BILL ANALYSIS �
AB 1076
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1076 (Achadjian)
As Amended June 6, 2011
Majority vote
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|ASSEMBLY: |78-0 |(May 19, 2011) |SENATE: |38-0 |(August 30, |
| | | | | |2011) |
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Original Committee Reference: B. & F.
SUMMARY : Adapts portions of the California Credit Union Law to
the Federal Credit Union Act. Specifically, this bill :
1)Defines 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)Retains 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)Prohibits 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; and,
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
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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.
The Senate amendments add further clarification to the language
passed by the Assembly to conform with the Federal Credit Union
Act.
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. Chapter 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,
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
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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)
AS PASSED BY THE ASSEMBLY , this bill made portions of the
California Credit Union Law the same as the Federal Credit Union
Act. Specifically, this bill allowed a credit union member who
is also a member of the credit union's board of directors to
borrow money or have credit extended if specified conditions
were met and established that obligations in excess of $20,000
must be approved by the board of directors.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs are
negligible.
COMMENTS : According to the sponsor, the California Credit Union
League, this bill 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 1970s.
This bill 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
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
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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.
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 when it comes to attracting
qualified members to serve as volunteers on their boards.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0001788