BILL ANALYSIS Ó AB 1332 Page 1 ASSEMBLY THIRD READING AB 1332 (Hagman) As Amended March 21, 2013 2/3 vote GOVERNMENTAL ORGANIZATION 16-0 ----------------------------------------------------------------- |Ayes:|Hall, Nestande, Bigelow, | | | | |Chesbro, Cooley, Gray, | | | | |Hagman, | | | | |Roger Hernández, Jones, | | | | |Jones-Sawyer, Levine, | | | | |Medina, Perea, V. Manuel | | | | |Pérez, Salas, Torres | | | | | | | | ----------------------------------------------------------------- SUMMARY : Allows California State Lottery prize winners to assign any portion of their last three years of prize winnings to another person or entity. EXISTING LAW : 1)Authorizes, pursuant to the California State Lottery Act of 1994 (Act), the California State Lottery and provides for its operation and administration by the California State Lottery Commission and the Director of the California State Lottery, with certain limitations. 2)Prohibits the assignment of the right of any person to a prize, except that the payment of any lottery prize may be assigned under specified circumstances, including as collateral to secure certain loans and for future payments to another person designated pursuant to an appropriate judicial order of a California superior court, or a federal court having jurisdiction over properly located in California, if the court makes a specified determination. 3)Provides that a prize winner, by entering into an agreement to assign prize payments, as specified, is deemed to have waived any statutory period of limitation as to the State of California enforcing any rights against annual prize payments due after the last assigned payment is paid or released, if assigned as collateral, from the lien granted the secured AB 1332 Page 2 creditor. 4)Provides that these assignments of prize payments as collateral to secure loans or for future payments to another person designated pursuant to a judicial order, as described above, are not valid or allowed for the final three annual prize payments from the lottery to the prize winner. FISCAL EFFECT : None. This bill is keyed non-fiscal by the Legislative Counsel. COMMENTS : Purpose of the bill : According to the author, approximately 87% of prize winners now select the "Cash Value" option when they win. For those who choose the 26-year or other long-term payment option, there really is not a compelling reason to withhold the right to assign prize winnings. Companies that specialize in purchasing lottery payments streams desire certainty in their dealings. As a result, their pre-contract searches are quite comprehensive, because of the implications of purchasing a future payment stream in exchange for a cash payment, only to have that future prize be contested due to some sort of unanticipated legal bind. Background : Consistent with other states that have a lottery, prize winners, since 1995, of the California State Lottery, may assign parts or all of their winnings in exchange for a lump sum payment, with the exception of the last three years. Before such assignment occurs, a court approval is required and must meet the following standards: 1)Prize winners seeking and assignment agreement must have independent legal representation. 2)The assignment must be executed on a form approved by the Lottery Commission and made pursuant to a court order. 3)Marital status must be verified by the court. 4)Any other financial/legal obligations, such as child support payments, may not be evaded through assignment. AB 1332 Page 3 However, the last three years were withheld from the authorization for assignment at the time. This was due in large part to the more limited capacity of government agencies, law firms and lottery purchasing businesses in tracking down tax liens and other legal obligations, such as child support payments. This has changed dramatically as technological advances have made information more readily available. Arguments in support : According to Stone Street Capital, LLC, Stone Street is the oldest company in the nation in the business of buying installment lottery prize payments from lottery winners. They have done business in California and have many California customers. Many of these customers have expressed frustration over the restriction currently in the California lottery law that does not permit winners receiving their prize in installments to sell the last three years of payments. Supporters further argue that this bill is necessary to correct an out-of-date statute, and one that discriminates against those lottery winners (roughly 10% of winners) who elect to receive their winnings in installment payments rather than as a lump sum. Almost 20 years ago, when the California State Lottery Act first allowed for the assignability of payments, the state Legislature included a ban on the assignability of the last three years in large part because of the limited search capabilities that government agencies and other entities had at the time, which made it difficult to track down tax liens and other legal obligations (e.g., child support payments). But today the California State Controller's Office, other government agencies and originators like Seneca One can find this information in mere seconds. Seneca One and other originators will not purchase payments unless these obligations are satisfied. Unfortunately, only those who elect to receive their prize winnings as installments payments are impacted by this three-year carve-out. All winners who elect to receive their winnings as a lump sum (roughly 90% of winners) do not have any restrictions on the timing of their payout. This does not make sense and seems to penalize those winners who select the long-term payout. AB 1332 Page 4 Supporters also believe this bill is good for both consumers and the State of California for several reasons. First, the lottery consumer benefits because he or she is able to receive his or her money in today's dollars to satisfy immediate and urgent needs. Indeed, as a matter of individual property rights, the current restrictions make no sense. Second, the State of California benefits because the lottery winner must satisfy all outstanding liens and judgments before assigning any portion of their remaining winnings. This means that the state will be paid much sooner than if the winner had to wait several years before receiving his or her final three annual payments. Analysis Prepared by : Felipe Lopez / G. O. / (916) 319-2531 FN: 0000536