BILL ANALYSIS Ó SB 269 Page 1 SENATE THIRD READING SB 269 (Hill) As Amended August 30, 2013 Majority vote SENATE VOTE :36-0 BUSINESS & PROFESSIONS 14-0 ----------------------------------------------------------------- |Ayes:|Bonilla, Jones, | | | | |Bocanegra, Campos, | | | | |Dickinson, Eggman, | | | | |Gordon, Hagman, Holden, | | | | |Maienschein, Mullin, | | | | |Skinner, Ting, Wilk | | | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- 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. SB 269 Page 2 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.) SB 269 Page 3 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 SB 269 Page 4 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 SB 269 Page 5 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 SB 269 Page 6 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 FN: 0002773 SB 269 Page 7