California Credit Unions are successful in first year of legislative session
Another step in ‘PACE’ lending reform achieved
ONTARIO, CA (September 22, 2017) — As the California Legislature adjourned for the first portion of the 2017-2018 legislative session on Sept. 16, the state’s 321 credit unions representing 11.2 million members are looking back at a successful year in Sacramento—in particular, new regulatory improvements to the PACE lending market (Property Assessed Clean Energy) on behalf of homeowners and consumers.
All legislation that was approved by the legislature awaits Gov. Jerry Brown’s signature. He has until Oct. 15 to sign or veto legislation.
“The success of our agenda in Sacramento continues to show the strength of our credit unions in California,” said Diana Dykstra, president and CEO of the Ontario, CA-based California Credit Union League. “Their continued efforts protect not only credit unions from new burdens but also ensure 11.2 million credit union members are protected from the unintended consequences of legislation.”
For years, a priority of the League has been reform within California’s PACE program. At the end of session, Assembly Bill 1284, authored by Assemblymember Matt Dababneh (D-Encino), continued the League’s efforts and was approved by the California Legislature. AB 1284 requires the first-ever state regulatory oversight of PACE lenders, as well as new underwriting protections.
“We commend Assemblymember Dababneh’s leadership and commitment to adding necessary consumer protections to California’s PACE program,” said Courtney Jensen, vice president of state government affairs for the League. “AB 1284 will result in the PACE program finally having state regulatory oversight and underwriting standards, which are important steps in the right direction to protect vulnerable Californians from bad actors.”
AB 1284 includes the following provisions:
- It authorizes the California Department of Business Oversight (DBO), the California regulator for financial service providers and products, to license PACE companies and regulate and examine the activities of the companies.
- PACE companies would have to enroll, train and monitor the activities of home improvement contractors and salespeople that act on their behalf.
- It requires PACE companies to determine a property owner’s ability to pay the annual payment obligations of a PACE loan before a lien is placed on their property.
- It subjects new limits on the amount of financing based on the property’s value for properties to qualify for PACE loans.
Although AB 1284 and last year’s AB 2693 (Dababneh)—which required the first ever truth-in-lending disclosure for PACE loans—are great steps forward in protecting consumers who choose a PACE loan, there is still much work to be accomplished. Because PACE liens enjoy a super-priority lien status, property owners are still unable to refinance or sell their home without first paying off the remaining amount of their PACE loan. The League looks forward to continue working with Assemblymember Dababneh, the California Department of Business Oversight (DBO), and other stakeholders to address remaining issues in this new industry.
Other important legislation worked on by the League (including authors’ last names):
- Assembly Bill 611 (Dababneh)—Mandated reporters of suspected financial abuse of an elder or dependent adult: powers of attorney; SUPPORT (sent to governor). AB 611 authorizes mandated reporters to deny a power of attorney if they make a report to an adult protective services agency or a local law enforcement agency, and if they believe the elder or dependent adult who executed the power of attorney may be subject to financial abuse. Attendees of the 2017 California Government Relations Rally (GRR), the League’s lobby day, advocated in support of this legislation and told legislators stories of suspected financial abuse they had seen at their credit unions. The hope is that AB 611 will provide financial institutions another tool to prevent financial abuse by agents with a power of attorney who may be stealing money and assets.
- Assembly Bill 814 (Bloom)—Consumer protection: enforcement powers/investigatory subpoena; OPPOSE (failed on Senate floor). AB 814 would have granted pre-litigation subpoena power to city attorneys in cities with a population in excess of 750,000 or to a city attorney of a city and county when those city attorneys reasonably believe that there may have been a violation of the Unfair Competition Law. Currently this power is only given to the State Attorney General and county district attorneys. This bill would have exposed businesses in California to further litigation threats and demands of unlimited scope for information before any allegation of actual wrongdoing has even been made. The League and a coalition of opposition offered due process amendments, which would have removed the League’s opposition, but the amendments were rejected by the bill’s author.
- Assembly Bill 1305 (Garcia)—Sales and use taxes: worthless accounts; OPPOSE (failed in Revenue and Taxation Committee). The bill would have removed statute that allows a lender to request a refund when sales tax is paid up front on an installment sale and the consumer fails to repay the financed purchase price. For example, when a consumer purchases a $10,000 car through a credit union’s indirect lending program, the state receives sales tax on the entire loan amount up front. However, if the loan becomes uncollectible after only $5,000 is repaid, the credit union is able to seek reimbursement from the BOE for the portion of sales tax paid on the unpaid loan balance of $5,000. The League and member credit unions were concerned that by not allowing credit unions to recoup this overpaid sales tax would mean some auto loans will have higher risk, impacting who credit unions are able to loan to and at what interest rates.
- Assembly Bill 1008 (McCarty)—Employment discrimination: conviction history; OPPOSE UNLESS AMENDED (sent to governor). AB 1008 prohibits inquiring about criminal convictions on a job application and requires that a conditional offer be made first to the applicant prior to considering a criminal conviction when making a hiring determination. The League requested an amendment to include an exemption that would take into account unique state and federal law criminal background employment restrictions that apply to credit unions and other financial institutions. These requirements for employment restrictions are important consumer protections that need to be taken into account with legislation such as AB 1008. The amendment simply states that AB 1008 does not apply to employer actions taken pursuant to state, federal or local law that requires criminal background check for employment purposes or restricts employment based on criminal history. The amendment was taken in Assembly Appropriations Committee.
About California Credit Union League
Headquartered in Ontario, California, the League exists to help credit unions change people’s lives by supporting their operations, guidance, strategy and philosophy. Our trade association helps more than 260 local credit unions in California serve 13.3 million members and manage $285 billion in assets.