Assembly Standing Committee on Banking and Finance

[Background Noise]

The Assembly Banking and Finance Committee is called to order. Sergeants, if you will, can you please call the absent Members? Thank you. Good afternoon, Members, and to those attending, I am the new chair, Assemblymember Avelina Valencia. I am looking very much forward to chairing this Committee for at least the next two years.

And I'd like to acknowledge all. Our Vice Chair, Mr. Chen, and then also our returning Members, Assembly Members Dixon, Assembly Member Fong, Assembly Rubio, and then also Assembly Member Soria. And welcome our new Members, Assembly Member Krell, Assembly Member Rodriguez, and then also Assemblymember Schiavo.

I'd like to just highlight a General overview of what the vision and goals are going to be for this Committee this next session. It's going to be to ensure California continues to embrace new financial technologies like blockchain and digital assets. Crypto, as we know, will continue to grow into a major part of the financial system.

Today, banks and payment processors are embracing crypto. We need to be prepared. I want to build on the work this Committee has already done and ensure that companies see California as a state with the smartest approach to regulating these products, but also ensuring that ingenuity continues to take place.

And in addition to that, ensuring that our regulators are both accountable to the consumers and also to the businesses. There have been delays and concerns when it comes to that, but it's something that we intend on working towards improving through this Committee's work.

We plan to have oversight hearings in the coming months about dfpi, including how to implement the new crypto licensing law and consumer protection law. We will take our oversight role seriously as well and continue to encourage people to reach out about their experiences with the Department.

Some comments on Federal Oversight the regulation of the financial services is quickly changing, and with the New Federal Administration, we will monitor closely what's to come and ensure that California is keeping on par with those changes.

In order to achieve this, we need to work collaboratively and encourage careful consideration and spirited debate with the bills that come before us this year. Some logistics of the hearing we accept written testimony through the Position letter, through the position letter portal on the Committee's website.

As we proceed with the witnesses and public comment, I want to make sure that everyone understands that the Assembly has rules to ensure we maintain order and run an efficient and fair hearing.

We apply these rules consistently to all people who participate in our proceedings, regardless of the viewpoint they express in order to facilitate the goal of hearing as much from the public. Within the limits of our time, we will not permit conduct that disrupts, disturbs, or otherwise impedes the orderly conduct of legislative proceedings.

We will not accept disruptive behavior or behavior that incites or threatens violence. And I'd like to take a quick moment to Acknowledge Luke, our consultant, who will be moving on to what I like to consider bigger and better things. He's taken a new role with the Governor's office.

And just a few words regarding Luke's time here serving in this Committee in the Assembly. He served for the last 10 years, beginning his career with the Appropriations Committee and handling banking, tax and labor issues. He became our chief consultant for this Committee in 2021, implementing the California Consumer Financial Protection Law.

He's been instrumental in shaping the Digital Financial assets law of 2023, working with Senator Grayson and stakeholders to regulate cryptocurrency. He's known for his measured and thoughtful approach to complex policy issues leading to compromises and and bipartisan support, which I'm sure this Committee can attest to.

Often he is found joking around with colleagues and has encouraged colleagues from a time or two to go out for karaoke while walking the Capitol park. Luke's dedication, his sense of humor and thoughtful approach have had a significant positive impact to the Assembly and to the State of California. Luke, thank you for your service. Appreciate you.

And it appears we have a quorum. Ms. Secretary, can you please call the roll? Thank you, Madam Secretary. Our first official order of business is the adoption of the Committee rules. These rules were distributed to each office of the Committee and were approved by the Chief Clerk's office. They're largely the same as last year's Sessions rules.

Do I have a motion for the adoption of the Committee rules? Thank you, Ms. Rubio. Seconded by Ms. Dixon. Please call the roll. The vote is 70. The Committee rules are adopted and we will leave it open for absent Members. But I believe Ms. Schiavo is not here today, so we have Soria. Perfect.

We will wait for Ms. Soria when she gets here. We do not have a consent calendar day, so we will move on to Bill presentations. If we could have Ms. Calderon please approach. That Bill is AB 232. File item one. The recommendation is do pass to the Committee on Revenue and Taxation. Assembly Member Calderon, welcome. And when you are ready, please begin with your opening statement.

AB 232 will empower Californians to protect their homes and accelerate the recovery process. This bill is sponsored by the California Department of Insurance and here today to testify on behalf of this bill is Miguel Bastidos from the CDI.

Thank you. Good afternoon Chair Valencia, Vice Chair Chen and Members of the Committee. My name is Miguel Bastidos. I am the Chief Deputy Legislative Director for the Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara.

As a proud sponsor of AB232, Insurance Commissioner Ricardo Lara would like to thank Assembly Members Calderon and Gibson for their leadership and author in this important measure that will allow individuals to set aside tax income or income tax free money to pay for qualified catastrophe expenses.

These expenses can include insurance deductibles and other related damages or uninsured risks not covered by an existing policy. As climate impacts accelerate, historically vulnerable communities that have been uninsured or underinsured will face devastating challenges from the effects of climate change as well as the lack of timely resources to rebound after a catastrophe.

AB232 provides Californians with an essential financial tool to prepare for climate driven disasters including wildfires, floods and earthquakes. With the increasing frequency and severity of these events, we must take proactive steps to strengthen financial resilience and protect consumers. California has faced unprecedented rise in the risk of catastrophic natural disasters over the last decade.

According to CAL FIRE, the state's nine largest wildfires occurred within the same time frame, including the devastating Palisades and Eaton fires. Additionally, California holds two thirds of the nation's earthquake risk while at the same time flooding remains California's greatest disaster risk, threatening more than 7 million residents in flood risk zones.

While insurance is an essential safeguard against these events, it can be a difficult financial burden for some. Homeowners already face rising premiums, larger deductibles, and greater out of pocket recovery costs that can be financially overwhelming.

AB232 is part of larger proactive strategy that benefits not only individuals but also strengthens the overall insurance market by reducing the strain on insurers and public disaster relief programs. For many Californians, the financial burden of insurance deductibles can delay or hinder the rebuilding process.

Catastrophe saving accounts provide a direct solution by ensuring that homeowners have dedicated funds available when they need them the most. The benefit is evidenced by similar programs in effect in other states such as Mississippi and South Carolina. One of the most critical aspects of AB232 is the focus on financial resilience.

Just as health savings accounts and retirement plans encourage individuals to prefer to prepare for medical and long term financial needs. Catastrophe Saving accounts promote readiness for natural disasters by offering state tax incentives for contributions, while imposing penalties for misuse. These accounts ensure that funds are used as intended, helping families rebuild after their lives after devastating catastrophe.

On behalf of Insurance Commissioner Ricardo Lara, I respectfully asked for Ivo. Thank you.

Mark Segman with the American Property Casualty Insurance Association supported the bill. This was one of the recommendations of the bipartisan Federal Wildfire Commission which came out with the report last year. This is also something that's been noted that has been successful in other states.

It allows the homeowner to have additional tools, including possibly getting different types of insurance policies where they may be able to afford a higher deductible, therefore a lower premium. Thank you.

Chris Schultz with the California Bankers Association. Our Members have supported Catastrophe Savings Accounts federally and in other states. We're working with the author and her staff on some very minor issues relating to how banks would operationalize the sunset provision in this bill.

We encourage the Committee to keep the bill moving today and we anticipate having a support position in the very near future.

Thank you. Ms. Rubio, are there any other witnesses in the room that would like to state a position on the bill? Please, please. Your name, organization and position.

Financial Resiliency for California Homeowners. Thank you.

Seeing no more individuals in opposition or support, we will now move on to the Committee. Any questions from Committee Members? Ms. Calderon, appreciate you bringing this bill forward and just want to highlight your leadership as Assembly Insurance Committee Chair. You've been tenacious in addressing the fire crisis across the State of California.

And I would be honored if I could be added as a co author to this bill.

Thank you, Mr. Chair. And I would. I would love for you to be a co author. Yes.

Wonderful. Thank you. With that, we have a. A motion and a second. Ms. Secretary, please call the roll file.

[Roll call]

The vote is 70. The motion passes and we will hold the roll open for absent Members.

Thank you. Thank you.

Wonderful. Moving on to file item 2: AB 238 Harabedian. The recommendation is do pass to Committee on Judiciary. Welcome, Assemblymember, and when you are ready.

Thank you, Mr. Chair, and thank you, members of the committee. First of all, I just want to thank the chair and the staff for all your work on this critical bill. I thought the analysis was excellent. I think the conversations have been very good and I appreciate everything you've done.

Anyone who lives in Altadena, Pasadena, Sierra Madre or the Pacific Palisades knows that the Palisades and Eaton fire were the worst disaster that we could have imagined. Entire neighborhoods have been wiped out. Blocks where families live for generations are now just foundations and debris.

Schools, small businesses, and places of worship that were at the heart of our community are gone. According to Calmatters, across Los Angeles County, more than 16,000 structures have been destroyed, and 150,000 residents have been displaced.

Many survivors have lost everything, as you all know full well, and they now face an unimaginable challenge which is rebuilding their lives and their homes where they once were.

Preliminary estimates from Intercontinental Exchange indicate that more than 1 in 6 borrowers just in the affected Eaton fire, where I am proud to represent, are at risk of falling behind on their mortgages this month as we speak.

Without relief, these mounting financial burdens could trigger a wave of foreclosures, deepening economic instability in communities already reeling from the devastation. AB238, my bill, provides a critical safety net for LA County Wildfire survivors.

Under this bill, borrowers can request an initial forbearance on their monthly mortgage payments for up to 180 days with the option to extend for additional relief if needed for up to one year total.

I want to thank the governor and the over 400 financial institutions that swiftly called to action and agreed to an initial 90-day mortgage forbearance. That forbearance required no documentation for relief and no balloon payments, as outlined on the Department of Financial Protection and Innovation's website.

While that was a critical step, and I want to again thank every person who was a part of that, short term relief is not enough. AB238 provides clear, accessible support to prevent financial ruin and ensure communities have the stability they need to rebuild.

I also recognized, however, that this bill and the work on this bill is not done. I've been meeting with stakeholders and will continue to engage in discussions on proposed amendments. As noted in the committee's analysis, I have committed to amending this bill to include additional documentation requirements and check ins after the first 180 days of forbearance at the chair's request. I am also continuing conversations with industry representatives to address remaining issues such as potential conflicts with GSC guidelines. As a recognition of those conversations, I would note there is no formal opposition in the analysis.

AB238 has the support of a diverse coalition, including SEIU, Los Angeles County Supervisor Catherine Barger, the California Apartment Association, and the California Professional Firefighters. AB238 also has 11 principal co-authors and was jointly authored by Assemblymember Jacqui Irwin, whose district was devastated by the Palisades fire.

Members, these fires have forever changed my life and the life of the community itself. Today I ask you to stand with me and allow me to continue working with stakeholders to deliver this critical relief. Here to testify in support of AB238 is Rene Bayardo from HPP Cares.

Thank you, Mr. Chair and members: Rene Bayardo representing Rise Economy and their member, HPP Cares. Unfortunately, Katherine Peoples, Founder of HPP Cares, flight was delayed, and she wasn't able to make it today, so I'll be reading her testimony on her behalf.

I sit before you today on behalf of the thousands of families and small business owners devastated by the recent California wildfires on January 7. These fires ravaged communities without warning, leaving residents with only the clothes on their backs forced to evacuate without the opportunity to secure their homes, livelihoods or critical documents.

From the very beginning, our HPP CARES counseling staff witnessed the aftermath firsthand at the Disaster Resource Centers in Altadena and Palisades. HPP CARES is an HCD certified California nonprofit specializing in consumer credit, consumer debt, financial literacy and housing counseling.

Now these families face the overwhelming challenge of managing mortgage payments for homes that no longer exist, all the while struggling to secure temporary shelter essentially being required to pay both rent and mortgage simultaneously. This situation is simply untenable. It is critical that we implement a meaningful mortgage forbearance policy that supports rather than penalizes disaster survivors.

Assembly Bill 238, the Mortgage Deferment Act, introduced by Assemblymember Harabedian presents a viable solution. This legislation would allow homeowners impacted by wildfires to deposit their mortgage payments for up to 360 days without occurring additional interest penalties or negative credit reporting. This kind of long-term relief is necessary to prevent thousands of families from falling into financial ruin.

During the COVID 19 pandemic, similar measures were enacted to protect homeowners. If we can offer that level of support, then we must do the same again for those who have lost everything to natural disaster beyond their control.

It is both a moral and economic imperative to ensure these homeowners have the time they need to recover rather than face foreclosure or financial devastation. In closing, thank you and we ask for your support on AB238. Thank you.

Thank you. Any additional witnesses and support in the room. Please state your name, organization and position.

Good afternoon. Matt Lege, on behalf of SEIU California, in support.

Yesenia Jimenez, on behalf of End Child Poverty in California, here in support. I will also be reading out for Shimica Gaskins, Altadena Wildfire survivor, wife, mother of two and Executive Director of End Child Poverty California, also including Courage California, Friends Committee on Legislation and Poverty in California, founded by Michael Tutz. Thank you.

Maria Flores with the Mesa Verde Group, here on behalf of the Consumer Federation of California, in support of AB 238.

Thank you, Mr. Chair and members: Doug Subers, on behalf of the California Professional Firefighters, in support.

Appreciate that; we will now move on to witnesses in opposition, if there are any?

Thank you. We are not opposed, but we do have concerns that I'd like to be able to address. Thank you. Thank you, Mr. Chair and members of the committee. My name is Vanessa Lugo, and I am with the California Bankers Association.

I appreciate the opportunity that the bill is trying to address, which is a financial hardship caused by the recent Los Angeles wildfires and by requiring up to a year mortgage forbearance to those who lost their homes in the fires.

While we offer our heartfelt sympathies to those who experience loss due to the LA wildfires, we also have significant concerns with the current version of the measure that need to be resolved in order to avoid unintended ramifications and market disruption.

Even before this measure was introduced, banks and financial institutions were already outreaching and working proactively and constructively with customers to minimize the adverse financial effects of this crisis.

Early on, federal and state-chartered banks joined forces with the Governor's Office to provide mortgage relief to those impacted 90 days forbearance of their mortgage payments without reporting to credit reporting agencies and the opportunity for additional relief.

While we fully support the intent of this measure to provide relief to borrowers in need, the concerns we have reflect feedback from the practitioners that would implement this law. First, AB 238 needs to take into account the different needs of investors in the mortgage market and work alongside existing programs that help homeowners after disasters.

These programs are provided by groups like Fannie Mae and Freddie Mac, the Federal Housing Administration, the Department of Veterans Affairs, and the USDA Rural Housing Service. These programs look at each homeowner's financial situation individually, understanding that everyone's circumstances are different after a disaster.

By using these well-established rules in AB238, the bill would provide better and more consistent help following successful strategies from past disaster recovery efforts. Secondly, we're also worried that this current version of 238 could unintentionally create rules that clash with the investor guidelines and contracts servicers have to follow. In the amendments we've suggested, we ask that AB 238 be changed to make it clear that a mortgage servicer who follows the loss assistance programs for investor-owned loans the same way should be considered in compliance with the law.

If these concerns remain unresolved, this measure could raise concerns regarding legal and constitutional matters. And we - finally, I thank you for your opportunity to explore our concerns and we look forward to working collaboratively with you. Thank you.

Hi, Indira Mcdonald here on behalf of the California Mortgage Bankers Association to express similar concerns and echo those that were stated. Our member servicers also have been engaged since the devastating wildfires and are also very sympathetic and are actively working to serve borrowers who are in need of the loss mitigation relief.

We thank the author for the ongoing discussions and the commitment to amend the bill at a later time to allow servicers to have check ins with the borrowers and seek documentation showing their need. However, we remain concerned that the bill creates conflicts with GSE guidelines, which the GSE guidelines do require borrowers to meet certain eligibility criteria.

We strongly urge that amendments be adopted to clarify for loans serviced on behalf of the GSEs, such as Fannie Mae and Freddie Mac and insured by Federal Housing Administration, the VA, and the USDA Rural Housing Service, that servicers in compliance with those existing guidelines for borrowers affected by natural disasters be deemed to satisfy compliance with the bill.

Established guidance for federally backed loans already requires servicers to provide forbearance and other relief options to eligible borrowers. Servicers do not have the discretion to deny such assistance without valid justification and must comply with the respective agency's guidelines designed to assist borrowers in need. During forbearance, servicers must continue making principal interest and escrow advances to the investor.

Otherwise, servicers are in breach of the servicing agreements with those federal agencies. As drafted, AB 238 creates the risk of servicers getting caught between state law and their contractual obligations to investors. In order to avoid creating this conflict, we continue to recommend narrowing the bell to align with those federal guidelines. Thank you.

Thank you for that. Bringing it Back to the Committee do we have any questions from committee members? I take that back, since it's my first meeting, I get one mess up per meeting, so please forgive me. We will move on now to additional witnesses in the room.

Good afternoon chair members: Robert Wilson, California Credit Union League; like to echo the concerns from my colleagues. Thank you.

Good afternoon, Mr. Chair. Anna Buck, on behalf of the California Association of. Realtors: I'd like to align my comments with my industry colleagues today and thank the author for future further conversations.

Mr. Chair and members, Cliff Costa, today on behalf of the California Mortgage Association. I'd like to do what every other witness has done in front of me and would also appreciate the continuing conversations of the assemblyman and the committee. Thank you.

Seeing no more support or opposition, bringing it back to the committee. Committee members, do we have any questions? Ms. Rubio.

Thank you. Thank you, assemblymember, for bringing this bill forward. I know it's very, very necessary in your district and I'm right next door, so I know that this will help our communities, and I appreciate - I had conversations with the neutral at the moment folks and I have all the confidence that you are working through this and want to make sure that that everything is aligned so that there is no unintended consequences.

So, I really appreciate the conversation with you this morning as well. And with that I would like to move the bill.

Motion by Ms. Rubio. Seconded by Ms. Soria. Any additional questions or comments? Ms. Dixon?

Hello, assemblymember. I to expect to be supporting the bill, but I share some of the concerns just on the requirements and just to make sure that there are full protections on the applicants.

I do believe that this bill ultimately will be a bill that people can say the government is empathetic and sensitive and supportive of the unfortunate victims of these fires. And I commend you for bringing this forward and the committee for whoever is bringing it forward. It's the right thing to do.

I just hope we could tighten it up a little bit and I'll lay off, but I look forward to seeing it again in Appropriations and on the Floor and Judiciary. So. So, as it travels through the process, I, I hope to see those amendments. Thank you very much. Thank you.

Mr. Vice Chair.

Thank you, Mr. Chair. Just want to thank Assemblymember Harabedian for bringing this bill forward. I think this bill is critically important and you've been so proactive in making sure your district, as well as State of California, is being represented correctly. I also think this sets a really strong precedent and I think about previous legislation in the past.

What comes to mind is PPP allocation in time of COVID in this day and age in which fire occurrences happen multi times a year annually.

I think it's really important to get the details right and it's been repeated by the folks here and the policy analysts in the area when it comes to GSE making sure that forbearance in this area is going to be having the correct amendments, that we're going to house the same as federal standards.

And I know you've been talking to folks that have concerns and you've been in all - everyone that's been telling me you are doing a wonderful job communicating, as well as working with them.

I just want to make sure that we have that emphasis that FDU have the continual commitment to continue to talk to folks that have concerns, especially service providers in this industry as we move forward during the policy process.

100% Mr. Chen and Mrs. Dixon, Mrs. Rubio. Absolutely.

We'll get to your closing comments in a sec.

Okay; I was just - thank you, Mr. Chair.

He's new as well.

Thank you.

We both get one slip up for our first committee hearing, right? Ms. Soria, please.

Thank you, chairman. I just want to also thank the author for bringing this piece of legislation. I hear the industry concerns, and I do want to applaud the industry for stepping up early without having to bring legislation forward. So, I do want to say thank you for that.

Obviously, there is a tremendous need that people are not going to be able to rebuild their lives, you know, within that 90-day period. So, I look forward to seeing the end product of this piece of legislation. But do have confidence that you'll work with industry partners.

I think that for me also it's important that we make sure that these unintended consequences, especially aligning with the issues that were brought up with GSCs and so look forward to supporting the bill today and look forward to hearing, you know, what the conversations are moving forward to address some of those concerns. But thank you.

Thank you, Assemblymember. I just want to start off by thanking you for bringing this critically important bill forward. I applaud your efforts, and your constituents are fortunate to have you as their newly elected representative.

In my opinion, action is essential during difficult and challenging times and what's taking place in our LA community is just heartbreaking, devastating and words do not express the devastation that has taken place down there.

So, appreciate the industry's proactiveness in addressing it to an extent and then also the assemblymember's continued efforts when it comes to addressing it through legislation. You and I have had multiple discussions on this bill.

Really appreciate your engagement thus far and appreciate the fact that you will continue to have conversations throughout this process to ensure that the policy that is the end result is carefully crafted to address the potential liability issues and then also provide the resource that is so essential to our LA community at this time; with that, do you wish to provide a closing statement?

Just want to thank you again, Mr. Chair. I think that you just summarized it better than I can. I want to thank our stakeholders for all the work that we have done together and there is a commitment to continuing to work together to get this right and all the members for your thoughtful questions and statements and just appreciate your attention to this. So, with that, Mr. Chair, I appreciate your time here at the committee.

Thank you. So, we had a motion by Ms. Rubio and a second by Assemblymember Soria. Ms. Secretary, please call the roll.

File item 2, AB 238 Harabedian. The motion is do pass and refer to Committee on Judiciary. [Roll Call]. That bill has six votes.

The vote is 6-0. The motion passes. We will hold the roll open. No, Assembly Soria is here now, so we will not hold the roll open. We will move on to file item 3, AB236. While we wait, let us open up the roll for Assembly Member Soria.

File Item 1, AB 232 Calderon: the motion is do pass and refer to Committee on Revenue and Taxation. [Roll call]. That bill has eight votes.

The vote has 8-0. Motion passes. Next bill is AB 236, file item three. The recommendation is do pass to Committee on Appropriations. Mr. Vice Chair, when you are ready, please begin.

Thank you, Chairman Valencia, for allowing me to present AB 236. Beginning July 2026, the digital financial asset law requires those engaging in digital financial business activities to attain a license from the Department of Financial Protection and Innovation. According to the department's last 2024 rules proposal, the anticipated application fee will be around $20,000.

And this does not include the investigative fees or the fee for the license itself. This application fee, along with all other associated licensure fees, is unusually high for this department. In fact, it is four times higher than next closest application fee.

For reference, even the largest financial institutions operating in the state pay only a $5,000 application fee set by the department. All to say that this high application cost creates an environment that is not conducive to digital asset companies hoping to remain and operate in the State of California. AB236 hopes to rectify this.

It will promote the attractiveness of California as a place to operate digital finance markets while encouraging financial innovation. This bill takes necessary action to ensure small and medium sized businesses can continue doing business here in the State of California while paying their fair share to keep the industry competitive and properly regulated. Thank you.

And I respectfully ask for aye vote.

Thank you, Mr. Vice Chair. Any witnesses in support? Any witnesses in the room in opposition? Seeing none. We will now move on to questions or comments from committee members. Wonderful. Thank you. We have a motion from Ms. Dixon, second by Ms. Rubio. So, I do appreciate you bringing this bill forward, Mr. Vice Chair.

I alluded to the continued growth of blockchain technology and digital assets. And I am a firm believer in ensuring that whatever policy comes out of Sacramento will incentivize, encourage and also bring forth new business that will help the economy as a whole. So, with that, would you like to provide a closing statement?

I respectfully ask you aye vote. Thank you, Mr. Chairman.

Thank you, Madam Secretary. Please take the roll file.

Item 3, AB236 Chen: the motion is do pass and refer to Committee on Appropriations. [Roll call]. The bill has eight votes.

The vote is 8-0. The motion passes. With that, we have completed our agenda for today's hearing. We will be leaving this room as soon as I gavel down. Secretary, please call - the Assembly of Banking and Finance Committee is now adjourned.