BILL ANALYSIS Ó AB 1406 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON INSURANCE Tom Daly, Chair AB 1406 (Gordon) - As Amended April 20, 2015 SUBJECT: Insurance: bail license fees SUMMARY: Imposes a $15 fee on all bail transactions to fund enforcement efforts by the Department of Insurance (department). Specifically, this bill: 1)Requires a surety insurer to pay a $15 fee on all bail transactions. 2)Creates the Bail Investigation and Prosecution Fund (fund) within the Insurance Fund to receive bail transaction fee revenue. 3)Permits the department to spend the proceeds of the bail transaction fee as follows: a. 70% shall be used to pay for investigating and prosecuting unlawful conduct by bail agents and AB 1406 Page 2 responding to consumer complaints. b. 30% shall be used to provide grants to local prosecutors for investigating and prosecuting bail cases. 4)Establishes rules for the grant program broadly consistent with other local prosecutor grant programs administered by the department. 5)Requires the Insurance Commissioner (commissioner) to reduce the bail transaction fee if the fund has a balance exceeding $8 million. 6)Allows the commissioner to adopt regulations regarding the disposition of excess revenues in the fund. 7)Requires the commissioner to provide an annual report regarding its bail related enforcement actions. 8)Sunsets the bail transaction fee on January 1, 2021. EXISTING LAW: 1)Requires surety insurers and bail agents to be licensed by the AB 1406 Page 3 department. 2)Requires a bail agent to pay a fee every other year to renew his or her license. 3)Establishes industry assessments to fund consumer service and enforcement functions for automobile insurance and life and annuity insurance products. FISCAL EFFECT: Undetermined COMMENTS: 1)Purpose . According to the author, the bill is motivated by the growth and seriousness of bail complaints received by the department. The department's resource limitations have prevented the creation of a comprehensive bail enforcement program. Funds are not only needed to create an aggressive prevention, investigation, and prosecution program dedicated to eliminating illegal bail schemes, but also to educate and increase outreach on bail laws in California. This bill would impose a fee of $15 per bond transaction to all surety companies transacting bail in California. Thirty percent of the funds would be distributed to city attorneys and county district attorneys and the other seventy percent would be AB 1406 Page 4 allocated within the department to investigate, enforce, and prosecute illegal bail activity and code violations. Similar programs are in place for automobile insurance and investigations related to life insurance and annuity products. Imposing this assessment would provide dedicated resources to investigate bail-related complaints and prosecute those cases that rise to the level of criminal conduct. It would also better enable the department to regulate and oversee bail products and would also assist city attorneys and county district attorneys in investigating and prosecuting surety insurer and bail cases. 2)Bail . Once a person is arrested on a criminal charge and booked into a jail, the question is whether the accused remains in custody. Depending on many factors, an accused may be released to await court dates on his or her "own recognizance" or "bail" will be set. If bail is set, that means a specific amount of money, usually in the form of a bail bond, is required to be paid to the courts in order to secure the appearance in court of the accused. Bail is usually determined by a "schedule" or the accused can have a bail hearing in front of a judge. The bail schedule has pre-set amounts for a particular crime. If a bail hearing is warranted, a judge determines the amount of the bail bond. If an accused does not wish to pay the full amount ordered by the court for release, or cannot afford the full amount, the accused may seek the services of a bail agent. Under existing law, a bail agent must be solicited for bail directly by the arrestee, the arrestee's attorney of record, or an adult friend or family member. The bail agent may post bail for the accused as a guarantee for the person's appearance at mandated court hearings and for release from custody. In California, a bail agent is a person licensed and regulated by the department and will post the bond for the accused. A bail agent works with one or more bail surety companies, which essentially operate as an insurer backing the bail bond. In AB 1406 Page 5 this instance, the bail agent takes responsibility for the accused making all court appearances and if the accused fails to appear, the bail agent will be the party responsible to pay the court the full amount of the bail bond. Bail bonds may be negotiated in several ways. Most commonly, a bail agent charges eight or ten percent of the bail bond, commonly referred to as premium. This is the bail agent's commission. The accused does not get any of this money back unless the bail agent chooses to rebate monies back to the accused. For example, on a $25,000 bail, the ten percent premium paid to the bail agent is $2,500. In turn, the bail agent must pay the surety a percentage of the $2,500 based on the bail agents contract with the surety insurer involved. Collateral may take many forms, including a lien on house or a car. When all appearances are made and the case resolved, the money provided to the court for bail will go back to the party that paid - either the accused or the bail agent. If the accused fails to appear for any court appearance at any time, that money is forfeited to the court and a warrant is issued for the arrest of the person. 3)Industry Assessments . The department operates similar programs funded by industry assessments for automobile insurance and life and annuity products. As with this bill, an industry assessment supports departmental operations costs incurred regulating its licensees and providing grants to local law enforcement agencies to cover the cost of investigations and prosecutions related to licensee conduct. The department is pursuing an industry assessment for bail agents because of the limited size of the bail agent population. With about 3,000 bail licensees it is impractical to fund the regulatory program required exclusively with licensing fees. The department reports an increase in the number and severity of consumer complaints regarding bail licensees and believes that more resources are needed to respond to the problem. While no formal fiscal estimate has been completed, the bill would likely produce approximately $2.5 million per year in added revenue for the department, of which approximately $1.8 million per year would go to support AB 1406 Page 6 its bail licensee enforcement program (the remainder being provided as grants to local prosecutors). That is three times the total annual revenue the department collects from its bail licensees and will support a significant expansion in the department's enforcement efforts related to bail licensees. REGISTERED SUPPORT / OPPOSITION: Support Department of Insurance (sponsor) Alameda County District Attorney California District Attorneys Association California State Sheriffs Association City Attorney of Los Angeles Northern California Fraud Investigator Association Anti-Fraud Alliance Peace Officers Research Association of California Santa Clara County District Attorney AB 1406 Page 7 Numerous individuals (including individual bail agents) Opposition American Bail Coalition California Bail Agents Association Golden State Bail Agents Association (GSBAA) Professional Bail Agents of the United States (PBUS) Numerous individuals (including individual bail agents) Analysis Prepared by:Paul Riches / INS. / (916) 319-2086