AB 58

Under current law, two or more banks may organize a corporation to perform

bank services (bank service corporation) by investing not more than 10 percent of

each bank's capital in the bank service corporation and holding the capital stock of

the bank service corporation. A bank service corporation may perform bank services

for banks, but may not engage in any other activity. "Bank services" are defined to

mean check and deposit sorting and posting; computation and posting of interest and

other credits and charges; preparation and mailing of checks, statements, notices,

and similar items; or any other clerical, bookkeeping, accounting, statistical, or other

similar functions performed for a bank. In addition to using a bank service

corporation, a bank may contract to have performed for the bank any bank service

if both the bank and the contractor assure the Division of Banking (division) in the

Department of Financial Institutions (DFI) that the performance of the service will

be subject to regulation and examination by the division to the same extent as if the

service were performed by the bank.

Also under current law, a bank that has not organized a bank service

corporation (nonparticipant bank) and that is competitive with banks that have

organized a bank service corporation may obtain bank services from the bank service

corporation by, at the nonparticipant bank's option, either: 1) acquiring an

ownership interest in the bank service corporation, or 2) obtaining the bank service

at a rate no higher than necessary to fairly reflect the cost of the service, including

the cost of capital contributions of the bank service corporation owners. However,

the bank service corporation may deny a bank service to the nonparticipant bank if

the bank service is available from another source at a competitive cost or if providing

the bank service to the nonparticipant bank would be beyond the practical capacity

of the bank service corporation.

This bill expands the definition of "bank services" to specifically include

auditing, compliance, loan documentation, administrative, and technology functions

performed for a bank, as well as any other service established by the division. The

bill allows the division to establish additional services as "bank services" if the

services are related to the routine daily operations of banks. The division is not

required to engage in rule-making to establish additional services as "bank

services." If a bank files a written request with the division to establish additional

services as "bank services," the division must approve or disapprove the request

within 60 days after receiving the request.

The bill also repeals the requirement that a bank service corporation provide

bank services to nonparticipant banks.

Current law allows credit unions to invest in credit union service organizations

(CUSOs), which may provide specified services related to the routine daily

operations of credit unions. The Office of Credit Unions (OCU) in DFI may expand

this list of permissible services provided by CUSOs. This bill specifies that OCU is