California Legislature Update

After taking action on hundreds of legislative measures in just a few short days, the California Legislature adjourned on August 31. The governor will now have until September 30 to sign or veto the measures reaching his desk. With the legislative session now over, we are pleased to provide an update on a few impactful state-side issues.

While aligned with the overall goal of trying to maximize owner’s equity in the sale of the property, we spent several months unfortunately opposing SB 1323 (Archuleta), a measure that bifurcates the methodology for the sale of residential one-to-four property at foreclosure. The measure requires that properties with equity, defined as debt not exceeding 90 percent of appraised market value, be sold by a licensed real estate agent on the open market. Property that does not have equity, defined as debt exceeding 90 percent of appraised value, would proceed to be sold under the existing trustee auction sales process authorized under the power of sale terms found within most uniform deeds of trust.

 We are pleased to report that the author shelved the measure in August. Stakeholders have committed to working together during the early fall to craft a new measure that would be subsequently introduced. The pending bill will include four components: An opportunity for a borrower to designate a third party to receive certain notices, such as a notice of default or notice of sale; postponing a trustee’s sale if the borrower provides the trustee and beneficiary with a valid listing agreement; an additional postponement of the trustee’s sale if the borrower provides the trustee and beneficiary with a valid purchase agreement as a means to give the borrower time to close escrow; and, the adoption of a public foreclosure auction bidding model used in Ohio where the initial bid is set at two-thirds the estimated value of the property. All four components resemble ones that CBA offered as counterproposals. With a strong desire to address the underlying issue of maximizing equity, we look forward to working with the stakeholders on this forthcoming compromise.

 A CBA-supported amendment to California Financial Code Section 1481 in Senate Bill 1498 (Committee on Banking & Financial Institutions) establishes parity between state and federal law on the treatment of accumulated other comprehensive income (AOCI). Federal regulations, 12 CFR 324.22, allow certain FDIC-supervised institutions to make a one-time election to opt-out of the requirement to include all components of AOCI when calculating common equity tier 1 capital. However, Financial Code Section 1481, relating to loan to one borrower limits, does not recognize the AOCI opt-out election when calculating tier 1 capital. The amendment to Section 1481 aligns state law with federal law thereby allowing California state-chartered banks to better meet the credit needs of their local communities. The measure is on the Governor’s Desk awaiting action.

With their business concluded for the next couple of months, the Legislature will reconvene in an organizational session on December 5. This will be the first opportunity for legislators to introduce measures for the 2023-2024 legislative session. We typically don’t see a lot of newly introduced measures during this organizational session. The bulk of new measures, likely to be more than 2,000, will be introduced in February.

 In the regulatory space, the California Privacy Protection Agency (CPPA) officially issued proposed regulations in July implementing the California Privacy Rights Act (CPRA) of 2020. Among other matters, the rulemaking: updates prior regulations adopted pursuant to the California Consumer Privacy Act (CCPA); folds in new provisions flowing from the CPRA, such as requests to correct information; establishes rules relative to limiting the use and disclosure of sensitive personal information; and, addresses audits performed by the agency.

As we have done at each opportunity to comment on the CCPA and CPRA, CBA submitted its comment letter by the August 23 deadline. Among other comments, CBA raised concerns in areas where the proposed regulations go beyond, or conflict with, the statute, such as the requirement that businesses honor universal opt-out preference signals. We urged that the Agency avoid new requirements that create an undue burden on businesses subject to the law or that impose new liability, particularly where there is no corresponding consumer benefit. We urged the Agency to exempt banks from their authority to audit businesses’ compliance with the law, given that banks are highly regulated and subject to ongoing supervision and frequent examination by banking regulators. We also requested that the regulations become enforceable one year after the date that the regulations are finalized.  

Federal Legislative Update

We don’t expect a lot to happen legislatively for the balance of the year back in Washington, D.C. Having said that, we have joined a letter opposing the so-called “Credit Card Competition Act of 2022” (S. 4674) introduced by Senators Roger Marshall (KS) and Dick Durbin (IL). The legislation reduces the number of credit card issuers competing for consumers’ business, wrings out the competitive differences among card products, decimates card rewards programs, and puts the nation’s private-sector payments system under the micromanagement of the Federal Reserve Board. The bill does this by using legislation to award private-sector contracts to a small handful of the sponsors’ favored payment networks in order to pad the profits of the largest internet and national merchants who are raising prices on American families far more than the real rate of inflation.

Unfortunately, we don’t expect the passage of the SAFE Banking Act, the measure allowing banks to provide financial services to cannabis-related businesses. Despite passing the House numerous times with bi-partisan support, either as a stand-alone measure, or when included as part of an omnibus bill, the Senate remains reluctant to move it forward. The measure will undoubtedly be reintroduced next year.

On the regulatory front, we joined the American Bankers Association and 51 state banking associations in a comment letter to federal banking agencies on the proposed overhaul of the Community Reinvestment Act regulations. While we support the effort in principle, there were multiple flaws in the proposed rule that we argue work against the agencies’ stated goals. While the CRA regulatory framework must be updated to reflect technology’s transformation of the delivery of financial products and services, several elements of the proposal are contrary to the objectives of regulatory modernization.

We’ve had the opportunity to head back to Washington, D.C. twice so far this year for in-person meetings with federal policymakers. In June, we met with members of the California Congressional Delegation to discuss several important issues impacting the banking industry. Topics included banking and climate change, cannabis banking, Central Bank Digital Currency, cryptocurrency, and ECORA. We had the pleasure to meet with Senator Dianne Feinstein, Representatives Young Kim, Michelle Steel, and Juan Vargas, as well as staff from Republican Leader Kevin McCarthy, Representatives Jackie Speier, Brad Sherman, and Maxine Waters’ offices. We also met with Representative Connie Conway, California’s newest member of Congress.

 We are excited about our joint visit with the Florida Bankers Association, scheduled for September 27-29, where we will underscore our perspectives on pending federal policy and rulemaking. We will look forward to sharing an update about our visit in the next edition of the magazine.