BILL ANALYSIS Ó Bill No: AB 1332 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2013-2014 Regular Session Staff Analysis AB 1332 Author: Hagman As Amended: March 21, 2013 Hearing Date: June 11, 2013 Consultant: Paul Donahue SUBJECT California State Lottery: Assignment of prize payments DESCRIPTION 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)The California State Lottery Act of 1984, an initiative measure, authorizes 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. 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 a 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 AB 1332 (Hagman) continued Page 2 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 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. BACKGROUND 1)Purpose of the bill : According to the author, approximately 87 percent of prize winners now select the "Cash Value" option when they win. Thus, for those who choose the 26-year or other long-term payment option, there is no 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 an unanticipated legal impediment. 2)Background : Consistent with other states that have a lottery, California State Lottery prize winners may assign parts or all of their winnings in exchange for a lump sum payment, with the exception of the last three years. Before a prize assignment occurs, a court approval is required and must meet the following standards: a) Prize winners seeking and assignment agreement must have independent legal representation. b) The assignment must be executed on a form approved by the Lottery Commission and made pursuant to a court order. AB 1332 (Hagman) continued Page 3 c) Marital status must be verified by the court. d) All financial and legal obligations, such as child support payments, shall not be evaded through assignment or prize winnings. 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. 3)Statements by supporters : 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. Supporters say that many of its 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 AB 1332 is necessary to correct an out-of-date statute, and one that discriminates against those lottery winners (roughly 10 percent 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 CA 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. AB 1332 (Hagman) continued Page 4 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 percent of winners) do not have any restrictions on the timing of their payout. Supporters believe this is nonsensical and appears to penalize those winners who select the long-term payout. PRIOR/RELATED LEGISLATION AB 218 (Richter), Chapter 363, Statutes of 1995. Made technical changes to the California State Lottery Act in order to clarify protections in existing law relating to prizewinners. AB 3542 (Richter), Chapter 890, Statutes of 1994. Provided that the right of any person to a prize shall not be assignable except that the payment of any prize may be paid to another person, paid to a person designated pursuant to an appropriate judicial order, or assigned as collateral for an obligation owed to another person, as specified. The bill further specified that any loan secured by the assignment of a lottery prize shall not apply to the last three annual prize payments from the lottery to the prizewinner. SUPPORT: Seneca One Finance Stone Street Capital OPPOSE: None on file FISCAL COMMITTEE: No. ********** AB 1332 (Hagman) continued Page 5