Charter Law Goes into Effect Jan. 1; DFPI Lending Form Update

Hand signing a legislative bill

California’s credit union state charter modernization bill (Senate Bill 269), authored by Sen. Anthony Portantino (D-La Canada Flintridge), was signed by Gov. Gavin Newsom last weekend. This new law will go into effect Jan. 1, 2022.

The California Credit Union League would like to thank Portantino for authoring the measure, as well as the League’s State Charter Modernization Ad Hoc Committee and those who lobbied in favor of the bill during the 2021 California Government Relations Rally!

In addition to the five-point outline of SB 269 below, please email League Vice President of State Government Affairs Robert Wilson if you have questions:

Expulsion: Under existing Fin. Code §14456(b), the board of directors may expel members for certain enumerated reasons. The bill will add abusive behavior as a reason that a member can be expelled from the credit union and will allow the board of directors of a credit union to delegate expulsion authority to a committee.

Appeals process: SB 269 changes how an expelled member may appeal by removing the antiquated special meeting requirement in Fin. Code §14801 that is both costly and inefficient. Instead, this bill will allow the expelled member to appeal directly to the board of directors or delegated committee that expelled the member. The member can either appeal the expulsion in person or in writing unless the member was expelled for abusive behavior; in that case, the member is only allowed to appeal the expulsion in writing.

Parity with federally chartered credit unions and other financial institutions:

  • Currently, federally chartered credit unions and low-income designated credit unions can accept non-member deposits from other credit unions, but California state-chartered credit unions cannot. SB 269 would amend Fin. Code §14851 to allow state-chartered credit unions to accept non-member deposits from other credit unions, which can help credit unions meet liquidity needs and increased loan demand.
  • Currently, Fin. Code §14250 allows for an examination made by the California Department of Financial Protection and Innovation (DFPI) in conjunction with assistance from the National Credit Union Administration (NCUA) or another state credit union regulatory agency to be deemed an examination of the commissioner. DFPI also permits alternating exams for California state banks. This bill provides parity for credit unions by adding permissive language to allow for alternating exams with the NCUA.
  • SB 269 provides parity with federally chartered credit unions by redefining the terms “official’ and “officer” in Fin. Code §15050 and limiting loan restrictions to directors and members of the supervisory committee, audit committee, and credit committee.

Audit Committee composition and authorities: Existing Financial Code §14556 outlines the creation and duties of an audit committee. SB 269 makes four changes to the audit committee:

  • Clarifies that a membership vote may be at any meeting or by written ballot, and that any change from the supervisory committee to an audit committee should be reflected in the bylaws.
  • Codifies that the audit committee is a committee of the board and serves at the pleasure of the board.
  • Confirms the authority of the DFPI to direct the board to replace audit committee members.
  • Ensures that the audit committee has the same power and responsibilities as the supervisory committee, including: a) the ability to call a meeting of the members to consider any violation of Credit Union Law; b) the authority to suspend the credit committee or any member, the credit manager, any director, or any officer; and c) the duty to call a special meeting of the members within seven days after suspension of any credit committee member, director, or officer in order for the members to take action on the suspension.

Technical changes:

  • Code §14655: This authorizes the purchase of whole loans as a permissible investment. In a redundant section, Fin. Code §14959, which was added by Assembly Bill 2862 in 2018, also authorizes the purchase of whole loans under the loan authorities. This bill strikes Fin. Code §14655.
  • Code §14656: Credit unions are subject to California’s Unclaimed Property Law and must escheat dormant property, as defined, to the state. The escheatment of account funds does not automatically result in the termination of membership. Fin. Code §14811 authorizes a credit union to place a member in “inactive status” when the member has no outstanding obligations with the credit union and the member’s share account is below the amount established by the bylaws. Fin. Code §14807 authorizes any member to withdraw from membership in the credit union at any time. This bill would redefine a voluntary “withdrawal” of membership to include circumstances where a member has no outstanding obligations with the credit union and whose share account balance is zero or negative, including when all account funds have escheated to the state or where inactive status has not been cured 90 days. This creates a streamlined process for escheated accounts to be closed rather than maintained in an “inactive” status.
  • Code §14657: Adds members of the audit committee to the list of persons prohibited from receiving any compensation except as specified.

California DFPI Update: Fair Lending Notice Form
In response to changes to the California Department of Financial Protection and Innovation’s (DFPI) name and Sacramento address, the DFPI has received requests for updates to the Fair Lending Notice. Licensees should use the department’s current name and address in the form:

California Department of Financial Protection and Innovation
Consumer Services Office
2101 Arena Boulevard
Sacramento, CA 95834

If needed, the department’s toll-free and local phone numbers are 866-275-2677 or 916-327-7585. A revised form with the department’s current information is available here.

Credit unions should contact their form providers to make sure they have the most up-to-date address on their form.

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