BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                SB 269
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        SENATE THIRD READING
        SB 269 (Hill)
        As Amended  August 30, 2013
        Majority vote 

         SENATE VOTE  :36-0  
         
         BUSINESS & PROFESSIONS      14-0                                 
         
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        |Ayes:|Bonilla, Jones,           |     |                          |
        |     |Bocanegra, Campos,        |     |                          |
        |     |Dickinson, Eggman,        |     |                          |
        |     |Gordon, Hagman, Holden,   |     |                          |
        |     |Maienschein, Mullin,      |     |                          |
        |     |Skinner, Ting, Wilk       |     |                          |
        |-----+--------------------------+-----+--------------------------|
        |     |                          |     |                          |
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         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.  










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        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,  
           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) Provides, under the Real Estate Law 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.)








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        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  
           Section 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 Commissioner  
           of BRE.  (BPC Section 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 Section 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 Section 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 Section  
           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 10 days  
           after the end of the contract period.  (BPC Section  
           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  








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          to regulate real estate licenses that pertain only to the  
          provision of PRLS.  This bill 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.  

         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  








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          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 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  








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          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 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 by the  
          Assembly Business, Professions and Consumer Protection 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. 


         Analysis Prepared by  :    Hank Dempsey / B.,P. & C.P. / (916)  
        319-3301                                               


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