95TH GENERAL ASSEMBLY
State of Illinois
2007 and 2008
HB0744

 

Introduced 2/7/2007, by Rep. John A. Fritchey

 

SYNOPSIS AS INTRODUCED:
 
205 ILCS 5/35.2   from Ch. 17, par. 345
205 ILCS 610/2   from Ch. 17, par. 1002
205 ILCS 705/5
205 ILCS 705/10

    Amends the Illinois Banking Act. Provides that a state bank and its subsidiaries in compliance with Regulation W promulgated by the Board of Governors of the Federal Reserve shall be deemed to be in compliance with certain provisions of the Act concerning limitations on investments in and loans to affiliates. Amends the Banking Emergencies Act. Provides that, whenever the Commissioner becomes aware that an emergency exists, or is impending, he or she may, by proclamation, authorize any bank organized under the laws of another state, or of the United States, to open and operate offices in this State and to remain open until the Commissioner declares, by further proclamation, that the emergency or impending emergency has ended. Amends the Financial Institutions Electronic Documents and Digital Signature Act. For purposes of the Act, defines "financial institution" to include subsidiaries and affiliates of banks, savings and loan associations, savings banks, and credit unions. If a financial institution is required by law to provide or make available certain information in writing to consumers, provides that the use of an electronic record to provide or make available that information satisfies the writing requirement if the consumer consents and if certain notices are provided. Provides that oral communication or recording of oral communication does not qualify as an electronic record. Contains other provisions concerning the rights of consumers, the effect of failure to obtain electronic consent or confirmation of consent, the effect of withdrawal of consent, and prior consent. Effective immediately.


LRB095 04298 MJR 24339 b

FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB0744 LRB095 04298 MJR 24339 b

1     AN ACT concerning regulation.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Banking Act is amended by changing
5 Section 35.2 as follows:
 
6     (205 ILCS 5/35.2)  (from Ch. 17, par. 345)
7     Sec. 35.2. Limitations on investments in and loans to
8 affiliates.
9     (a) Restrictions on transactions with affiliates.
10         (1) A state bank and its subsidiaries may engage in a
11     covered transaction with an affiliate, as expressly
12     provided in this Section 35.2, only if:
13             (A) in the case of any one affiliate, the aggregate
14         amount of covered transactions of the state bank and
15         its subsidiaries will not exceed 10% of the unimpaired
16         capital and unimpaired surplus of the state bank; and
17             (B) in the case of all affiliates, the aggregate
18         amount of covered transactions of the state bank and
19         its subsidiaries will not exceed 20% of the unimpaired
20         capital and unimpaired surplus of the state bank.
21         (2) For the purpose of this Section, any transactions
22     by a state bank with any person shall be deemed to be a
23     transaction with an affiliate to the extent that the

 

 

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1     proceeds of the transaction are used for the benefit of, or
2     transferred to, that affiliate.
3         (3) A state bank and its subsidiaries may not purchase
4     a low-quality asset from an affiliate unless the bank or
5     such subsidiary, pursuant to an independent credit
6     evaluation, committed itself to purchase such asset prior
7     to the time such asset was acquired by the affiliate.
8         (4) Any covered transactions and any transactions
9     exempt under subsection (d) between a state bank and an
10     affiliate shall be on terms and conditions that are
11     consistent with safe and sound banking practices.
12     (b) Definitions. For the purpose of this Section, the
13 following rules and definitions apply:
14         (1) "Affiliate" with respect to a state bank means
15             (A) any company that controls the state bank and
16         any other company that is controlled by the company
17         that controls the state bank;
18             (B) a bank subsidiary of the state bank;
19             (C) any company
20                 (i) controlled directly or indirectly, by a
21             trust or otherwise, by or for the benefit of
22             shareholders who beneficially or otherwise
23             control, directly or indirectly, by trust or
24             otherwise, the state bank or any company that
25             controls the state bank; or
26                 (ii) a majority of the directors or trustees of

 

 

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1             which constitute a majority of the persons holding
2             any such office with the state bank or any company
3             that controls the state bank;
4             (D) (i) any company, including a real estate
5             investment trust, that is sponsored and advised on
6             a contractual basis by the state bank or any
7             subsidiary or affiliate of the state bank; or
8                 (ii) any investment company with respect to
9             which a state bank or any affiliate thereof is an
10             investment advisor. An investment advisor is
11             defined as "any person (other than a bona fide
12             officer, director, trustee, member of an advisory
13             board, or employee of such company, as such) who
14             pursuant to contract with such company regularly
15             furnishes advice to such company, with respect to
16             the desirability or investing in, purchasing, or
17             selling securities or other property shall be
18             purchased or sold by such company, and any other
19             who pursuant to contract with a person as described
20             above regularly performs substantially all of the
21             duties undertaken by such person described above;
22             but does not include a person whose advice is
23             furnished solely through uniform publications to
24             subscribers thereto or a person who furnishes only
25             statistical and other factual information, advice
26             regarding economic factors and trends, or advice

 

 

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1             as to occasional transactions in specific
2             securities, but without generally furnishing
3             advice or making recommendations regarding the
4             purchase or sale of securities, or a company
5             furnishing such services at cost to one or more
6             investment companies, insurance companies or other
7             financial institutions, or any person the
8             character and amount of whose compensation for
9             such services must be approved by a court.
10             (E) any company the Commissioner determines as
11         having a relationship with the state bank or any
12         subsidiary or affiliate of the state bank, such that
13         covered transactions by the state bank or its
14         subsidiary with the company may be affected by the
15         relationship to the detriment of the state bank or its
16         subsidiary.
17         (2) None of the following are considered to be an
18     affiliate:
19             (A) any company, other than a bank, that is a
20         subsidiary of a state bank, unless a determination is
21         made under subparagraph (E) of paragraph (1) not to
22         exclude such subsidiary company from the definition of
23         affiliate;
24             (B) any company engaged solely in holding the
25         premises of the state bank;
26             (C) any company engaged solely in conducting a safe

 

 

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1         deposit business;
2             (D) any company engaged solely in holding
3         obligations of the United States or its agencies or
4         obligations fully guaranteed by the United States or
5         its agencies as to principal and interest; and
6             (E) any company where control results from the
7         exercise of rights arising out of a bona fide debt
8         previously contracted, but only for the period of time
9         specifically authorized under applicable State and
10         federal law or regulations or, in the absence of such
11         law or regulation, for a period of 2 years from the
12         date of the exercise of such rights or the effective
13         date of this Act, whichever date is later, subject,
14         upon application, to authorization by the Commissioner
15         for good cause shown of extensions of time for not more
16         than one year at a time, with such extensions not to
17         exceed an aggregate of 3 years.
18         (3) (A) A company or shareholder has control over
19         another company if
20                 (i) such company or shareholder, directly or
21             indirectly, or acting through one or more other
22             persons, owns, controls, or has power to vote 25%
23             or more of any class of voting securities of the
24             other company;
25                 (ii) such company or shareholder controls in
26             any manner the election of a majority of the

 

 

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1             directors or trustees of the other company; or
2                 (iii) the Commissioner determines, after
3             notice and opportunity for hearing, that such
4             company or shareholder, directly or indirectly,
5             exercises a controlling influence over the
6             management or policies of the other company.
7             (B) Notwithstanding any other provisions of this
8         Section, no company shall be deemed to own or control
9         another company by virtue of its ownership or control
10         of shares in a fiduciary capacity, except as provided
11         in subparagraph (C) of paragraph (1) or because of its
12         ownership or control of such shares in a business
13         trust.
14         (4) "Subsidiary" with respect to a specified company
15     means a company that is controlled by such specified
16     company.
17         (5) "Bank" means any bank now or hereafter organized
18     under the laws of any State or territory of the United
19     States including the District of Columbia, any national
20     bank, and any trust company.
21         (6) "Company" means a corporation, partnership,
22     business trust, association, or similar organization and,
23     unless specifically excluded, includes a "state bank" and a
24     "bank".
25         (7) "Covered transaction" means, with respect to an
26     affiliate of a state bank,

 

 

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1             (A) a loan or extension of credit to the affiliate;
2             (B) a purchase of or an investment in securities
3         issued by the affiliate;
4             (C) a purchase of assets, including assets subject
5         to an agreement to repurchase, from the affiliate,
6         except such purchases of real and personal property as
7         may be specifically exempted by the Commissioner;
8             (D) the acceptance of securities issued by the
9         affiliate as collateral security for a loan or
10         extension of credit to any person or company; or
11             (E) the issuance of a guarantee, acceptance, or
12         letter of credit, including an endorsement or standby
13         letter of credit, on behalf of an affiliate.
14         (8) "Aggregate amount of covered transactions" means
15     the amount of covered transactions about to be engaged in
16     added to the current amount of all outstanding covered
17     transactions.
18         (9) "Securities" means stocks, bonds, debentures,
19     notes or other similar obligations.
20         (10) "Low-quality asset" means an asset that falls into
21     any one or more of the following categories:
22             (A) an asset classified as "substandard",
23         "doubtful", or "loss" or treated as "other loans
24         especially mentioned" in the most recent report of
25         examination of an affiliate;
26             (B) an asset in a nonaccrual status;

 

 

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1             (C) an asset on which principal or interest
2         payments are more than 30 days past due; or
3             (D) an asset whose terms have been renegotiated or
4         compromised due to the deteriorating financial
5         condition of the obligor.
6     (c) Collateral for certain transactions with affiliates.
7         (1) Each loan or extension of credit to, or guarantee,
8     acceptance or letter of credit issued on behalf of, an
9     affiliate by a state bank or its subsidiary shall be
10     secured at the time of the transaction by collateral having
11     a market value equal to
12             (A) 100% of the amount of such loan or extension of
13         credit, guarantee, acceptance, or letter of credit, if
14         the collateral is composed of
15                 (i) obligations of the United States or its
16             agencies;
17                 (ii) obligations fully guaranteed by the
18             United States or its agencies as to principal and
19             interest;
20                 (iii) notes, drafts, bills of exchange or
21             bankers' acceptances that are eligible for
22             rediscount or purchase by a Federal Reserve Bank;
23             or
24                 (iv) a segregated, earmarked deposit account
25             with the state bank;
26             (B) 110% of the amount of such loan or extension of

 

 

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1         credit, guarantee, acceptance or letter of credit if
2         the collateral is composed of obligations of any state
3         or political subdivision of any State;
4             (C) 120% of the amount of such loan or extension of
5         credit, guarantee, acceptance, or letter of credit if
6         the collateral is composed of other debt instruments,
7         including receivables; and
8             (D) 130% of the amount of such loan or extension of
9         credit, guarantee, acceptance or letter of credit if
10         the collateral is composed of stock, leases, or other
11         real or personal property.
12         (2) Any such collateral that is subsequently retired or
13     amortized shall be replaced by additional eligible
14     collateral where needed to keep the percentage of the
15     collateral value relative to the amount of the outstanding
16     loan or extension of credit, guarantee, acceptance, or
17     letter of credit equal to the minimum percentage required
18     at the inception of the transaction.
19         (3) A low-quality asset shall not be acceptable as
20     collateral for a loan or extension of credit to, or
21     guarantee, acceptance, or letter of credit issued on behalf
22     of, an affiliate.
23         (4) The securities issued by an affiliate of the state
24     bank shall not be acceptable as collateral for a loan or
25     extension of credit to, or guarantee, acceptance or letter
26     of credit issued on behalf of, that affiliate or any other

 

 

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1     affiliate of the state bank.
2         (5) The collateral requirements of this paragraph do
3     not apply to an acceptance that is already fully secured
4     either by attached documents or by other property having an
5     ascertainable market value that is involved in the
6     transaction.
7     (d) Exemptions. The provisions of this Section, except
8 paragraph (4) of subsection (a), shall not be applicable to the
9 following as to which there shall be no limitation:
10         (1) any transaction, subject to the prohibition
11     contained in paragraph (3) of subsection (a), with a bank
12             (A) which controls 80% or more of the voting shares
13         of the state bank;
14             (B) in which the state bank controls 80% or more of
15         the voting shares; or
16             (C) in which 80% or more of the voting shares are
17         controlled by the company that controls 80% or more of
18         the voting shares of the state bank;
19         (2) making deposits in an affiliated bank or affiliated
20     foreign bank in the ordinary course of correspondent
21     business, subject to any restrictions that the
22     Commissioner may prescribe;
23         (3) giving immediate credit to an affiliate for
24     uncollected items received in the ordinary course of
25     business;
26         (4) making a loan or extension of credit to, or issuing

 

 

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1     a guarantee, acceptance, or letter of credit on behalf of,
2     an affiliate that is fully secured by
3             (A) obligations of the United States or its
4         agencies;
5             (B) obligations fully guaranteed by the United
6         States or its agencies as to principal and interest; or
7             (C) a segregated, earmarked deposit account with
8         the state bank;
9         (5) purchasing securities issued by any company of the
10     kinds described as follows:
11         Shares of any company engaged or to be engaged solely
12     in one or more of the following activities: holding or
13     operating properties used wholly or substantially by any
14     banking subsidiary of such bank holding company in the
15     operations of such banking subsidiary or acquired for such
16     future use; or conducting a safe deposit business; or
17     furnishing services to or performing services for such bank
18     holding company or its banking subsidiaries; or
19     liquidating assets acquired from such bank holding company
20     or its banking subsidiaries or acquired from any other
21     source prior to May 9, 1956, or the date on which such
22     company became a bank holding company, whichever is later;
23         (6) purchasing assets having a readily identifiable
24     and publicly available market quotation and purchased at
25     the market quotation or, subject to the prohibition
26     contained in paragraph (3) of subsection (a), purchasing

 

 

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1     loans on a nonrecourse basis from affiliated banks; and
2         (7) purchasing from an affiliate a loan or extension of
3     credit that was originated by the state bank and sold to
4     the affiliate subject to a repurchase agreement or with
5     recourse.
6     (e) Notwithstanding the provisions of this Section, a state
7 bank and its subsidiaries in compliance with the provisions of
8 Regulation W [12 C.F.R. Part 223] promulgated by the Board of
9 Governors of the Federal Reserve, as amended from time to time,
10 shall be deemed to be in compliance with this Section.
11     This Section shall apply to any transaction entered into
12 after January 1, 1984, except for transactions which are the
13 subject of a binding written contract or commitment entered
14 into on or before July 28, 1982, and except that any renewal of
15 a participation in a loan outstanding on July 28, 1982, to a
16 company that becomes an affiliate as a result of the enactment
17 of this Act, or any participation in a loan to such an
18 affiliate emanating from the renewal of a binding written
19 contract or commitment outstanding on July 28, 1982, shall not
20 be subject to the collateral requirements of this Act.
21 (Source: P.A. 88-546; 89-364, eff. 8-18-95.)
 
22     Section 10. The Banking Emergencies Act is amended by
23 changing Section 2 as follows:
 
24     (205 ILCS 610/2)  (from Ch. 17, par. 1002)

 

 

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1     Sec. 2. Power of Commissioner.
2     (a) Whenever the Commissioner is notified by any officer of
3 a bank or by any other means becomes aware that an emergency
4 exists, or is impending, he may, by proclamation, authorize all
5 banks in the State of Illinois to close any or all of their
6 offices, or if only a bank or banks, or offices thereof, in a
7 particular area or areas of the State of Illinois are affected
8 by the emergency or impending emergency, the Commissioner may
9 authorize only the affected bank, banks, or offices thereof, to
10 close. The office or offices so closed may remain closed until
11 the Commissioner declares, by further proclamation, that the
12 emergency or impending emergency has ended. The Commissioner
13 during an emergency or while an impending emergency exists,
14 which affects, or may affect, a particular bank or banks, or a
15 particular office or offices thereof, but not banks located in
16 the area generally of the said county or municipality, may
17 authorize the particular bank or banks, or office or offices so
18 affected, to close. The office or offices so closed shall
19 remain closed until the Commissioner is notified by a bank
20 officer of the closed bank that the emergency has ended. The
21 Commissioner shall notify, at such time, the officers of the
22 bank that one or more offices, heretofore closed because of the
23 emergency, should reopen and, in either event, for such further
24 time thereafter as may reasonably be required to reopen.
25     (b) Whenever the Commissioner becomes aware that an
26 emergency exists, or is impending, he or she may, by

 

 

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1 proclamation, authorize any bank organized under the laws of
2 another state, or of the United States, to open and operate
3 offices in this State, notwithstanding any other laws of this
4 State to the contrary. Any office or offices opened in
5 accordance with this subsection may remain open until the
6 Commissioner declares, by further proclamation, that the
7 emergency or impending emergency has ended. The Department of
8 Financial and Professional Regulation shall adopt rules to
9 implement this subsection (b).
10 (Source: P.A. 92-483, eff. 8-23-01.)
 
11     Section 15. The Financial Institutions Electronic
12 Documents and Digital Signature Act is amended by changing
13 Sections 5 and 10 as follows:
 
14     (205 ILCS 705/5)
15     Sec. 5. Definitions. As used in this Act:
16     "Digital signature" means an encrypted electronic
17 identifier, created by computer, intended by the party using it
18 to have the same force and effect as the use of a manual
19 signature.
20     "Financial institution" means a bank, a savings and loan
21 association, a savings bank, or a credit union or any
22 subsidiary or affiliate of a bank, savings and loan
23 association, savings bank, or credit union.
24     "Substitute check" means a paper reproduction of an

 

 

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1 original check, as defined in the Check Clearing for the 21st
2 Century Act (12 U.S.C. 5001, et seq.), as amended from time to
3 time, and the rules promulgated thereunder.
4 (Source: P.A. 94-458, eff. 8-4-05.)
 
5     (205 ILCS 705/10)
6     Sec. 10. Electronic documents; digital signatures;
7 electronic notices.
8     (a) Electronic documents. If in the regular course of
9 business, a financial institution possesses, records, or
10 generates any document, representation, image, substitute
11 check, reproduction, or combination thereof, of any agreement,
12 transaction, act, occurrence, or event by any electronic or
13 computer-generated process that accurately reproduces,
14 comprises, or records the agreement, transaction, act,
15 occurrence, or event, the recording, comprising, or
16 reproduction shall have the same force and effect under the
17 laws of this State as one comprised, recorded, or created on
18 paper or other tangible form by writing, typing, printing, or
19 similar means.
20     (b) Digital signatures. In any communication,
21 acknowledgement, agreement, or contract between a financial
22 institution and its customer, in which a signature is required
23 or used, any party to the communication, acknowledgement,
24 agreement, or contract may affix a signature by use of a
25 digital signature, and the digital signature, when lawfully

 

 

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1 used by the person whose signature it purports to be, shall
2 have the same force and effect as the use of a manual signature
3 if it is unique to the person using it, is capable of
4 verification, is under the sole control of the person using it,
5 and is linked to data in such a manner that if the data are
6 changed, the digital signature is invalidated. Nothing in this
7 Section shall require any financial institution or customer to
8 use or permit the use of a digital signature.
9     (c) Electronic notices.
10         (1) Consent to electronic records. If a statute,
11     regulation, or other rule of law requires that information
12     relating to a transaction or transactions in or affecting
13     intrastate commerce in this State be provided or made
14     available by a financial institution to a consumer in
15     writing, the use of an electronic record to provide or make
16     available that information satisfies the requirement that
17     the information be in writing if:
18             (A) the consumer has affirmatively consented to
19         the use of an electronic record to provide or make
20         available that information and has not withdrawn
21         consent;
22             (B) the consumer, prior to consenting, is provided
23         with a clear and conspicuous statement:
24                 (i) informing the consumer of:
25                     (I) any right or option of the consumer to
26                 have the record provided or made available on

 

 

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1                 paper or in nonelectronic form, and
2                     (II) the right of the consumer to withdraw
3                 the consent to have the record provided or made
4                 available in an electronic form and of any
5                 conditions, consequences (which may include
6                 termination of the parties' relationship), or
7                 fees in the event of a withdrawal of consent;
8                 (ii) informing the consumer of whether the
9             consent applies:
10                     (I) only to the particular transaction
11                 that gave rise to the obligation to provide the
12                 record, or
13                     (II) to identified categories of records
14                 that may be provided or made available during
15                 the course of the parties' relationship;
16                 (iii) describing the procedures the consumer
17             must use to withdraw consent, as provided in clause
18             (i), and to update information needed to contact
19             the consumer electronically; and
20                 (iv) informing the consumer:
21                     (I) how, after the consent, the consumer
22                 may, upon request, obtain a paper copy of an
23                 electronic record, and
24                     (II) whether any fee will be charged for a
25                 paper copy;
26             (C) the consumer:

 

 

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1                 (i) prior to consenting, is provided with a
2             statement of the hardware and software
3             requirements for access to and retention of the
4             electronic records; and
5                 (ii) consents electronically, or confirms his
6             or her consent electronically, in a manner that
7             reasonably demonstrates that the consumer can
8             access information in the electronic form that
9             will be used to provide the information that is the
10             subject of the consent; and
11             (D) after the consent of a consumer in accordance
12         with subparagraph (A), if a change in the hardware or
13         software requirements needed to access or retain
14         electronic records creates a material risk that the
15         consumer will not be able to access or retain a
16         subsequent electronic record that was the subject of
17         the consent, the person providing the electronic
18         record:
19                 (i) provides the consumer with a statement of:
20                     (I) the revised hardware and software
21                 requirements for access to and retention of the
22                 electronic records, and
23                     (II) the right to withdraw consent without
24                 the imposition of any fees for the withdrawal
25                 and without the imposition of any condition or
26                 consequence that was not disclosed under

 

 

HB0744 - 19 - LRB095 04298 MJR 24339 b

1                 subparagraph (B)(i); and
2                 (ii) again complies with subparagraph (C).
3         (2) Other rights.
4             (A) Preservation of consumer protections. Nothing
5         in this subsection (c) affects the content or timing of
6         any disclosure or other record required to be provided
7         or made available to any consumer under any statute,
8         regulation, or other rule of law.
9             (B) Verification or acknowledgment. If a law that
10         was enacted prior to this amendatory Act of the 95th
11         General Assembly expressly requires a record to be
12         provided or made available by a specified method that
13         requires verification or acknowledgment of receipt,
14         the record may be provided or made available
15         electronically only if the method used provides the
16         required verification or acknowledgment of receipt.
17         (3) Effect of failure to obtain electronic consent or
18     confirmation of consent. The legal effectiveness,
19     validity, or enforceability of any contract executed by a
20     consumer shall not be denied solely because of the failure
21     to obtain electronic consent or confirmation of consent by
22     that consumer in accordance with paragraph (1)(C)(ii).
23         (4) Prospective effect. Withdrawal of consent by a
24     consumer shall not affect the legal effectiveness,
25     validity, or enforceability of electronic records provided
26     or made available to that consumer in accordance with

 

 

HB0744 - 20 - LRB095 04298 MJR 24339 b

1     paragraph (1) prior to implementation of the consumer's
2     withdrawal of consent. A consumer's withdrawal of consent
3     shall be effective within a reasonable period of time after
4     receipt of the withdrawal by the provider of the record.
5     Failure to comply with paragraph (1)(D) may, at the
6     election of the consumer, be treated as a withdrawal of
7     consent for purposes of this paragraph.
8         (5) Prior consent. This subsection does not apply to
9     any records that are provided or made available to a
10     consumer who has consented prior to the effective date of
11     this amendatory Act of the 95th General Assembly to receive
12     the records in electronic form as permitted by any statute,
13     regulation, or other rule of law.
14         (6) Oral communications. An oral communication or a
15     recording of an oral communication shall not qualify as an
16     electronic record for purposes of this subsection (c),
17     except as otherwise provided under applicable law.
18 (Source: P.A. 94-458, eff. 8-4-05.)
 
19     Section 99. Effective date. This Act takes effect upon
20 becoming law.