BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
SB 1363 (Runner) Hearing Date: April 21, 2010
As Amended: April 12, 2010
Fiscal: Yes
Urgency: No
SUMMARY Would require the Commissioner of Corporations to
perform an indoctrination or preliminary examination of new
Escrow Law licensees and licensees who have undergone a change
in ownership, and would impose new education requirements on
certain officers, directors, trustees, and employees of new
licensees and licensees who have undergone a change in
ownership, as specified.
DIGEST
Existing law
1. Regulates the business of escrow under the Escrow Law
(Financial Code Sections 17000 et seq.), but provides an
exemption from that law for a variety of different entities
(Financial Code Section 17006). Among the entities exempt from
regulation under the Escrow Law are depository institutions; any
person licensed to practice law in California, as specified;
title insurance companies regulated by the Department of
Insurance, and real estate brokers performing acts in the course
of, or incidental to a real estate transaction, in which the
broker is an agent or a party to the transaction and is
performing an act for which a real estate license is required;
2. Requires the Commissioner of Corporations (commissioner) to
conduct an examination of every escrow agent licensed under the
Escrow Law as often as he or she deems necessary and
appropriate, but not less than once every 48 months (Section
17405);
3. 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
SB 1363 (Runner), Page 2
licensee, and authorizes, but does not require, an examination
of a new licensee within two years of license issuance (Section
17405);
4. Does not require Escrow Law licensees or their employees to
obtain pre-licensing or continuing education.
This bill
1. Would require, rather than authorize, the commissioner to
conduct an indoctrination or preliminary examination, or
both, of any new licensee, within one year of the issuance
of the license;
2. Would require the commissioner to conduct an indoctrination
or preliminary examination, or both, of any licensee that
has a change in ownership, within one year of that change in
ownership;
3. Would create an education requirement for new licensees and
licensees who undergo a change in ownership, as follows:
a. Every officer, director, trustee, and employee of
the escrow agent, who has access to money or negotiable
securities belonging to the escrow agent in the regular
discharge of their duties, and every person who draws
checks upon the escrow agent or upon the trust funds of
the escrow agent in the regular discharge of his or her
duties, would have to complete a course in escrow
management conducted by the commissioner, within 12
months of the issuance of a new license to that agent, or
a change in ownership involving that agent;
b. Costs for the commissioner to provide this education
would be borne by the escrow agents whose officers,
directors, trustees, and employees are required to take
the classes.
COMMENTS
1. Purpose of the bill To ensure that new Escrow Law licensees
and Escrow Law licensees that undergo changes in ownership
fully understand the requirements of the Escrow Law.
2. Background California authorizes escrow activities to be
SB 1363 (Runner), Page 3
conducted under a variety of different laws, licenses and
regulators. As noted above, escrow activities can be
legally performed in California not only by Escrow Law
licensees, but also by depository institutions; persons
licensed to practice law in California, as specified; title
insurance companies regulated by the Department of
Insurance; and real estate brokers performing acts in the
course of, or incidental to, real estate transactions in
which the brokers are agents or parties to the transactions
and are performing acts for which a real estate license is
required. This bill addresses only one of those laws -- the
Escrow Law, administered by the Department of Corporations
(DOC).
The bill would implement two new sets of rules, which would be
applied to new Escrow Law licensees and to existing
licensees that undergo a change in ownership. The first of
these provisions (requiring an indoctrination or preliminary
examination within one year of licensing or change in
ownership) has previously been proposed by this bill's
sponsor, and has been opposed by DOC. As recently as last
year, DOC characterized the proposed change as unnecessary.
The department observed that it already has the discretion
to perform indoctrination and preliminary examinations of
licensees, as it sees fit, and has expressed the opinion
that it should retain the discretion it currently has.
Staff notes that DOC does not yet have a position on SB
1363. However, staff is unaware of any reason why the
department would have changed its position on this provision
since last year.
The second provision of this bill, relating to education,
attempts to codify DOC's existing practice of offering
classes in escrow management to certain employees and
managers of Escrow Law licensees. The sponsor of this bill
would like to mandate the provision of this education by
DOC, rather than allowing DOC to continue its existing
practice of offering the education, as its resources allow.
3. Support The Escrow Institute of California (EIC) is
sponsoring this bill, because it believes that early efforts
by DOC to monitor Escrow Law licensees can increase the
long-term success of those licensees. EIC believes that
these early efforts serve to ensure that new licensees
understand the rules and regulations of the Escrow Law and
SB 1363 (Runner), Page 4
have the requisite skills needed to properly handle escrow
trust funds. EIC believes that this bill is particularly
important, given the increased entry of new owners into the
industry, who have no previous experience in escrow, as
officers, agents, or owners.
4. Opposition None received.
5. Author's Amendments The author will offer amendments in
Committee to delete the provisions of this bill relating to
preliminary and indoctrination examinations.
6. Suggested Amendments (all related to the education provision
that will remain in the bill):
a. This bill requires a definition of "change in
ownership." Without such an amendment, the
requirements of the bill could be triggered by
something as simple as the exchange of a single share
of a publicly traded Escrow Law licensee.
Staff suggests one of two possible options for this
amendment: 1) Either use the threshold in Financial
Code Section 17213, which requires Escrow Law
licensees to obtain the consent of the commissioner,
before transferring 10% or more of their shares, as
specified; or, 2) Reference a "change in control"
rather than a "change in ownership," and use the
threshold contained in Corporations Code Section 160,
which defines a change in control as a change in the
ownership of more than 50% of the shares in a company;
b. The bill does not address whether education
should also be provided to new employees and directors
of existing Escrow Law companies. If the author
wishes to ensure that new hires receive this
education, an amendment will be necessary to further
this intent;
c. The bill requires that the education it
requires be completed after an Escrow Law licensee
becomes licensed. Typically, professional education
requirements are applied on either a pre-licensing
basis or a continuing education basis, or both. The
author may wish to address the timing of the education
SB 1363 (Runner), Page 5
with an amendment.
7. Prior and Related Legislation
a. SB 204 (Benoit), Chapter 568, Statutes of
2009: Capped the Escrow Law annual assessment at
$2,800 and removed the sunset requirement that had
periodically required this amount to be re-visited by
the Legislature every four to five years; streamlined
the procedures for Escrow Law licensees to surrender
their licenses; and made changes intended to increase
the availability of fidelity bonds and errors and
omissions insurance for exchange facilitators. A
provision in SB 204 that was nearly identical to the
indoctrination/preliminary examination provisions of
this bill was amended out, due to opposition from the
Department of Corporations.
POSITIONS
Support
Escrow Institute of California (sponsor)
Oppose
None received
Consultant: Eileen Newhall (916) 651-4102