BILL ANALYSIS �
AB 1076
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 1076 (Achadjian) - As Amended: April 4, 2011
SUBJECT : Credit unions.
SUMMARY : Adapts portions of the California Credit Union Law to
the Federal Credit Union Act. Specifically, this bill :
1)Requires the money borrowed/credit extended (obligation) to be
approved by the board of directors if either of the following
apply:
a) The obligation or the aggregate is in excess of $20,000
plus pledged shares.
b) The obligation is guaranteed or endorsed by the official
and the obligation or aggregate of obligations are
guaranteed or endorsed by the official in excess of
$20,000.
1)Deletes the current requirements of basing the obligation off
a tiered system based on the asset size of the credit union.
EXISTING FEDERAL LAW establishes the federal Credit Union Act
with the purpose to make credit available and promote thrift
through a national system of nonprofit, cooperative credit
unions. (12 U.S.C. Ch.14)
EXISTING STATE LAW:
1)Establishes the California Credit Union Law. (Financial Code,
Section 14000)
2)Defines a "credit union" as a cooperative, organized for the
purposes of promoting thrift and savings among its members,
creating a source of credit for them at rates of interest set
by the board of directors, and providing an opportunity for
them to use and control their own money on a democratic basis
in order to improve their economic and social conditions. As a
cooperative, a credit union conducts its business for the
mutual benefit and general welfare of its members with the
earnings, savings, benefits, or services of the credit union
being distributed to its members as patrons. (Financial Code,
AB 1076
Page 2
Section 14002)
3)Provides for the regulation and certification of
state-chartered credit unions by the Department of Financial
Institutions (DFI). Financial Code, Section 14003)
4)Defines "official" as a director, officer, or member of the
supervisory committee or the credit committee of a credit
union. (Financial Code, Section 15050)
5)Regulates loans to officials of a credit union. (Financial
Code, Section 15050)
6)Defines "obligation" as any contractual obligation to the
credit union for money borrowed or credit extended or
guaranteed from its members, including, but not limited to,
loans, lines of credit, and agreements to extend credit, and
lease agreements. (Financial Code, Section 14007)
FISCAL EFFECT : Unknown.
COMMENTS :
According to the sponsor, the California Credit Union League, AB
1076 would establish parity between loans to officials of
state-licensed and federally chartered credit unions by removing
the tiered loan limits that have applied to officials with
state-chartered credit unions since the 1970's. AB 1076 would
replace the outdated tiered limits with language identical to
the limitations established by the federal Credit Union Act.
Credit unions are not-for-profit financial institutions that
serve their members' financial needs. Credit unions are
governed by a volunteer board of directors. Credit unions are
either federally chartered through the National Credit Union
Administration (NCUA) or licensed by the state through DFI.
In the 1970s the Legislature capped the amount of a loan that
can be granted by a state licensed credit union to a credit
union member who also serves on that credit union's board of
directors. The loan limits are tiered based on the asset size of
the credit union.
While the intent to ensure that board members do not receive
special treatment of the loan caps was good, in reality the caps
have been limiting and provide a disincentive for members to
AB 1076
Page 3
serve on a state-licensed credit union board. The caps have
resulted in a situation where many credit union board members
are unable to obtain loans, especially large loans such as a
mortgage, even in cases where they meet the same loan
eligibility requirements as other members.
Board members of federally chartered credit unions are not
subject to these same tiered caps that apply to board members of
state licensed credit unions.
Instead, the federal Credit Union Act requires the board of
directors of a federally chartered credit union to approve or
disapprove a loan of greater than $20,000 to an individual
official.
As a result of the lack of parity with the regulations imposed
on federally chartered credit union, state-licensed credit
unions are placed at a disadvantage compared when it comes to
attracting qualified members to serve as volunteers on their
boards.
REGISTERED SUPPORT / OPPOSITION :
Support
California Credit Union League - Sponsor
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081