BILL ANALYSIS Ó
SB 269
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Date of Hearing: September 10, 2013
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
SB 269 (Hill) - As Amended: August 30, 2013
SENATE VOTE : 36-0
SUBJECT : Prepaid rental listing service.
SUMMARY : Expands the enforcement powers of the Bureau of Real
Estate (BRE) over prepaid rental listing services (PRLS)
licensees, authorizes consumers harmed by PRLS providers to seek
compensation from the Consumer Recovery Account (Account),
increases application fees for the PRLS license to better fund
the Account, and requires licensees to provide prospective
clients with a written notice of the consumer's rights.
Specifically, this bill :
1) Authorizes BRE to issue a citation containing an order of
correction to an unlicensed individual for advertising
professional services in a telephone directory, which may
include a requirement that the cited individual cease
advertising in a telephone directory and a request for the
disconnection of the violator's telephone service, as
specified.
2) Grants cite and fine authority to the Commissioner of BRE as
specified to punish the unlicensed or improper provision of
PRLS, which includes the power to impose an administrative
fine not to exceed $2,500 to be deposited in the Account.
3) Increases the application fee for the PRLS license from $100
to $125 for the first location, and from $25 to $50 for each
subsequent location and to add or eliminate additional
locations.
4) Requires $25 of each application fee to be credited to the
Account.
5) Requires a PRLS licensee to include his or her license number
in the written contract offered to a prospective tenant.
6) Requires PRLS licensees to provide to the prospective tenant,
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prior to accepting a fee, with a written notice in 12 point
font enumerating the prospective tenant's rights under
existing law, as specified.
7) Requires every person holding a PRLS license, when obtaining
or renewing a license anytime within two years after the
balance of the Account drops below $200,000, to pay an
additional fee of $1 to fund the Account. The fee shall be
paid into the State Treasury and credited to the Account.
8) Authorizes consumers harmed by a PRLS licensee to file an
application with BRE for payment of a final court judgment or
arbitration award from the Account.
9) Requires the automatic suspension of a PRLS license if any
payment is made from the Account in settlement of a claim or
toward satisfaction of a judgment against a licensee; further
requires full repayment with interest of that amount before a
license can be reinstated.
10)Makes other technical and clarifying changes.
11)Specifies that no reimbursement is required because the only
costs that may be incurred by a local agency or school
district will be incurred because this act creates a new
crime or infraction, eliminates a crime or infraction,
changes the penalty for a crime or infraction, or changes the
definition of a crime.
EXISTING LAW
1) The Real Estate Law provides for the regulation and licensing
of PRLS by the Real Estate Commissioner (Commissioner).
Existing law prohibits a person from engaging in the business
of PRLS unless licensed in that capacity or licensed as a
real estate broker. A willful violation of these provisions
is a crime. (Business and Professions Code (BPC) Section
10000, et seq.)
2) Requires a person offering PRLS to hold either a real estate
broker's license or a PRLS-only license issued by the BRE.
(BPC 10167.2 (a))
3) Requires a PRLS licensee to maintain a $10,000 corporate
security bond or cash deposit in an account assigned to the
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Commissioner. (BPC 10167.7)
4) Requires PRLS licensees to 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))
5) Requires a PRLS provider, prior to accepting a fee, to 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 tenant's specifications for the
rental property. (BPC 10167.9)
6) Requires a licensee to 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))
7) Requires a licensee to 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))
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs associated with this legislation should be
minor and absorbable within existing BRE resources.
COMMENTS :
1)Purpose of this bill . This bill is intended to improve
consumer protection in the rental housing market by increasing
BRE's power to regulate real estate licenses that pertain only
to the provision of PRLS. SB 269 would also give PRLS
consumers access to a licensee-funded recovery Account in case
the consumer is financially harmed by a licensee, while
increasing application fees to better fund the Account and
also requiring licensees to provide a written notice of
consumer rights to prospective clients. This bill is author
sponsored.
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2)Author's statement . According to the author, "A tight rental
housing market is one of the many consequences of California's
foreclosure crisis. Either because they lost their home to
foreclosure or short sale, or because the home they were
renting was foreclosed upon, many individuals and families are
being forced to, or are choosing to, look for rental housing.
Unfortunately, the high demand for rental properties has
created a market ripe for prepaid rental listing service
scams. In recent months, there have been press reports in
various regions of the state, documenting some of the abuses,
and BRE has issued a Consumer Fraud Alert and Warning, hoping
to encourage consumers to check out their rental list
providers, before paying for services."
3)The PRLS-only license . PRLS providers offer a list of
available rentals meeting a prospective renter's selection
criteria, in exchange for a fee paid by the prospective
renter. Anyone conducting business as a PRLS provider in
California requires a real estate salesperson or broker's
license, or a special PRLS license which entitles the licensee
to offer only PRLS services. The PRLS license expires after
two years.
The fee paid to a PRLS provider by a prospective renter is due
when the list is provided to him or her, but a consumer is
entitled to a refund from their PRLS provider if they are
unable to obtain a rental property using the list they were
provided. Paying a fee to avoid the hassle of sorting through
hundreds of classified or online ads can may be worthwhile and
a valuable time-saver if the list that is provided is
accurate, specifically tailored to the renter and up-to-date.
However, the author contends that PRLS scams are increasingly
common, and that many consumers have found themselves unable
to obtain rentals or refunds of their PRLS fees.
4)Improper activity in the PRLS market . According to the
author, the bar to obtain a PRLS-only license is very low
(passing a background check, posting a $10,000 bond, and
paying a $100 license fee), which makes it easy for scammers
to proliferate. There are also very few valid licenses in
operation. The BRE's Web site lists a total of 31 unique
PRLS-only license identification numbers, of which only 16 are
in good standing or restricted status. Seven other ID numbers
are listed as cancelled, five are expired, two are revoked and
one is suspended. Furthermore, since the foreclosure crisis
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began, BRE has issued 34 desist and refrain orders to people
offering PRLS services without a valid license.
In 2012, the BRE issued a Consumer Fraud Alert and Warning
regarding PRLS, writing that a "growing number of scams [are]
being perpetrated against consumers seeking to rent homes and
apartments by persons offering rental lists for a fee and
businesses operating [PRLS] companies. As a result of the
current economic climate, a significant number of consumers
have the need to move into residential rental properties due
to income and/or credit issues, foreclosures, short sales, or
some other inability to own homes or maintain homeownership.
Moreover, some existing renters are forced to look for
alternative rental space due to foreclosure of their existing
rental properties. These realities have created an environment
perfect for PRLS scams."
According to the author, 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. Prospective
renters may also find that the advertised rental price, or
some other detail, is incorrect. The failure of some PRLS
providers to honor valid refund requests also poses a problem
for consumers.
5)This bill in practice . SB 269 aims to better regulate the PRLS
market by giving BRE authority to cite and fine individuals
who engage in unlicensed activity. Under this bill, BRE may
issue administrative fines of up to $2,500 per violation,
curtail advertising by unlicensed individuals, and have a
violator's telephone disconnected.
SB 269 also makes PRLS consumers eligible to access the Consumer
Recovery Account, which enables a person who has been
defrauded to recover at least some of his or her actual loss
when the licensee has insufficient assets to pay for the loss.
In general, the requirements for payment from the Account
include obtaining a final civil judgment, arbitration award,
or a criminal restitution order against a licensee. The
judgment, award or order must be based on intentional fraud or
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conversion of trust funds in connection with a transaction
requiring a real estate license. The victim must make a
reasonable search for the licensee's assets, and, if any, a
reasonable effort to collect on the judgment, arbitration
award or restitution order from those assets to satisfy the
judgment. This bill would better fund the Account through the
cite and fine authority and by increasing license application
fees by $25.
SB 269 would also require PRLS providers to include their
license number in their contracts, and provide a notice of
consumer rights to prospective tenants before accepting a
service fee. That notice would offer a simple,
easy-to-understand explanation of their contractual refund
rights, the process for requesting a refund, how to file a
complaint with the BRE, and a reminder that a consumer may
bring suit against a licensee in small claims court for
refusal to issue a refund as required by the contract.
6)Prior hearing of this bill . This bill was previously heard in
this Committee on June 11, 2013, where it was passed out 12-0.
That version of the bill (February 14, 2013) would have
phased out the PRLS license over two years and instead require
a PRLS provider to hold a valid real estate broker license, in
addition to providing prospective clients with a written
notice of the consumer's rights before accepting payment.
However, according to the author, the Department of Consumer
Affairs raised technical concerns about the constitutionality
of that particular approach, and the bill was subsequently
rewritten to better regulate the PRLS license rather than
prohibit it altogether.
REGISTERED SUPPORT / OPPOSITION :
Support
California Apartment Association
Apartment Association, Southern California Cities
East Bay Rental Housing Association
NOR CAL Rental Property Association
Opposition
None on file.
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Analysis Prepared by : Hank Dempsey / B.,P. & C.P. / (916)
319-3301