BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 979 (Vargas) Hearing Date: April 18,
2012
As Amended: April 9, 2012
Fiscal: Yes
Urgency: No
SUMMARY Would require the Department of Financial Institutions
(DFI) to make its formal, final enforcement actions public.
DESCRIPTION
1. Would require the Commissioner of DFI (commissioner) to
make public on its Internet Web site all final actions
brought pursuant to Financial Code Sections 567, 580, 581,
582, 585, 586, 587, 588, 590, 591, and 594 (see Existing Law
immediately below for descriptions of each of these
sections).
2. Would provide that, if the commissioner makes a
determination in writing that the publication of one of the
final orders or decisions referenced above would seriously
threaten the safety or soundness of a regulated institution
subject to that order or decision, the commissioner may
delay publication of that order or decision for a reasonable
time.
EXISTING LAW
3. Authorizes the commissioner to do all of the following:
a. Issue a cease and desist order to an unlicensed
person who the commissioner finds is engaging in
activities that require a license from DFI, without
having obtained that license (Financial Code Section
567).
b. Issue a cease and desist order to a licensee,
officer or employee of a licensee, or holding company of
a licensee, which the commissioner finds is violating, or
is about to violate any statute, regulation, or order of
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the commissioner, following notice and an opportunity for
the accused to be heard (Section 580).
c. Issue a cease and desist order to a licensee,
officer or employee of a licensee, or holding company of
a licensee, without prior notice and an opportunity for
the accused to be heard, when the commissioner finds that
the accused is engaging in, or is about to engage in a
violation that may cause the insolvency of the
institution, significantly dissipate the assets or
earnings of the institution, weaken the institution, or
otherwise prejudice the interests of the customers of the
institution (Section 581).
d. Order a licensee whose books or records are so
incomplete or inaccurate that the commissioner is unable
to determine the financial condition of the licensee or
the details or purpose of any transaction(s) that may
materially affect the financial condition of the licensee
to cease any activity that gave rise to the incomplete or
inaccurate state of the books or records, or take
affirmative action to restore the books or records to a
complete and accurate state (Section 582).
e. Suspend or remove officers or employees of licensees
or their holding companies, and prohibit them from
participating in the conduct of the affairs of the
licensee or holding company, if, after notice and an
opportunity for the accused to be heard, the commissioner
finds that the officer or employee has violated or caused
an institution to violate any statute, regulation, or
order of the commissioner; engaged or participated in any
unsafe or unsound act in connection with the business of
the licensee, its holding company, or another business;
or breached his or her fiduciary duty (Section 585).
f. Take the actions described in "e" above, without
prior notice and an opportunity for the accused to be
heard, if the commissioner finds that such action is
necessary or advisable for the protection of the
licensee, its holding company, or the rights or interests
of customers or members of the licensee (Section 586).
g. Suspend or remove any officer or employee of a
licensee or its holding company, without prior notice or
an opportunity for the accused to be heard, if they have
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been indicted or convicted of a criminal violation
involving dishonesty or breach of trust, a criminal
violation of specified provisions of the Financial Code,
a criminal violation of specified federal statutes, or a
criminal violation of a law of any jurisdiction other
than the United States that is substantially similar to
the specified federal statutes, as specified (Section
587).
h. Modify or rescind an order issued pursuant to
Sections 585 through 587, upon an application from a
licensee or current or former officer or employee of a
licensee to whom/which an order is issued (Section 588).
i. Suspend or revoke any license if, after notice and
an opportunity for the accused to be heard, the
commissioner finds that (Section 590):
i. The licensee has violated any applicable
statute, regulation, or order of the commissioner,
or any provision of any written agreement between
the licensee and the commissioner, or any condition
imposed on any written approval granted by the
commissioner;
ii. Any fact or condition exists which, if it
had existed at the time of the original application
for the license, would have resulted in denial of
the license;
iii. The licensee is conducting its business
in an unsafe or unsound manner;
iv. The licensee has inadequate capital or
net worth or is insolvent, or is in such condition
that it is unsafe or unsound for the licensee to
transact licensee business;
v. The licensee failed to pay any of its
obligations as they came due, or is reasonably
expected to be unable to pay its obligations as they
come due;
vi. The licensee has sought bankruptcy
relief;
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vii. The licensee refused to submit its books,
papers, and affairs to the inspection of any DFI
examiner, or any officer of the licensee refused to
be examined upon oath regarding the affairs of the
licensee; or,
viii. The licensee, with the approval of its
board, asked the commissioner to take possession of
its property and business.
j. Suspend or revoke any license, without prior notice
and opportunity for the accused to be heard, if the
commissioner finds that any of the factors described
immediately above in "i" is true, and that immediate
suspension or revocation of a license is necessary for
the protection of the public (Section 591).
aa. Take control of the property and business of any
licensee, without prior notice and opportunity for the
accused to be heard, if the commissioner finds that any
of the factors described immediately above in "i" is true
(Section 592), and notify the fact of that control to all
persons holding or having assets of the licensee in their
possession (Section 594).
COMMENTS
1. Purpose: This bill is intended to improve the transparency
of enforcement actions brought by DFI and ensure that
California's policies regarding the publication of final,
formal enforcement actions by our financial regulators is
consistent with federal transparency policies in this area.
2. Background and Discussion: DFI regulates
California-chartered banks and credit unions, as well as
several other types of financial and money services
businesses, such as trust companies and money transmitters.
As part of its regulatory duties, DFI conducts regular
examinations of its licensees, and takes enforcement
actions, as necessary to ensure that its licensees are
operating in a safe and sound manner, and in accordance with
state law. During its examination process, DFI routinely
makes recommendations to licensees regarding enhancements
they can make to their policies, procedures, internal
routines and controls, and comments on other operational
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matters, with the aim of ensuring the safety and soundness
of the institution and the state's financial services
system. Often, these recommendations are informal.
However, when more serious failings are observed, DFI's
actions take the form of formal orders.
Informal actions taken by DFI following an examination of a
licensee include making recommendations to the licensee's
board of directors within the Report of Examination that is
sent to each institution following a regulatory examination.
Sometimes DFI requests that the board/management of an
institution respond with an action plan to address these
recommendations. The department can also require follow-up
reports on the progress an institution is making in
addressing those recommendations. Financial institutions
typically lack any appeal rights related to these informal
actions.
SB 979 does not propose to require DFI to make the results of
its informal enforcement actions public, because financial
institutions typically lack any appeal rights related to
these informal actions, and because these actions are
typically taken by DFI following the discovery of relatively
minor problems at an institution.
Formal enforcement actions include cease and desist orders, by
which the commissioner may order an institution to cease and
desist from a specific unsafe or unsound act or a violation
of applicable law. Other formal enforcement actions include
the removal of a person from office at a licensee, the
revocation or suspension of a license held by a licensee, a
decision to take possession of the property and business of
a licensee, a decision to impose civil penalties on a
licensee for a violation or violations of applicable law,
and a decision to refer a licensee to the State Attorney
General for criminal prosecution. These formal enforcement
actions do include appeal rights, and do not become final,
until a licensee either waives its right to appeal or
exhausts its administrative appeal rights pursuant to the
Administrative Procedures Act. It is these final, formal
enforcement orders that SB 979 would require DFI to make
public. For historic reasons, DFI does not currently make
these enforcement actions public, nor will it release them
pursuant to Public Records Act requests.
DFI's practices in this area are quite different than those of
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federal regulators. All of the federal depository
institution regulators, including the Office of the
Comptroller of the Currency, Federal Reserve Board, Federal
Deposit Insurance Corporation, and National Credit Union
Administration, make their final, formal enforcement actions
public.
SB 979 also contains an exemption, patterned on a federal law
applicable to the National Credit Union Administration,
which allows the DFI commissioner to delay the publication
of any final enforcement order or decision, if the
commissioner believes that such publication is likely to
seriously threaten the safety or soundness of an institution
subject to that order or decision.
3. Summary of Arguments in Support: The author states, "One of
the lessons of the recent financial crisis is the importance
of transparency. There is simply no reason why California
should keep confidential the results of its formal
enforcement actions against state-chartered financial
institutions, when federal financial institution regulators
make public the results of their formal enforcement actions
against the institutions they regulate. Releasing the
results of formal, final enforcement actions taken by DFI
will help inform the California public about the activities
of state-regulated financial institutions."
4. Summary of Arguments in Opposition: None received.
5. Prior and Related Legislation:
a. SB 706 (Price), Chapter 712, Statutes of 2011:
Among its many provisions, this measure required the
Department of Real Estate to make public, on its Internet
web site, the status of every license issued by DRE,
including information on suspensions and revocations of
licenses, and other related enforcement actions, such as
formal accusations.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
None received
SB 979 (Vargas), Page 7
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102