BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:April 1, 2013 |Bill No:SB | | |269 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Curren D. Price, Jr., Chair Bill No: SB 269Author:Hill As Introduced: February 14, 2013 Fiscal: Yes SUBJECT: Prepaid rental listing service. SUMMARY: Eliminates the pre-paid rental listing services only, (PRLS-only) license, and requires a provider of pre-paid rental listing services to hold a valid real estate license. The rental listing service provider would also have to provide his or her real estate license number and notice of the consumer's rights on the written contract for services before accepting payment. Existing law: 1) A person who wants to offer pre-paid rental listing services must either hold a real estate broker's license or a pre-paid rental listing services license issued by the Department of Real Estate. (BPC § 10167.2 (a)) 2) To maintain a PRLS-only license, the licensee must maintain a $10,000 corporate security bond or cash deposit in an account assigned to the Real Estate Commissioner. (BPC § 10167.7) 3) PRLS licensees must pass a background check, pay an application fee of $100, plus $25 for each branch location at which the PRLS services will be offered. (BPC § 10167.3 (a)) 4) Prior to accepting a fee, a PRLS provider must offer a written contract specifying the name, address, and telephone number of the provider, acknowledgement of receipt of the amount of the fee, a description of the service to be provided, and the prospective SB 269 Page 2 tenant's specifications for the rental property. (BPC § 10167.9) 5) A licensee must fully refund a prospective tenant if within five days of executing the contract the licensee has not provided at least three currently available properties that meet the prospective tenant's specifications, unless the tenant obtains a rental through the licensee's services. (BPC § 10167.10(a)(1)) 6) A licensee must refund any charge above $50 if the prospective tenant obtains a rental that is not through the services of the licensee during the period of the contract, or does not find a rental during the period of the contract, so long as the prospective tenant requests the refund within ten days after the end of the contract period. (BPC § 10167.10(b)(2)) This bill: 1) Eliminates the PRLS--only license, and requires a real estate salesperson or real estate broker license to offer prepaid rental listing services. 2) Prohibits the issuance of any new PRLS-only licenses, effective January 1, 2014. 3) Allows persons who were issued a PRLS-only license before the bill's operative date to continue operating under that license, until their license expires. 4) Requires all contracts for prepaid rental listing services to include the license number held by the PRLS provider. 5) Requires PRLS providers to give each prospective customer a simple, easy-to-understand explanation of their contractual refund rights, an explanation of how they can file a complaint, and a description of their options, if their PRLS provider refuses to issue them a refund in accordance with their contract. FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by Legislative Counsel. COMMENTS: 1. Purpose. This bill is sponsored by the Author. According to the Author, fraud and abuse perpetrated by pre-paid rental listing service companies has increased due to the increase in demand for SB 269 Page 3 rental housing, and may be curbed by restricting the ability to offer these listing services to individuals holding a real estate salesperson or broker's license. Additionally, this bill provides increased consumer protection by requiring each PRLS provider to include their real estate license number and a statement of consumer rights on the written contract for services. This will inform the consumer of their rights, the method of redress if the rights are violated, and adequate information to identify the licensee and verify the licensee's status prior to signing the contract. 2. Background. A Pre-paid Rental Listing Service is a list of available rentals meeting a prospective renter's selection criteria, in exchange for a fee paid by the prospective renter. The fee is due when the list is provided to the prospective renter, but the prospective renter is entitled to a refund from their list provider if they are unable to obtain a rental property using the list they are provided. The Pre-paid rental list can be a valuable time-saver for a consumer only if the list that is provided is accurate, specifically tailored to the renter's needs, and is up-to-date. PRLS scams are increasingly common, and many consumers have found themselves unable to obtain rentals, and unable to obtain refunds of their PRLS fees from unscrupulous PRLS providers. In recent months, there have been press reports in various regions of the state documenting PRLS abuses. The DRE has issued a Consumer Fraud Alert and Warning to encourage consumers to research their rental list providers before paying for services. A typical PRLS scam involves the promise of a list of available rentals in a location and price range desired by the prospective tenant. But, when the prospective renter contacts the owners of the properties on the list, they learn that the properties are not for rent, have already been rented, or do not exist. Alternatively, the prospective renter finds that the rental price represented on the list, or that other details about the rental property, are incorrect. Compounding the problem, scammers fail to provide refunds, as specified in their contracts. Currently, conducting business as a PRLS provider in California requires a real estate salesperson or real estate broker license, or a special PRLS-only license, which entitles the license holder to offer PRLS services, but none of the other services that licensed real estate salespersons or brokers may perform. SB 269 Page 4 The low barrier to obtaining a PRLS-only license, (passing a background check, posting a $10,000 bond, and paying a $100 license fee) may be encouraging fraud and abuse. The DRE's web site lists fifty-eight (58) PRLS-only licensee locations, forty percent of which are no longer licensed to legally provide PRLS services, due either to cancellation of their bond by their bonding company (14 license locations) or to disciplinary actions initiated against them by DRE (eight license locations). Since the foreclosure crisis began, DRE has issued thirty-four desist and refrain orders to people offering PRLS services, without being licensed to do so. Eliminating the PRLS--only license, and requiring a real estate salesperson or real estate broker license to offer prepaid rental listing services will allow a prospective renter who falls victim to a PRLS scam perpetrated by a real estate licensee to file a claim for restitution from the DRE's Consumer Recovery Account. Currently, victims of PRLS-only licensees are not eligible for restitution from this fund, because the Consumer Recovery Account only covers those who were victimized by persons holding a real estate license. The DRE will be able to use its existing authority to issue citations and levy fines against unlicensed persons, when it uncovers evidence of unlicensed PRLS activity. DRE's citation and fine authority is limited to licensed persons and those who are unlicensed, but operating in a manner that requires a real estate license. 3. Arguments in Support. The California Association of Realtors , (CAR) supports this bill. The CAR states that the economic downturn and housing crisis has caused increased demand for rental listings. As a result, the number of fraudulent providers of rental listings has also increased. The CAR believes that restricting authorization to provide rental listings to people who hold a real estate license will raise the bar and help ensure ethical business behavior. SUPPORT AND OPPOSITION: Support : California Apartment Association California Association of Realtors Opposition : SB 269 Page 5 None on file as of March 26, 2013. Consultant: Kristin Webb