Assembly Standing Committee on Banking and Finance

Okay. Good morning. The Assembly Banking Finance Committee is now in order. Sergeants, please call absent Members. Since we do not have a quorum, we'll start as a subcommittee. Oh, we have Mr. Fong showing up. We need one more. Oh, now we have a quorum. Awesome. Look at that. Wonderful. Can we please call the roll?

Wonderful. Thank you. A couple of housekeeping items. We accept written testimony through the position letter portal on this Committee's website. And in order to facilitate the goal of the 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 procedures.

We will not accept disruptive behavior or behavior that incites or threatens violence. With that being said, let's move on to bill presentations. The first item on the agenda and the only item on the agenda, file item 1, AB 493, Mr. Harabedian. It is do pass to the Committee on Appropriations. You may start when you are ready. Thank you.

Thank you, Mr. Chair. Good morning to the Chair, to the Members. Apologies to be here at 9am for a single Bill, but appreciate your your attendance. First, like to thank the Chair and Committee staff for all the work on the the Bill and the improvements. I'll keep this short and sweet.

Currently, California law mandates that lenders pay interest on certain escrow funds for some accounts, such as if you escrow your funds to pay your property tax, there is interest that is accrued on that and it is paid to you if you are the homeowner.

However, post loss insurance payouts are excluded from this requirement, allowing lenders and banks to retain interest rather than passing it on to the homeowners. That hurts Wildfire survivors.

It hurts any homeowner who has lost their home, such as the Angelenos, in these recent fires, but also future impacted residents who will be seeking to rebuild their house under horrible circumstances.

Assembly Bill 493 seeks to protect homeowners by eliminating the exemption on post loss insurance payouts, making sure homeowners receive the interest on their insurance payouts and giving them more money to rebuild their homes and their lives.

Per the Chair's request, I committed to clarify that this Bill applies to loans only for insurance payouts that remain held in escrow on or after the effective date of this act. Additionally, we have clarified that funds dispersed prior to the effective date are not subject to the interest requirement.

I'd like to thank Governor Newsom and his staff for the partnership on this critical measure. And with me here to testify is Robert Herrell, the Executive Director of the Consumer Federation of California.

Good morning, Mr. Chair and Members. And congratulations, Mr. Chair, on your first hearing helming this Committee. I'm Robert Harrell. . oh, second. You did the rules. Sorry.

No. We did bills before. Yeah, yeah, yeah. It's okay. We're off to a good start.

I think I was on my honeymoon for that hearing. Robert Herrell, I'm the Executive Director of the Consumer Federation of California, pleased to support this measure of note for this Committee is in a prior part of my career, I was for almost six years a deputy insurance Commissioner at the Department of Insurance.

There's an overlap here because I'll be brief. What the sad fact when you have this level of loss at scale, thousands and thousands of people losing their home is that many of these homeowners are finding out right now the hard way, two things.

One, they were significantly underinsured and we tried to fix that problem in 2018, but that's another story for another day and another Committee. And two, it's going to take them years to rebuild.

The best example I can give you is if you look at the fires in paradise where, for example, rebuilding only one third of that town is back in that footprint of that city, most importantly Santa Rosa.

What you had was homeowners trying to band together to try to expedite the rebuilding process, but it took double or triple what they thought it would. And so this is a measure that the analysis says, in quoting the author, that closes a loophole.

This 2% is not a lot to be getting on interest, especially given the past couple three years. But this does not harm consumers. In fact, it actually helps them a little bit as they go through this unbelievable task of figuring out whether they're going to rebuild or move or what they're going to do.

And so we would urge your support and we appreciate the Administration jumping on this so quickly. And while I wait for my burner phone, I would ask for you to vote.

Wonderful. Thank you. Are there any other witnesses in support, Any witnesses in opposition?

Hi, Indira Mcdonald, Bankers Association. Not in opposition, but we have expressed some concerns to the author and the governor's office. Just noting the unique nature of the hazard insurance proceeds to restore the property damage because lenders have a security interest until the loan is repaid in making sure that the loan proceeds are used to restore the property.

And we just have would like to align this new requirement with the California Residential Mortgage Lending act, which prohibits servicers, independent mortgage bank servicers, from holding these escrows in an Interest bearing account. So there's a prohibition right now and we just want to align that law with this law. Absolutely.

We're not submitting a letter at this time and we are very optimistic we can address the concerns. Working with the author and the. Thank you. Thank you.

Any questions from Committee Members.

The author and the governor's office for realizing this is an issue. And to the gentleman's comment, because of the scale of the situation, I mean to think, contemplate that this could be years before these funds are actually drawn out of the escrow account until the process of rebuilding a home.

So I think that's fully supported and I think it's smart to address these little issues in our laws that just expedite people's rebuilding and getting back to a normal life, if possible. So thank you for doing this. I fully support it and I second the motion, if that helps.

Wonderful. Thank you, Ms. Dixon. With that being said, I will say Mr. Harabedian has kept this Committee busy thus far. So thank you for your hyper focus on not only these crises issues, but also your preference of banking finance. Appreciate that. With that being said, can we please. Have your closing statement

Respectfully asked for an aye vote. Thank you very much.

Wonderful. Thank you. Please call the roll file.

[Roll Call]

Wonderful, thank you. Appreciate you. Thank you. With that, we will hold the roll open for absent Members. Mr. Vice Chair Chen, could you please oversee the hearing and hold the roll while I go present a Bill in arts, sports, entertainment? Thank you. I'm the one who messes it up, not you. Thank you.

[Roll Call]

The Assembly Bill assuming. Oh, the Bill is out with seven votes. With it. Excuse me. The Bill is out with eight votes and the Assembly Banking and Finance, is adjourned.