BILL ANALYSIS �
SB 979
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 979 (Vargas) - As Amended: May 1, 2012
SENATE VOTE : 38-0
SUBJECT : Financial institutions.
SUMMARY : Requires the Commissioner of the Department of
Financial Institutions (DFI) to make its formal, final
enforcement actions public on their Internet Web site.
Specifically, this bill :
1)Specifies that if the commissioner makes a determination in
writing that the publication of a final order or decision
would seriously threaten the safety or soundness of a
regulated institution subject to that order or decision, the
commissioner may delay publication of the order or decision
for a reasonable time.
2)Specifies that if the commissioner makes a determination that
the publication of a final order or decision would reveal
information which would identify a customer of the institution
subject to the order, the commissioner may redact from the
order, prior to publication, any information that, in the
determination of the commissioner, would identify any customer
of the subject institution.
3)Makes other technical changes.
EXISTING LAW
1)Authorizes the Commissioner of DFI 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 the
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commissioner, following notice and an opportunity for the
accused to be heard (Financial Code, 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 (Financial Code, 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 (Financial Code, 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 (Financial Code, 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 (Financial Code,
Section 586);
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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 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 (Financial Code,
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 (Financial Code, Section
588);
i) Suspend or revoke any license if, after notice and an
opportunity for the accused to be heard, the commissioner
finds that (Financial Code, 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 (Financial Code, Section 591);
and,
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
(Financial Code, Section 592), and notify the fact of that
control to all persons holding or having assets of the
licensee in their possession (Financial Code, Section 594).
FISCAL EFFECT : Unknown.
COMMENTS :
Need for the bill : According to the author, this bill is
intended to improve transparency of enforcement action brought
by DFI and ensure that California's policies regarding the
publication of final, formal enforcement action by our financial
regulators is consistent with federal transparency policies in
this area.
Background : 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
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recommendations to licensees regarding enhancements they can
make to their policies, procedures, internal routines and
controls, and comments on other operational 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.
DFI can also require follow-up reports on the progress an
institution is making in addressing those recommendations.
This bill 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 this bill requires DFI to make public.
DFI does not currently make these enforcement actions public.
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
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enforcement actions public.
This bill 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 DFI Commissioner
believes that such publication is likely to seriously threaten
the safety or soundness of an institution subject to that order
or decision.
Prior Legislation
SB 706 (Price) Chapter 712, Statutes of 2011. This measure
required the Department of Real Estate (DRE) 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.
Recommended TECHNICAL Amendment
On page 2, line 3- delete "his or her" and insert "the
department's".
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081