BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 2006
Author: John A. Pérez (D)
Amended: 4/11/12 in Assembly
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 6-1, 6/20/12
AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla
NOES: Walters
ASSEMBLY FLOOR : 57-13, 4/26/12 - See last page for vote
SUBJECT : Credit union services
SOURCE : Author
DIGEST : This bill authorizes state-chartered credit
unions (CUs) to offer so-called lifeline services to
nonmembers who are eligible for membership, and to charge a
fee for the provision of those services. The lifeline
services that could be sold include check cashing, receipt
and transmission of domestic and international electronic
funds transfers, and sales of cashier's checks and money
orders.
ANALYSIS :
Existing federal law:
1. Pursuant to the Financial Services Regulatory Relief Act
of 2006 (Public Law 109-351), allows federally-chartered
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CUs to:
A. Sell, to persons in the field of membership,
negotiable checks (including travelers checks), money
orders, and other similar money transfer instruments
(including international and domestic electronic fund
transfers); and
B. Cash checks and money orders and receive
international and domestic electronic fund transfers
for persons in their fields of membership, for a fee
(12 United States Code (USC) 1757).
2. Defines a federal CU as a cooperative association
organized in accordance with specified federal law for
the purpose of promoting thrift among its members and
creating a source of credit for provident or productive
purposes (12 USC 1752).
Existing state law:
1. Defines a state CU 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 (Financial Code (FIN)
Section 14002).
2. Provides that every CU may admit to membership those
persons eligible for membership, upon any of the
following (FIN Section 14800):
A. The purchase of a membership in the CU as provided
in the CU's bylaws;
B. The payment of an entrance fee established from
time to time by the board of directors;
C. The purchase of one or more shares in the CU as
provided in the CU's bylaws.
3. Further provides that no officer, director, committee
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member, or employee of any CU shall extend any benefit
or service of the CU to any person, unless that person
is admitted to membership in the CU (FIN Section 14800).
This bill provides that a state-chartered credit union may
provide all of the following to an individual who is within
its field of membership, regardless of whether the person
is admitted to membership, and charge a fee to provide
those services:
1. Sell checks (including cashier's checks and money
orders) and other similar money transfer instruments,
including international and domestic electronic fund
transfers.
2. Cash checks (including cashier's checks and money
orders) and other similar money transfer instruments,
and receive international and domestic electronic fund
transfers.
Comments
As of March 31, 2012, California was home to 157
California-chartered CUs, with $76 billion in assets, and
418 federally-chartered CUs, with $136 billion in assets.
At present, federally-chartered CUs can offer the types of
lifeline services this bill authorizes state-chartered CUs
to offer. State-chartered CUs are prohibited from offering
these services, absent a change in state law.
The parity argument . This bill and the virtually identical
bills that came before it have provided fertile ground for
banks and CUs to wage their long-standing fight against
each other. CUs assert that the lack of parity between
state and federal law in this area is confusing to
Californians who might wish to make use of the lifeline
services this bill authorizes state-chartered CUs to offer.
Banks assert that there would be no parity issue to
correct, if the CUs had not sponsored the federal bill
authorizing federal CUs to provide lifeline services in the
first place.
According to the California Credit Union League (CCUL),
seven other states have already enacted express statutory
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language authorizing state-chartered CUs to provide
lifeline services to their nonmembers. Another 12 states
have generic legislation, which authorizes their state
regulators to follow federal CU laws and regulations.
Thus, California is one of 31 states that lack parity
between state-chartered and federally-chartered CUs with
respect to the offer of lifeline services to nonmembers.
The fee argument . Another argument underlying the fight
between banks and CUs regarding this bill relates to the
fees that CUs are allowed to charge for providing lifeline
services to nonmembers. The federal law authorizing
federal CUs to offer lifeline services to nonmembers allows
the CUs to sell certain services and to offer other
services for a fee. The National Credit Union
Administration's (NCUA's) final rule interpreting the
changes made by Public Law 109-351 observed that "FCUs are
not required to charge persons for financial services under
Section 503 of the Reg Relief Act or the rule, but 'may'
sell or charge a fee for them." Thus, according to the
NCUA, federal CUs need not charge for the services they are
authorized to offer to nonmembers; instead, they have the
option of whether, and how much, to charge. According to
CCUL, some federal CUs charge for these services, and
others do not. Those which do charge set their fees at
levels which cover only their actual costs to provide the
service.
This bill authorizes state-chartered CUs to charge fees to
nonmembers for lifeline services. CCUL indicates that it
expects state-chartered CUs to mirror the policies of
federal CUs with respect to their fees for these services.
Some will charge; others will not. Those which do charge
are likely to limit their fees to those that equal their
actual costs to provide the service.
Banks believe that CUs should have to pay taxes on the fees
they charge to nonmembers. CCUL counters that, because
such fees would cover transactional costs only, the fees
would not generate a "profit" and thus would not be
considered by the CUs as unrelated business income (i.e.,
they would not be subject to taxation).
The taxation argument . Banks and CUs have historically
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bickered over CUs' tax status. Banks dislike the fact that
they pay income taxes, while CUs do not. CUs counter that
they are non-profit entities which put their profits back
into their membership, and are thus appropriate recipients
of the tax treatment they receive.
Some of the key differences between banks,
federally-chartered CUs, and state-chartered CUs are
summarized in the table below.
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| |Banks |Credit Unions |
|-------------------+-------------------+-------------------|
|Owned By |Stockholders |Their own members |
|-------------------+-------------------+-------------------|
|Profit Status |For profit |Not-for-profit |
|-------------------+-------------------+-------------------|
|Return Earnings To |Stockholders |Their own members |
|-------------------+-------------------+-------------------|
|Membership |No restrictions on |Only individuals |
| |who may be a |within the field |
| |customer |of membership are |
| | |eligible |
|-------------------+-------------------+-------------------|
|Income Taxation |Subject to federal |Federally-chartered|
| |corporation tax | and |
| |and state bank tax |state-chartered |
| |(which equals the |CUs are exempt |
| |state franchise |from federal and |
| |tax rate plus 2%) |state income |
| | |taxation; however, |
| | |state-chartered |
| | |CUs are subject to |
| | |state and federal |
| | |taxes on unrelated |
| | |business income |
| | |derived from |
| | |activities |
| | |unrelated to their |
| | |core mission |
|-------------------+-------------------+-------------------|
|Sales Taxation |Federally-chartered|Federally-chartered|
| | banks are exempt, | CUs are exempt, |
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| |state-chartered |state-chartered |
| |banks are subject |CUs are subject to |
| |to state and local |state and local |
| |sales and use |sales and use |
| |taxation |taxation |
|-------------------+-------------------+-------------------|
|Payroll Taxation |Subject to federal |Both federal and |
| |and state payroll |state-CUs are |
| |taxes (e.g., |subject to federal |
| |Social Security, |and state payroll |
| |Medicare, |taxes |
| |withholding, | |
| |unemployment | |
| |insurance, | |
| |employment | |
| |training taxes, | |
| |disability) | |
|-------------------+-------------------+-------------------|
|Real Property |Exempt (the |Both are subject |
|Taxation |additional 2% | |
| |income tax that | |
| |banks pay is in | |
| |lieu of property | |
| |taxes) | |
| | | |
| | | |
| | | |
|-------------------+-------------------+-------------------|
|Personal Property |Exempt (see above) |Federally-chartered|
|Taxation | | CUs are subject; |
| | |state-chartered |
| | |CUs are exempt |
| | | |
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Banks and CUs have fought for the last decade about the
extent to which CUs should be able to offer lifeline
services to nonmembers within their fields of membership.
Yet, on the basis of data recently provided by CCUL, it
appears they may be fighting over an issue that impacts
very few people. The following summarizes recent quarterly
data from federally-chartered CUs operating in California.
These figures reflect the number of people (both members
and nonmembers), who sought various lifeline services from
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federally-chartered CUs in California. The CUs do not have
a breakdown of member versus nonmember.
Between 25 and 40 people sought international
remittances each quarter.
Between 100 and 125 people sought wire transfers each
quarter.
Between 110 and 140 people sought check cashing
services each quarter.
Approximately 130 people sought money orders each
quarter.
There are over two and a half times more
federally-chartered CUs in California than state-chartered
CUs. The number of people accessing lifeline services from
federally-chartered CUs is minimal. Given the smaller
number of state-chartered CUs, the number of nonmembers who
might take advantage of the authority given to
state-chartered CUs by this bill is likely to be miniscule.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/2/12)
California Credit Union League
California Labor Federation
California School Employees Association
California State Conference of the NAACP
Center for Responsible Lending
Communication Workers of America, AFL-CIO, District 9
Consumer Federation of California
Ella Baker Center's Green-Collar Jobs Campaign
Greenlining Institute
Insurance Commissioner Dave Jones
Lieutenant Governor Gavin Newsom
Mexican American Legal Defense and Education Fund
Silicon Valley Community Foundation
United Farmworkers
OPPOSITION : (Verified 7/2/12)
California Bankers Association
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California Independent Bankers
ARGUMENTS IN SUPPORT : The California Credit Union League
supports this bill based on the bill's ability to help bank
unbanked Californians and on the parity argument summarized
above. The League states, "AB 2006 will level the playing
field and provide unbanked Californians with potentially
more than 700 points of access through state licensed
credit unions to cash their check, purchase a money order,
and transfer money back home. This access will build a
relationship to ultimately enter the financial mainstream."
ARGUMENTS IN OPPOSITION : The California Bankers
Association (CBA) and California Independent Bankers (CIB)
oppose this bill, for all of the historic reasons
summarized above. Both banking trade groups use the fee
and tax arguments summarize above. According to CBA, "when
credit unions seek to offer products and services, such as
those identified in AB 2006, to non-members for a fee, the
income earned is inconsistent with the original purpose of
the credit union to serve its members and must be subject
to taxation."
CIB argues that this bill will place community banks at a
competitive disadvantage relative to CUs. "Community banks
often compete head to head with credit unions, yet CIB
members pay taxes."
CBA also asserts that the measure is unnecessary, because
state-chartered CUs may already provide services to
non-members through for-profit subsidiaries known as credit
union service organizations (CUSOs). Because of their
for-profit status, the income earned by CUSOs is taxable.
ASSEMBLY FLOOR : 57-13, 4/26/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Chesbro, Davis,
Dickinson, Eng, Feuer, Fletcher, Fong, Fuentes, Galgiani,
Garrick, Gatto, Gordon, Hagman, Hall, Hayashi, Roger
Hernández, Hill, Huber, Hueso, Huffman, Lara, Bonnie
Lowenthal, Ma, Mitchell, Monning, Nestande, Norby, Olsen,
Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner,
Solorio, Swanson, Torres, Valadao, Wieckowski, Williams,
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Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Donnelly, Beth
Gaines, Gorell, Grove, Jeffries, Logue, Miller, Morrell,
Nielsen, Wagner
NO VOTE RECORDED: Cedillo, Cook, Furutani, Halderman,
Harkey, Jones, Knight, Mansoor, Mendoza, Smyth
JJA:kd 7/2/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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