BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:June 6, 2011 |Bill No:AB | | |75 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Curren D. Price, Jr., Chair Bill No: AB 75 Author:Hill As Introduced: December 22, 2010 Fiscal:Yes SUBJECT: Documents: notaries public: solicitations. SUMMARY: Specifies requirements for solicitations that could be construed or interpreted as involving a governmental entity; makes changes to the law governing notaries public. Existing law: 1)Federal law prohibits the use of any seal, insignia, trade or brand name that could reasonably be interpreted or construed as implying any federal government connection, approval, or endorsement unless the mailing has a notification on its face, cover or wrapper that it is not affiliated with any federal government agency. 2)Prohibits any person, firm, corporation or association that is a nongovernmental entity to solicit information, or solicit the purchase of or payment for a product or service or to solicit the contribution of funds or membership fees, by means of a mailing, electronic message or Internet website that contains a seal, insignia, trade or brand name or any other term or symbol that reasonably could be interpreted or construed as implying any state or local government connection, approval or endorsement, unless : a) The nongovernmental entity has an expressed connection with, or the approval or endorsement of, a state or local government entity, if permitted by law. b) The solicitation meets both of the following requirements: i) The solicitation bears on its face, in conspicuous and AB 75 Page 2 legible type in contrast by typography, layout, or color with other type on its face, the following notice: "THIS PRODUCT OR SERVICE HAS NOT BEEN APPROVED OR ENDORSED BY ANY GOVERNMENT AGENCY, AND THIS OFFER IS NOT BEING MADE BY AN AGENCY OF THE GOVERNMENT." ii) In the case of a mail solicitation, the envelope or outside cover or wrapper in which the matter is mailed bears on its face in capital letters and in conspicuous and legible type, the following notice: "THIS IS NOT A GOVERNMENT DOCUMENT." (Business and Professions Code (BPC) § 17533.6) 1)Requires that any business that solicits the purchase of, or payment for, a service by means of an unsolicited mailing that offers to assist the recipient in dealing with a state or local governmental agency to do both of the following: a) State on the envelope and in the mailing that it is not a governmental agency and is not associated with the governmental agency referenced. b) Include in the mailing the contact information for the governmental agency referenced (Id.) 2)Provides, however, that a business does not have to meet the requirements of item # 3) above, if either or the following requirements have been met: a) The business has an expressed connection with, or the approval or endorsement of, a state or local governmental entity as permitted by law. b) The business has an "established business relationship," as defined by law, with the recipient (Id.) 5) Makes it unlawful for a person to make any untrue or misleading statements in any manner in connection with the offering or performance of an "assessment reduction filing service," defined as any service performed or offered to be performed for compensation in connection with preparing or completing an application or request for reduction in assessment. Clarifies that untrue or misleading statement includes: a) The preparation of a request for review or an assessment appeal application will result in a guaranteed reduction of property taxes. AB 75 Page 3 b) A fee is required in order for the county to process a reduction of a property's value when the county really has no applicable fee. c) The person offering assessment reduction filing service will physically represent the person being solicited before county assessor staff, before an assessment appeals board, before a county board of equalization or before an assessment hearing officer unless the fee includes this representation. d) The person offering assessment reduction filing service will prepare or complete informal assessor review data or prepare or complete the application in full on behalf of the person being solicited unless the fee includes this service. e) The person offering assessment reduction filing service has a file or record covering the person being solicited. f) The person offering assessment reduction filing service is affiliated with any governmental entity, including the use of: i) Any government seal, emblem or other similar symbol. ii) A business name including the word appeal or tax and the word assessor, agency, bureau, department, division, federal, state county, city or municipal or the name of any city, county, city and county, or any governmental entity. iii) An envelope that simulates an envelope containing a government check, tax bill or government notice. iv) An envelope or outside cover that does not state in capital letters "THIS IS NOT A GOVERNMENT DOCUMENT" g) A late fee is required if the person being solicited does not respond by a date stated in the solicitation. (BPC § 17537.9) 6)Makes it unlawful to offer or perform an assessment reduction filing service without the following disclosure placed at the top of each page of every advertisement or promotional material and recited at the beginning of every oral solicitation or broadcast advertisement: "THIS ASSESSMENT REDUCTION FILING SERVICE IS NOT ASSOCIATED WITH ANY GOVERNMENT AGENCY. IF YOU DISAGREE WITH THE ASSESSED VALUE OF YOUR PROPERTY, YOU HAVE THE RIGHT TO AN INFORMAL ASSESSMENT REVIEW, AT NO COST, BY CONTACTING THE ASSESSOR'S OFFICE DIRECTLY. IF YOU AB 75 Page 4 AND THE ASSESSOR CANNOT AGREE TO THE VALUE OF THE PROPERTY OR IF YOU DO NOT WISH TO CONTACT THE ASSESSOR YOU CAN OBTAIN AND FILE AN APPLICATION FOR CHANGED ASSESSMENT WITH THE COUNTY BOARD OF EQUALIZATION OR ASSESSMENT APPEALS BOARD ON YOUR OWN BEHALF. AN APPEALS BOARD HAS THE AUTHORITY TO RAISE PROPERTY VALUES (BUT IN NO CASE HIGHER THAN THE PROPOSITION 13 PROTECTED VALUE) AS WELL AS TO LOWER PROPERTY VALUES." (Id). 7)Makes it unlawful for a person offering assessment reduction filing service to charge, demand or collect any money until after a request for review is filed with an assessor (Id). 8)Makes it unlawful for a person offering assessment reduction filing service to charge, demand or collect any money until after an assessment appeal is filed with the clerk of the assessment appeals board (Id). 9)Makes it unlawful for a person offering assessment reduction filing service to file a request or application for reduction in assessment without written authorization from the property owner (Id). 10)Authorizes proof of the execution of an instrument by certain persons and prescribes the form for that proof. (Civil Code (CC) § 1180-1183) 11)Prohibits a proof of execution of any of several types of specified documents, including a grant deed, mortgage, deed of trust, quitclaim deed, or security agreement as it relates to the recording of transfers of property, by use of a "subscribing witness." (CC §1195) 12)Provides that a protest is a certificate of dishonor made by a United States consul or vice consul, or a notary public or other person authorized to administer oaths by the law of the place where dishonor occurs. (Commercial Code § 3505) 13)Prescribes the duties of a notary public, including the duty to demand acceptance and payment of foreign and inland bills of exchange, or promissory notes, to protest them for nonacceptance or nonpayment, and to exercise any other powers and duties that by the law, may be performed by notaries. (Government Code (GC) § 8205) 14)Prescribes the maximum fees a notary public may charge for specified services. (GC § 8211) 15)Establishes fees the Secretary Of State (SOS) is authorized to AB 75 Page 5 charge for the provision of specified business services. (GC § 12182- 12197) This bill: 1)Makes various technical changes. 2)Defines "conspicuous" or "conspicuously" as displayed apart from the other print on the page, envelope, outside cover or wrapper, in at least 12-point boldface font, in capital letters, that is at least 2-point boldface font sizes larger than the next largest print and in a contrasting type, layout, font, or color in a manner that clearly calls attention to the language. 3)Adds "emblem" to the list of prohibited items contained within a solicitation that imply connection to a government entity. 4)Specifies that the following disclosure currently required must also be conspicuously displayed on the front and back of every page of a solicitation or mailing: "THIS PRODUCT OR SERVICE HAS NOT BEEN APPROVED OR ENDORSED BY ANY GOVERNMENT AGENCY, AND THIS OFFER IS NOT BEING MADE BY AN AGENCY OF THE GOVERNMENT." 5)Prohibits disclosures from preceding, following or surrounding language, words, symbols, terms or other content that result in disclosures not being conspicuous or that introduce, modify, qualify or explain the text of these disclosures. 6)Specifies that a solicitation cannot use a trade or brand name that implies state or local government connection, approval, or endorsement, including, but not limited to: a) Agency b) Administrative c) Assessor d) Board e) Bureau f) Collector g) Commission AB 75 Page 6 h) Committee i) Department j) Division aa) Recorder bb) Unit cc) Federal dd) State ee) County ff) City gg) Municipal hh) The name or division of any government agency 8)Specifies that a solicitation cannot outline a date or time period when payment to the soliciting entity is due unless the solicitation also displays the date or time period specified, how the information being solicited will be used, a description of the service that is to be provided or how the solicited funds or membership fees will be used. Specifies that a solicitation cannot use any of the following terms to indicate a date or time period when payment is due, including, but not limited to: a) Due date b) Due now c) Remit by d) Remit immediately e) Payment due f) Pay now g) Pay immediately AB 75 Page 7 h) Pay no later than 9) Specifies that no solicitation can state or imply that penalties or consequences will occur if payment is not made to the soliciting nongovernmental person, firm, corporation or association. 10)Makes a violation of this law a misdemeanor punishable by imprisonment in a county jail, up to six months, or a fine, up to two thousand five hundred dollars ($2500), or both. 11)Establishes remedies up to three times the amount solicited for any person harmed as a result of a violation. 12)Adds a power of attorney to the types of instruments for which a proof of the execution is prohibited and prohibits a proof of the execution for any instrument requiring a notary public to obtain a thumbprint from the party signing the document in the notary public's journal. 13)Specifies that certain provisions of existing law apply only to a notary public employed by a financial institution. 14)Deletes the prescribed maximum fees a notary public may charge for specified services. 15)Authorizes the SOS to refuse to perform a service or refuse a filing based on a reasonable belief that the service or filing is being requested for an unlawful, false, or fraudulent purpose, to promote or conduct an illegitimate object or purpose, or is being requested or submitted in bad faith or for the purpose of harassing or defrauding a person or entity. FISCAL EFFECT: According to the May 4, 2011 Assembly Committee on Appropriations analysis, any additional costs for the SOS would be minor and absorbable. The analysis also notes that to the extent this legislation would reduce fees paid by entities attempting bogus filings, that loss would be offset by savings achieved by staff not being required to process those bogus filings. The analysis states that the bill may result in potential minor non-reimbursable costs to counties for prosecution and incarceration related to violations of the bill's provisions, offset to some extent by fine revenues. COMMENTS: 1. Purpose. The Author is the Sponsor of this bill. According to the AB 75 Page 8 Author, the measure strengthens the law to prevent deceptive business solicitations and reduces the potential for document fraud by closing significant loopholes affecting notary services and solicitation disclosures. According to information provided by the Author and SOS, the Attorney General of California has received well over 10,000 complaints from the public about these deceptive government-look-a-like forms and cites one lawsuit brought by the Attorney General, the defendants were charged with sending out 986,000 misleading solicitations. This bill will put a stop to this practice by requiring third party vendors to put larger, more obvious disclaimers on their solicitations to make it clear they are not government documents. It also increases the penalty for failing to put disclaimers on the solicitations. These clarifications will provide businesses receiving these misleading solicitations with a more readily recognizable disclaimer, as well as make this type of deceptive practice easier to prosecute and eliminate. The Author also believes it is important to give the SOS the authority to refuse to process documents that are clearly intended for fraudulent purposes. When a notarized document is presented to the SOS for a certificate of authentication, the SOS is only permitted to determine the authenticity of the notary public's signature, not the authenticity of the underlying document. If the notary signature is valid, the SOS must authenticate the notary public's signature. Once the SOS certificate is attached to the document, if the underlying document is not authentic (often referred to as "bogus") it can be used to file false financial claims against people and to obtain fraudulent identification implying that the holder of the document has diplomatic immunity from prosecution. Other entities in receipt of the documents may view the SOS certificate as proof that the underlying documents are valid rather than simply as an authentication of the notary public's signature. By providing the SOS the discretion to refuse a filing that is unlawful, false or fraudulent, the Author believes the likelihood of these occurrences will decrease. Additionally, the Author sees benefit in prohibiting the use of a subscribing witness when establishing a power of attorney. Currently, if a person has signed a document, but does not personally appear before a notary public, another person can appear on their behalf to attest that the principal signer signed the document. The person appearing on behalf of the principal is called a subscribing witness. Although existing law prevents a AB 75 Page 9 subscribing witness from being used as proof of signing on specific real property documents to be recorded, they can be used in the proof of signing of a power of attorney document that could later be used to fraudulently sign multiple real property deeds or impact all aspects of a person's estate. Information provided by the Author outlines how notaries public are currently required to perform "protests" and issue certificates of dishonor related to nonpayment of negotiable instruments, such as a check or promissory note. The bill eliminates the mandate for all notaries public, except for those that work for financial institutions, from processing antiquated documents (i.e., protests) that are frequently used for fraudulent purposes, as the protest can be used to begin civil legal proceedings. This protest procedure is archaic and is seldom performed for legitimate purposes. The Author and SOS see this process as beyond the expertise of most notaries public and assert that these bogus protests have been used in tax evasion schemes, as well as a way to harass people by asserting invalid liens. 2. Background. There are many unscrupulous businesses that reach out to consumers and business owners, offering to provide services as a third party between the consumer or business owner and a government entity. Some even go so far as to mail solicitations to consumers and business owners which are disguised as government forms or documents requiring payment. The majority of these entities target consumers and businesses with mandatory registrations or document filings with government entities such as homeowners filing property tax exemptions with a local county assessor's office or businesses filing LLC documents with the SOS. Examples of misleading statements include representations that a fee is required in order to receive a homeowners' exemption, or that the advertised service is connected with any government entity. One specific example highlighted by the SOS involved letters sent to California corporations directing them to submit $495 and a completed form to a private company named "Business Filings Division" in order to dissolve their business entity. In one more publicized recent example of deceptive solicitations, a San Diego County man plead guilty to charges of conspiracy to commit wire fraud and money laundering connected to his creation of a business specifically designed to fraudulently sell loan modification services to homeowners who were delinquent in their monthly mortgage payments. The company mailed solicitations throughout the county advising homeowners that it employed highly trained staff and had a direct connection to the US Treasury. Over AB 75 Page 10 300 homeowners paid between $2,500 and $3,000 to the company between April and July 2009, which was used to continue to operate the company and pay its principals and did not result in any services to homeowners. In response to consumer and business complaints about deceptive solicitations, the SOS dedicated a webpage to inform consumers about these mailings and clarify, "the requests are not being made by the California Secretary of State's office and are not being made by or on behalf of any governmental entity. Although a business entity can use an intermediary to submit filings and fees to our office, no business is required to go through another company in order to file its documents with the Secretary of State's office." 3. Similar and Related Previous Legislation. AB 898 (Torrico) of 2010 and AB 2654 (Hill) of 2010 were very similar to this bill. The bills were vetoed by the Governor. In his veto messages, the Governor indicated concern with the private right of action provision contained in both bills and hesitancy to sign something into law that could lead to "spurious lawsuits". AB 2919 (Garcia, Chapter 256, Statutes of 2008) required businesses that send a mailing offering to assist the recipient in dealing with a governmental agency to state on the envelope and in the mailing that it is not a governmental agency and is not associated with the referenced governmental agency and required businesses to include in the mailing the contact information for the referenced governmental agency. SB 1400 (Simitian, Chapter 749, Statutes of 2008) established new rules and disclosure requirements for sweepstakes solicitations and extends the provisions to those who sell information regarding sweepstakes. SB 1240 (Figueroa, Chapter 319, Statutes of 2002) specified that solicitations by e-mail and on Internet websites shall be governed by the same state laws regulating mail solicitations using words or symbols that can potentially cause a misimpression of a state or local governmental connection with the solicitations. AB 1178 (Davis Chapter 249, Statutes of 1997) prohibited deceptive advertising practices related to an offer to file either a property tax homeowners' exemption, or a property tax assessment appeal on behalf of a consumer. AB 75 Page 11 AB 532 (Morrow, Chapter 348, Statutes of 1993) conformed California law to Federal law prohibiting certain mail from nongovernmental entities to contain any term or symbol, as specified, that reasonably could be interpreted or construed as implying any federal government connection, approval, or endorsement. 4. Arguments in Support. Secretary of State Debra Bowen writes in support of this bill, noting that it will close significant loopholes and eliminate methods of potential fraud. Various Chambers of Commerce also support this bill, stating that it strengthens disclaimer requirements and increases the penalty for failing to put disclaimers on solicitations, making it easier for businesses to readily recognize the disclaimers and easier to prosecute and eliminate this type of deceptive practice. Capitol Corporate Services, Inc ., which has over 40,000 clients throughout the U.S. and over 1,000 entities registered or qualified to conduct business in California, also agrees with other supporters that this is an important bill which protects those conducting legitimate business in California by requiring clear and obvious disclaimers, as well as reduces the potential for document fraud. NOTE: Double-referral to Judiciary Committee (second). SUPPORT AND OPPOSITION: Support: California Association of Realtors Capitol Corporate Services, Inc. Highland Area Chamber of Commerce Law Offices of Harold S. Small Long Beach Area Chamber of Commerce Secretary of State Debra Bowen Simi Valley Chamber of Commerce South Bay Association of Chambers of Commerce Thoits Insurance Service TriMark Economy Restaruan Fixtures Turner, Aubert and Friedman, LLP Opposition: None on file as of May 31, 2011 AB 75 Page 12 Consultant:Sarah Mason