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  




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            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.




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             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. 





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            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.



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