BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 1076 (Achadjian) Hearing Date: June 15, 2011
As Amended: June 6, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would amend the circumstances under which a credit
union can enter into an obligation with a director, officer, or
member of the supervisory committee of the credit committee of
that credit union.
DESCRIPTION
1. Would define an obligation as any loan or approved line of
credit, including both used and unused portions, on which an
official of a credit union is a borrower, coborrower,
cosigner, endorser, or guarantor.
2. Would retain the existing law requirement, which prohibits
any state-chartered credit union from entering into any
obligation with any official of that credit union, directly
or indirectly, on terms that are more favorable than those
extended to other members of the credit union, as specified.
3. Would prohibit a state-chartered credit union from entering
into any obligation with any official, directly or
indirectly, unless all of the following requirements are
satisfied:
a. Upon the making of the obligation, the aggregate
amount of obligations outstanding to all officials of the
credit union, except obligations fully secured by shares,
may not exceed 20% of the aggregate dollar amount of all
savings capital of the credit union.
b. The obligation, except any portion of the obligation
fully secured by shares, may not exceed 10% of the
aggregate dollar amount of the credit union's savings
capital.
AB 1076 (Achadjian), Page 2
c. Any obligation that would cause the aggregate amount
of obligations outstanding to the official to exceed
$50,000, excluding any portion fully secured by shares,
must be approved by the credit committee or the credit
manager and by the board of directors. The official
would be prohibited from taking part in any credit
decision, directly or indirectly, for his or her benefit,
and from being present during any portion of any
committee or board meeting where his or her credit
application is under consideration.
AB 1076 (Achadjian), Page 3
EXISTING LAW
4. Defines a credit union official as a director, officer, or
member of the supervisory committee or the credit committee
of a credit union (Financial Code Section 15050).
5. Prohibits a state-chartered credit union from entering into
any obligation with any official of that credit union,
directly or indirectly, on terms that are more favorable
than those extended to other members of the credit union, as
specified (Section 15050).
6. Prohibits a state-chartered credit union from entering into
any obligation with any official of that credit union,
unless all of the following requirements are satisfied
(Section 15050):
a. Upon making the obligation, the aggregate amount of
obligations outstanding, except obligations fully secured
by shares, to all officials and alternate members of the
credit committee of that credit union may not exceed 10%
of the aggregate dollar amount of all savings capital of
that credit union, for credit unions whose aggregate
savings capital exceeds $10 million; may not exceed 15%
of the aggregate dollar amount of all savings capital of
that credit union, for credit unions whose aggregate
savings capital is at least $5 million but below $10
million; and may not exceed 20% of the aggregate dollar
amount of all savings capital of that credit union, for
credit unions whose aggregate savings capital is less
than $5 million.
b. The obligation, except any portion of the obligation
fully secured by shares, may not exceed the lesser of 1%
of the aggregate dollar amount of all savings capital of
the credit union, or the maximum obligation to the credit
union prescribed by specified subdivisions of Section
15100, for credit unions whose aggregate savings capital
exceeds $10 million; may not exceed the lesser of 3% of
the aggregate dollar amount of all savings capital of the
credit union, or the maximum obligation to the credit
union prescribed by specified subdivisions of Section
15100, for credit unions whose aggregate savings capital
is at least $5 million but below $10 million; and may not
exceed the lesser of 5% of the aggregate dollar amount of
all savings capital of the credit union, or the maximum
AB 1076 (Achadjian), Page 4
obligation to the credit union prescribed by specified
subdivisions of Section 15100, for credit unions whose
aggregate savings capital is less than $5 million.
c. The obligation is approved by the credit committee,
as specified.
7. Prohibits any credit union from permitting an official of
that credit union or the credit manager to become surety for
any obligation created by the credit union for anyone other
than a member of their immediate family (Section 15050).
8. Prohibits a credit union from entering into obligations
with any credit union member, or any one family of a credit
union member, as defined, where the total obligations of
that member or that family, exclusive of amounts secured by
shares or certificates for funds, exceed 10% of the
aggregate dollar amount of the credit union's savings
capital (Section 15100).
COMMENTS
1. Background and Discussion: This bill is sponsored by the
California Credit Union League, to remove provisions in
existing law that make it difficult for state-chartered
credit unions to attract qualified members to serve on their
boards.
In 1979, California capped the sizes of loans that could be
granted by state-chartered credit unions to those of their
members who served on the credit unions' boards of
directors. Those loan limits (summarized above in Existing
Law Number 3) were tiered, and were based on the asset sizes
of the credit unions. Unfortunately, although the intent of
the language was solid (ensuring that credit union board
members do not receive special treatment in connection with
loans they receive from their credit unions), the caps have
resulted in situations where many credit union board members
are unable to obtain loans, especially large loans such as
mortgages, even in cases where they meet the same loan
eligibility requirements as other members. This, in turn,
creates a disincentive for credit union members to serve on
the boards of state-licensed credit unions.
Board members of federally-chartered credit unions are not
subject to the same tiered caps that apply to board members
AB 1076 (Achadjian), Page 5
of state-licensed credit unions. Instead, the Federal
Credit Union Act requires the board of directors of a
federally-chartered credit union to decide whether to
approve any loan of greater than $20,000 to an individual
official of that credit union (regulations contained in 12
CFR Section 701.21(d)).
This bill would require the board of directors of a
state-chartered credit union to decide whether to approve
any loan of greater than $50,000 to an individual official
of that credit union, and would institute somewhat less
restrictive caps on the maximum dollar values of loans
available to officials than the caps in existing law.
2. Summary of Arguments in Support: The California Credit
Union League is sponsoring this bill, for the reasons stated
above. The current tiers in California law were established
over 30 years ago, and place many constraints on the
volunteers who agree to serve on credit union boards. In
many cases, credit union officials are unable to obtain
mortgage loans from the credit unions on whose boards they
voluntarily serve. This creates a disincentive for
qualified candidates and places state-licensed credit unions
at a disadvantage in attracting and retaining knowledgeable,
dedicated board members.
3. Summary of Arguments in Opposition: None received.
AB 1076 (Achadjian), Page 6
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Credit Union League (sponsor)
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102