STAND. COM. REP. NO.1388

Honolulu, Hawaii

, 2001

RE: S.B. No. 1060

S.D. 1

H.D. 2

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Finance, to which was referred S.B. No. 1060, S.D. 1, H.D. 1, entitled:

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

begs leave to report as follows:

The purpose of this bill is to clarify and supplement the existing escrow depository law by:

(1) Making an escrow depository's application and records available to the public to the extent permitted by chapter 92F, Hawaii Revised Statutes (HRS), the Uniform Information Practices Act;

(2) Establishing the procedure and requirements for the voluntary termination of escrow depository operations and closing of a branch office;

(3) Requiring directors of an escrow depository who have access to money or negotiable instruments to be covered by a fidelity bond, or an equivalent amount of cash or securities;

(4) Authorizing the Commissioner of Financial Institutions (Commissioner) to charge fees for certain acts, including:

(A) Applications for the establishment of branch offices and the relocation of offices;

(B) Application for approval to cease an escrow depository business; and

(C) Examination of an escrow depository at a rate equal to the cost per hour of the examiner; and

(5) Authorizing the Commissioner to set or modify fees by rules adopted pursuant to chapter 91, HRS.

The Division of Financial Institutions of the Department of Commerce and Consumer Affairs (Division) supported the intent of the bill and proposed amendments. Title Guaranty of Hawaii, Inc. testified in support of the bill.

Escrow depositories frequently hold in excess of $100,000 in an insured escrow deposit account in a financial institution because the typical real estate transaction exceeds $100,000. The limit on deposit insurance is $100,000. The escrow depository industry desires to utilize an alternative depository for escrow funds until the funds are required, that is, the "sweep account". The funds in the sweep account are periodically deposited by a financial institution in a money market mutual fund and periodically recredited back to the account.

After reviewing and discussing the sweep accounts with the escrow depository industry, the Division has proposed amendments to this measure that allows the use of these accounts. The amendment incorporates safeguards, such as:

(1) Permitting only escrow depositories with a net worth of $1,000,000 to utilize sweep accounts;

(2) Restricting the investment of the money market mutual fund account to obligations of the United States and its agencies; and

(3) Holding the escrow depository liable for losses.

Accordingly, your Committee has amended this measure by allowing and regulating the use of sweep accounts for the deposit of escrow funds.

 

As affirmed by the record of votes of the members of your Committee on Finance that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1060, S.D. 1, H.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 1060, S.D. 1, H.D. 2.

Respectfully submitted on behalf of the members of the Committee on Finance,

____________________________

DWIGHT Y. TAKAMINE, Chair