BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 204
Author: Benoit (R), et al
Amended: 9/2/09
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 11-0, 4/15/09
AYES: Calderon, Cogdill, Cox, Florez, Harman, Kehoe, Liu,
Lowenthal, Padilla, Runner, Wolk
NO VOTE RECORDED: Correa
SENATE APPROPRIATIONS COMMITTEE : 12-0, 4/27/09
AYES: Kehoe, Cox, Corbett, Denham, DeSaulnier, Hancock,
Leno, Oropeza, Runner, Walters, Wolk, Yee
NO VOTE RECORDED: Wyland
SENATE FLOOR : 33-1, 5/6/09
AYES: Alquist, Ashburn, Benoit, Calderon, Cogdill,
Corbett, Correa, Cox, Denham, Ducheny, Dutton, Florez,
Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,
Lowenthal, Maldonado, Negrete McLeod, Padilla, Pavley,
Romero, Steinberg, Strickland, Walters, Wiggins, Wolk,
Wright, Wyland, Yee
NOES: Oropeza
NO VOTE RECORDED: Aanestad, Cedillo, DeSaulnier, Runner,
Simitian, Vacancy
ASSEMBLY FLOOR : 72-1, 9/3/09 - See last page for vote
SUBJECT : Financial transactions: regulation
SOURCE : Escrow Institute of California
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DIGEST : This bill enacts changes to the Escrow Law,
relating to annual fees, audit frequency, and license
surrender, and changes to the Residential Mortgage Lending
Act, related to license surrender and branch office
closures.
Assembly Amendments delete provisions of the bill which
required the Commissioner of the Department of Corporations
to conduct an indoctrination or preliminary examination on
any escrow agent license that undergoes a change of
ownership, and delete provisions of the bill which
authorized the Commissioner to accept license surrender
upon a finding that the surrender is in the public
interest. The amendments add provisions to the bill which
ensure that the maximum liability of an insurance company
that issues a fidelity bond to an exchange facilitator is
the face amount of the bond, and clarify that "eligible
surplus lines insurers" recognized by the Department of
Insurance may issue fidelity bonds and errors and omissions
insurance to exchange facilitators.
ANALYSIS :
Existing law:
Escrow 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 of the
Department of Corporations (DOC) 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.
2.Authorizes the commissioner of DOC 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, will exceed the amounts that
will be collected from the annual assessment.
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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 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 (Section 17600).
6.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.
California Residential Mortgage Lending Act (CRMLA)
1.Provides that a residential mortgage lender's or
servicer's license remains in effect, until it is
surrendered, revoked, or suspended.
2.Requires a licensee who ceases to engage in business as
a residential mortgage lender or servicer to notify the
commissioner in writing, surrender its license, and file
a plan for withdrawal from the regulated business, and
requires the plan to include both a timetable for
disposition of the business and a closing audit, review,
or other agreed upon procedures report performed by an
independent certified public accountant; further
provides that the license surrender is not deemed
approved, until the commissioner deems the plan for
withdrawal satisfactory.
3.Requires residential mortgage lender and servicer
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licensees to notify the commissioner in writing, by
certified mail, return receipt requested, prior to
opening a branch office in California or changing the
business location or locations of its headquarters or
its branch office(s).
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 may levy, if the annual assessment is
insufficient to cover his/her annual expenses related to
administering the Escrow Law, from $500 to $1000, and
increases the amount of time that licensees have to pay
that assessment from 30 to 60 days after notification by
the commissioner.
3.Broadens, under the CRMLA, the types of financial
documents that can be provided by a licensee who wishes
to surrender its license, to demonstrate that all
custodial fund accounts were properly transferred and
closed.
4.Deletes, under the CRMLA, the requirement that the
Commissioner of DOC find that there has been no
violation of law, in order to accept the surrender of a
residential mortgage lender's or servicer's license, and
instead authorizes the commissioner to accept a license
surrender upon a finding that the surrender is in the
public interest.
5.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.
6. Clarifies that "eligible surplus lines insurers"
recognized by the Department of Insurance may issue
fidelity bonds and errors and omissions insurance to
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exchange facilitators, in accordance with Section 51003
and 51007 of the Financial Code.
Background
Prior to 1997, escrow agent license fees were levied on a
pro rata basis. The pro rata assessment was replaced with
a flat assessment in 1997, to reduce what had become a
significant burden on small licensees, and more fairly
spread the costs of Escrow Law administration across all
licensees. AB 1646 (Conroy), Chapter 670, Statutes of
1996, imposes the first assessment, which was supplemented
by a special assessment, if the annual assessment proved
inadequate.
However, because AB 1646 contained a sunset, successor
bills, including AB 459 (Nation), Chapter 499, Statutes of
2001, and SB 408 (Margett), Chapter 257, Statutes of 2005,
were enacted to extend that sunset and update the annual
license fee to its current "capped at $2,800" amount. If
SB 204 or another bill is not enacted to either delete or
extend the January 1, 2010 sunset on the existing annual
assessment, the Escrow Law annual assessment will revert to
a pro rata assessment on January 1, 2010. One of the two
industry trade groups representing the escrow industry
strongly favors a flat annual assessment to a pro rata
assessment, and is sponsoring the fee provisions of this
bill, as a result.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12
Fund
Additional exams
potentially less than $50 annually
Special*
*Corporations Fund
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SUPPORT : (Verified 9/3/09)
Escrow Institute of California (source)
ARGUMENTS IN SUPPORT : Escrow Institute of California
(EIC) is sponsoring the provisions of this bill relating to
the annual assessment and audits of new licensees and
licensees who have undergone a change in ownership.
Deleting the sunset date on the existing "up to $2,800"
assessment and increasing the maximum size of the special
assessment from $500 to $1000 is intended to allow DOC to
continue collecting sufficient licensee fee revenue to
cover its administrative costs, while at the same time
ensuring that DOC never returns to its prior method of
imposing pro-rata assessments on escrow law licensees.
According to EIC, the pro-rata assessments were unfair, and
had the greatest financial impact on small (4-5 employees),
largely women-owned escrow businesses. "Prior to the
imposition of the annual flat assessment in 1996, the
average pro-rata assessment fee for a typical small escrow
agent ran anywhere from $15,000 to $18,000, which we submit
would have a devastating impact on escrow licenses during
these very difficult economic times."
EIC also believes that the long-term success of a licensee
is enhanced by early efforts to ensure that it clearly
understands the law and acquires the requisite skills for
trust funds handling. This is of particular importance,
given the increased entry of licensees who lack a previous
escrow background. The examination provisions of the bill
are intended to ensure that DOC takes a close look at every
new escrow agent licensee, and every escrow agent licensee
that undergoes a change in ownership, at least twice during
its first two years of existence, in furtherance of EIC's
(and DOC's) goal of ensuring licensees' compliance with the
Escrow Law and trust fund accounting protocols.
DOC is sponsoring the provisions of this bill relating to
the surrender of escrow agent and CRMLA licenses, to allow
itself more flexibility in accepting license surrenders,
and eliminate its need to revoke a license, where no public
purpose is served by doing so. DOC is also sponsoring the
provision that requires CRMLA licenses to report branch
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closures to the department in a timely manner, to ensure
that it has accurate records of operating locations.
Finally, DOC is sponsoring the provision that makes changes
to the accounting reports required to be submitted to the
department as a condition of surrendering an escrow
license, to correct an unintentional drafting error that
prevents DOC from taking action against a licensee whose
closing audit or review is lacking.
ASSEMBLY FLOOR :
AYES: Adams, Arambula, Beall, Bill Berryhill, Tom
Berryhill, Blakeslee, Block, Blumenfield, Brownley,
Buchanan, Caballero, Charles Calderon, Carter, Chesbro,
Conway, Cook, Coto, De La Torre, Duvall, Emmerson, Eng,
Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,
Galgiani, Garrick, Gilmore, Hagman, Hall, Harkey,
Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,
Jones, Krekorian, Lieu, Logue, Bonnie Lowenthal, Ma,
Mendoza, Miller, Monning, Nava, Nestande, Niello,
Nielsen, John A. Perez, V. Manuel Perez, Portantino,
Ruskin, Salas, Saldana, Silva, Skinner, Smyth, Solorio,
Audra Strickland, Swanson, Torlakson, Torres, Torrico,
Tran, Villines, Yamada, Bass
NOES: Anderson
NO VOTE RECORDED: Ammiano, Davis, De Leon, DeVore, Evans,
Knight, Vacancy
JJA:do 9/16/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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