STAND. COM. REP. NO. 925-04

Honolulu, Hawaii

, 2004

RE: S.B. No. 2904

S.D. 2

H.D. 1

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred S.B. No. 2904, S.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO ESCROW DEPOSITORIES,"

begs leave to report as follows:

The purpose of this bill is to comprehensively update the laws governing the licensing and regulation of escrow depositories. The amendments recognize changes in the industry, and reduce the regulatory burden and increase flexibility in supervision of the industry while ensuring adequate protection for consumers. Among other things, the bill:

(1) Allows limited liability companies to be licensed as escrow depositories;

(2) Strengthens confidentiality requirements consistent with standards applicable to state-regulated financial institutions;

(3) Authorizes criminal background checks and the fingerprinting of escrow depository officers and directors;

(4) Increases bonding requirements;

(5) Requires the disclosure of potential risks to customers of escrow depositories that are eligible to deposit escrow funds in sweep accounts;

(6) Establishes procedures for receivership; and

(7) Simplifies the process for voluntary termination of an escrow depository.

Your Committee heard testimony in support of this bill with amendments from the Commissioner of Financial Institutions (Commissioner) of the Department of Commerce and Consumer Affairs and Title Guaranty Escrow Services. The Hawaii Association of Realtors (HAR) opposed the bill.

HAR acknowledged the need for updating the law, but expressed concern that several provisions would discourage the formation of new escrow companies, which they believe are sorely needed in the current housing market.

Your Committee has made the following three amendments, without the specific concurrence of the Commissioner, to address the concerns of HAR:

(1) A licensed escrow depository, provided it is not a limited liability corporation, is permitted to be the manager of an escrow depository that is a limited liability company;

(2) Escrow depositories are given five days to notify the Commissioner when there is an unanticipated vacancy in the position of designated principal escrow officer; and

(3) The requirement of a designated branch escrow officer is made optional.

Your Committee anticipates that the interested parties will continue their discussions on these three issues, and believes that including the changes in the current draft will promote that dialogue.

Your Committee has also amended the bill to delay the effective date until July 1, 2099 to assure that there will be a Conference Committee to further consider the bill in light of the ongoing discussions.

Finally, technical, nonsubstantive amendments were made as requested by the Commissioner and for clarity, consistency, and style.

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2904, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2904, S.D. 2, H.D. 1, and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Consumer Protection and Commerce,

 

____________________________

KENNETH T. HIRAKI, Chair