BILL ANALYSIS AB 370 Page 1 ASSEMBLY THIRD READING AB 370 (Eng) As Amended March 23, 2009 Majority vote BUSINESS & PROFESSIONS 11-0 APPROPRIATIONS 14-1 ----------------------------------------------------------------- |Ayes:|Hayashi, Emmerson, |Ayes:|De Leon, Nielsen, | | |Conway, Eng, Hernandez, | |Ammiano, | | |Nava, Niello, | |Charles Calderon, Davis, | | |John A. Perez, Price, | |Fuentes, Hall, Harkey, | | |Ruskin, Smyth | |John A. Perez, Price, | | | | |Skinner, Solorio, Audra | | | | |Strickland, Torlakson | | | | | | |-----+--------------------------+-----+--------------------------| | | |Nays:|Duvall | | | | | | ----------------------------------------------------------------- SUMMARY : Increases the maximum criminal penalties for unlicensed contractors, imposes a mandatory jail sentence for a third or subsequent conviction for unlicensed contracting, and requires the court to order an unlicensed contractor to pay restitution to its victims. Specifically, this bill : 1)Makes a first conviction a misdemeanor punishable by a fine not exceeding $5,000 or by imprisonment in a county jail for no more than six months, or both. 2)Requires that the fine for a second conviction be the greatest of 20% of the contract price, 20% of the aggregate payments made to, or at the direction of, the unlicensed contractor, or $5,000. 3)Requires that a third or subsequent conviction be punishable by both a fine and imprisonment in a county jail for between 90 days and one year. The fine must be no less than $5,000 and no more than the greatest of $10,000, 20% of the price of the contract, or 20% of the aggregate payments made to, or at the direction of, the unlicensed contractor. AB 370 Page 2 4)Clarifies that an unlicensed person who offers to perform contracting work is subject to the specified penalties. 5)Provides that a person who used the services of an unlicensed contractor is a victim of crime, regardless of whether that person had knowledge that the contractor was unlicensed. 6)Requires a court to order that a convicted unlicensed contractor make restitution to all persons who utilized the services of the unlicensed contractor. EXISTING LAW : 1)Creates the Contractors State License Board (CSLB) within the Department of Consumer Affairs for the purposes of licensing and regulating contractors in California. 2)Allows CSLB to bring disciplinary actions against a contractor who willfully or deliberately violates building laws of the state. 3)Makes it a misdemeanor for a person to engage in the business or act in the capacity of a contractor without having a license and makes a first offense punishable by imprisonment in the county jail for no more than six months, or by a fine not exceeding $1,000, or both. 4)Requires that a second conviction be punishable by both a fine and imprisonment in the county jail for not less than 90 days, except as specified. The fine must be the greater of 20% of the price of the contract or $4,500. 5)Requires that a third or subsequent conviction be punishable by a fine or imprisonment in the county jail for between 90 days and one year, or both. The fine must be no less than $4,500 and no more than the greater of $10,000 or 20% of the price of the contract. FISCAL EFFECT : According to the Assembly Appropriations Committee, potential increase in fine revenue to local governments from increased penalties and potential increase in non-reimbursable costs for mandatory jail sentences upon a third or subsequent conviction for operating without a contractor's license. AB 370 Page 3 COMMENTS : According to the author's office, "Contractor fraud, most of which involves unlicensed contractors, consistently ranks in the top ten lists of consumer complaints both nationally and statewide. According to the U.S. Office of Consumer Affairs, unscrupulous contractors defraud consumers of more than $100 billion annually. In addition to the financial loss they cause, unlicensed contractors generally do not obtain proper insurance, leaving their workers without any protection and the homeowner potentially liable." "Despite this immense harm, violators of this law are only punishable by up to only six months in jail and a maximum fine of $1,000 - regardless of how much money the victim paid that unlicensed contractor. Although second-time offenders must pay an increased fine, the potential jail time is similarly restricted to six months. Only a third-time violator is subject to up to one year jail sentence." Current law states that a person who uses an unlicensed contractor may bring a civil action to recover all compensation paid to the unlicensed contractor. However, no statute specifically addresses the issue of criminal restitution for victims of unlicensed contractors. Unlicensed contractors are the beneficiaries, retaining the monies paid them by crime victims which the civil statutes require to be disgorged. According to the CSLB, unlicensed contracting is a considerable part of California's estimated annual $60-$140 billion underground economy. Numerous approaches have been used to address this problem, but it continues to impact legitimate licensees and consumers alike with injurious economic results. The victims of these violations include consumers, often the elderly, who pay thousands of dollars to an unlicensed person who never finishes the job or does incompetent or negligent work. Research conducted by the Department of Industrial Relations, Economic and Employment Enforcement Coalition shows that unlicensed contractors drive down wages, undercut legitimate businesses, and avoid licensing requirements, and it is often hard to find them and bring them into compliance with state and local laws. Analysis Prepared by : Whitney Clark / B. & P. / (916) AB 370 Page 4 319-3301 FN: 0000387