reference to an agreed upon procedures report
performed by an independent certified public accountant from
the section of the Escrow Law relating to license surrender
and replace it with a reference to a document prescribed by
rule or order of the Commissioner, including, but not limited
to, any document(s) which demonstrate that all custodial fund
accounts have been properly transferred and closed.
7)Deletes the requirement that the Commissioner find that there
has been no violation of law, in order to accept the surrender
of an escrow agent's license, and instead authorizes the
Commissioner to accept a license surrender upon a finding that
the surrender is in the public interest.
8)Ensures that the maximum liability of an insurance company
that issues a fidelity bond to an exchange facilitator is the
face amount of the bond.
9)Clarifies that "eligible surplus lines insurers" recognized by
the California Department of Insurance may issue fidelity
bonds and errors and omissions insurance to exchange
facilitators, in accordance with Financial Code Section 51003
and 51007.
EXISTING LAW :
1)Establishes an annual licensee fee of up to $2,800 annually
for every licensed escrow agent, per office or location, and
requires the Commissioner to set the annual licensee fee
amount at a level necessary to cover the costs and expenses,
including overhead, associated with enforcement of the Escrow
Law. [Financial Code, Section 1700 et seq.]
2)Authorizes the Commissioner to levy a special assessment on
each escrow agent of up to $500 for each office or location,
if the commissioner finds that the costs and expenses
associated with enforcing the Escrow Law, including overhead,
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will exceed the amounts that will be collected from the annual
assessment.
3)Gives licensees up to 30 days in which to pay this special
assessment, after being notified by the commissioner, and
imposes specified penalties on licensees who fail to timely
pay the assessment.
4)Sunsets existing law 1) through 3) above on January 1, 2010,
and provides for an alternate method of assessing annual fees,
once the existing law fee provisions sunset. This alternate
method requires each escrow agent to annually pay to the
commissioner its pro rata share of the commissioner's Escrow
Law administrative costs.
5)Requires the commissioner to conduct an examination of every
licensed escrow agent as often as the commissioner deems
necessary and appropriate, but not less than once every 48
months.
6)Authorizes, but does not require, the commissioner to conduct
an indoctrination or preliminary examination, or both, of any
new licensee, within one year of issuing a license to that
licensee, and authorizes, but does not require, an examination
of a new licensee within two years of license issuance.
7)Provides that an escrow agent's license remains in effect,
until it is surrendered, revoked, or suspended.
8)Requires licensees who cease to engage in business as escrow
agents, and who no longer wish to be licensed, to notify the
commissioner in writing, and submit a closing audit or review
prepared by an independent certified public accountant, as
specified.
9)Provides that an escrow agent's license is not surrendered
until the commissioner has reviewed and accepted the closing
audit report or review, made a determination that there has
been no violation of law, and accepted tender of the license
in writing.
10)Creates the Escrow Law Advisory Committee in DOC, consisting
of eleven members, as specified, including the Commissioner,
representatives of the Escrow Agents' Fidelity Corporation,
and various members of the escrow industry. The Escrow Law
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Advisory Committee is required to meet at least quarterly, and
is intended to assist the Commissioner in implementing his or
her duties under the Escrow Law.
11)Requires a person engaging in business as an exchange
facilitator, as defined, to comply with certain bonding and
insurance requirements, as specified, and to notify existing
exchange clients whose relinquished or replacement property is
located in this state of any change in control, as defined, of
the exchange facilitator. [Financial Code Section 51003]
FISCAL EFFECT : Any net costs to DOC to conduct additional
examinations will be minor and absorbable.
COMMENTS : The Escrow Law protects members of the public who
entrust their money or other assets to independent escrow agents
in California. Escrow agents, joint control agents and Internet
escrow agents are subject to the provisions of the Escrow Law.
The Escrow Law requires any person engaged in the escrow
business or joint control business in this state to be a
corporation organized for that purpose and to be licensed by the
Commissioner.
In 2005, SB 408 (Margett) was signed into law. This bill
extended the sunset date on existing law pertaining to licensing
fees and assessments for escrow agents imposed by the DOC from
January 1st, 2006 to January 1st, 2010. SB 408 also limited the
amount of penalties the DOC may impose on an escrow agent as
well as clarified what information relative to a person's
criminal history was needed on an escrow agent's application.
The author believes this bill is necessary to place limits on
licensed escrow industry assessment fees (a cost levied against
licensed escrow agents and businesses by DOC) by eliminating the
sunset in current law, thus preventing the historic pro-rata
assessment structure from taking effect.
AB 1646 (Conroy, 1996) capped the fee for each escrow office or
location at $2,800 annually. Prior to AB 1646, a pro-rata fee
structure was utilized by the DOC for each annual assessment,
resulting in a cost of $15,000 to $18,000 for a typical small
escrow office or location. SB 204 will prevent the annual
assessment from reverting back to this pro-rata fee structure.
The language in SB 204 is the result of discussions between the
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Escrow Institute of California (sponsor), DOC, and Senator
Benoit. The DOC has agreed that the $2,800 annual assessment is
sufficient for the purposes of industry oversight and
regulation. If this is ever not the case, the DOC may levy a
"special assessment" of up to $1,000 - increased from $500 by
this bill. However, the DOC has never levied a special
assessment on the escrow industry, despite having had the
authority to do so since 1996.
The sponsor states, "SB 204 is a very modest measure, which, if
enacted, would bring consistency and stability to the Annual
Regulatory Assessment which each escrow licensed location pay
the DOC."
Exchange facilitators: The recent proposed amendments add the
issue of exchange facilitators into the measure. This language
is clean-up language to SB 1007, Machado, Chapter 708, Statutes
of 2008. Since the enactment of SB 1007, exchange facilitators
have encountered trouble obtaining fidelity bonds, in accordance
with Section 51003, and errors and omissions insurance, in
accordance with Section 51007. An insurer who would otherwise
be willing to issue those policies has concerns that Financial
Code Section 51005 does not limit the insurer's liability to the
$1 million face amount of the bond. The Federation of Exchange
Accommodators (FEA) would like to ensure that, the $1 million
face amount of the bond represents the aggregate amount of
coverage under the bond; each individual claimant on the bond is
not entitled to as much as $1 million.
SB 204 would also clarify that "eligible surplus lines insurers"
meets the Section 51003 and 51007 definitions of an "insurer
authorized to do business in this state."
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0002768