BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2449


                                                                    Page  1





          Date of Hearing:  April 20, 2016


                           ASSEMBLY COMMITTEE ON INSURANCE


                                   Tom Daly, Chair


          AB 2449  
          (Eggman) - As Introduced February 19, 2016


          SUBJECT:  Insurance:  bail license fees


          SUMMARY:  Quadruples bail agent license fees and imposes a $10  
          transaction charge on each bail bond to fund increased  
          enforcement activity against bail agents.   Specifically, this  
          bill:  


          1)Increases the application fee to become a bail agent from $283  
            to $1,132.


          2)Increases the fee to renew a bail agent license from $85 per  
            year per appointment to $340.


          3)Increases the application fee to become a bail permittee from  
            $567 per year to $2,268.


          4)Increases the renewal fee to become a bail permittee from $546  
            per year to $1,132.


          5)Imposes a $10 fee on each bail bond to be paid by the surety  








                                                                    AB 2449


                                                                    Page  2





            or bail permittee, the proceeds to be deposited into the newly  
            created Bail Investigation and Prosecution Fund (fund). 


          6)Allocates 70% of the revenue in the fund to the Department of  
            Insurance to fund the cost of regulating the bail industry.


          7)Allocates 30% of the revenue in the fund to grants to local  
            prosecutors to support the investigation and prosecution of  
            bail crimes.


          8)Establishes application and oversight processes for the local  
            prosecutor grants.


          EXISTING LAW:  


          1)Requires surety insurers and bail agents to be licensed by the  
            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:  










                                                                    AB 2449


                                                                    Page  3






           1)Purpose  .  According to the author, this bill would provide the  
            DOI Investigation Division with the resources to eliminate a  
            bail complaint backlog, more fully investigate illegal  
            allegations of bail practices, and conduct education and  
            outreach regarding bail by creating a Bail Education,  
            Investigation, and Prosecution Fund within the Department.   
            This fund would receive the proceeds from a $10/bond fee  
            charged to all surety companies who transact bail in  
            California.  Thirty percent of these funds would be granted to  
            District Attorneys via a competitive process and the DOI would  
            retain the remaining seventy percent of the fund.  Effective  
            bail enforcement produces numerous benefits to the bail bond  
            industry and consumers who purchase bail products. Consumers  
            are protected from predatory tactics by any unscrupulous bail  
            agents, while the bail industry benefits from improved  
            consumer confidence.  A well-regulated bail industry reduces  
            business and transaction costs for industry members and it  
            fosters competitive bail markets by ensuring a level playing  
            field.  The current resources of the Department and local  
            District Attorneys do not allow for a comprehensive bail  
            enforcement program.  Funds are needed to create an aggressive  
            prevention, investigation, and prosecution program dedicated  
            to eliminating illegal bail practices and to increase  
            education and outreach on bail laws in California.

           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  








                                                                    AB 2449


                                                                    Page  4





            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  
            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 agent's 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)Bail Agent Enforcement  .   DOI reports that the seriousness and  
            amount of bail complaints have steadily increased in the past  
            five years (from 62 complaints in 2010 to 238 complaints in  
            2015) and that DOI lacks the resources to allow for a  
            comprehensive bail enforcement program.  Common violations  
            include soliciting bail in a prohibited place, bribery, money  








                                                                    AB 2449


                                                                    Page  5





            laundering, theft or embezzlement of collateral or premium,  
            creating fake bail bonds, and receiving stolen property or  
            contraband in lieu of premium collected.  Bail complaints are  
            investigated by sworn peace officers within DOI who  
            investigate a range of cases.  Bail comprises less than 2% of  
            the insurance market, but it accounts for roughly 10% of the  
            complaints to the DOI Enforcement Branch.  

            In August of 2015, the DOI arrested 31 bail agents in Santa  
            Clara County.  These arrests were the result of a multi-year  
            investigation that uncovered bail agents rewarding jail  
            inmates with illegal kickbacks for providing information about  
            newly booked individuals in the jails. The investigation also  
            produced allegations of using unlicensed individuals to  
            transact bail and a bail agency knowingly employing a  
            convicted felon as a bounty hunter (a violation of the Bail  
            Fugitive Recovery Act).  Of the 31 arrests in August, the DOI  
            reports some final outcomes of three individuals who have pled  
            guilty to misdemeanors with sentences including minor fines,  
            community service, and probation.  One individual was  
            acquitted by a jury of all four felony counts charged.  In  
            addition to the criminal charges, the DOI suspended the  
            licenses of the arrestees.  However, each of those suspensions  
            were overturned by an administrative law judge.  


           4)Bail Regulations  .  The DOI has regulations governing the  
            conduct of bail agents.  These regulations were last amended  
            in 1977.  Many in the bail industry assert that these  
            regulations are badly out of date and need to be revised to  
            provide clarity to the bail community.  Members of the bail  
            community articulated the need to revisit the nearly  DOI bail  
            regulations during the committee's hearing on AB 1406 (Gordon)  
            last year (see note below on AB 1406).  

           5)Bond Fee  .  The DOI collects a range of fees from the people  
            and companies it regulates to fund a range of regulatory,  
            enforcement, and anti-fraud programs.  These fees involve a  
            direct connection between the payors and the regulated or the  








                                                                    AB 2449


                                                                    Page  6





            payors and the beneficiaries of the programs.  The bond fee  
            proposed in this bill is collected from the surety company to  
            fund enforcement activity almost exclusively directed towards  
            the misconduct of bail agents who are separately licensed and  
            subject to their own independent regulatory program.  



            There is cause to question whether the per bond fee has the  
            appropriate nexus between both the reasonable cost of  
            regulation and between who pays the fee and the subjects of  
            the increased enforcement activity contemplated by the bill.   
            It is worth noting that enforcement costs in  
            professional/occupational licensing programs are routinely  
            paid for by license fees which are clearly treated as fees  
            under Proposition 26.  However, as the connection between  
            those who pay the fee and who benefits from the proceeds of  
            the fee is stretched, the prospect of the fee running afoul of  
            Proposition 26 increases.  





           6)Revenues  .  The DOI estimates that the bill would generate  
            around $3 million per year evenly divided between the license  
            fee increases and the bond fee.  DOI currently collects  
            approximately $450,000 per year from bail license fees.  This  
            bill proposes a nearly seven-fold increase in spending above  
            current levels and would likely provide the DOI with over  
            $1,300 per year/per licensee to fund its regulatory program.   
            While the DOI has provided data that show that the proportion  
            of bail complaints they receive is larger than the proportion  
            of bail agents in their population of licensees, the data do  
            not support the need for a nearly seven-fold increase in  
            resources.  It should also be noted that the DOI has used  
            other statutory authority to raise the license fees on bail  
            agents by nearly 33% since 2013.  









                                                                    AB 2449


                                                                    Page  7







            The DOI anticipates using this funding to dedicate seven sworn  
            peace officers, one supervising sworn investigator, one  
            attorney, and one supporting analyst to the attorney to bail  
            regulation.  This staff would be responsible for:

               a)     Educating consumers, bail agents, sureties,  
                 prosecutors, and local law enforcement on bail issues and  
                 law. 

               b)     Investigating and prosecuting unlawful conduct by  
                 bail licensees and unlicensed bail activity. 

               c)     Responding to consumer inquiries and complaints  
                 related to bail transactions

               d)     Regulating and overseeing bail bond products,  
                 solicitation, and advertising directed toward consumers



            While licensing acts generally have some criminal penalties, a  
            primary purpose of establishing a licensing act is to provide  
            the government with the means to impose administrative  
            sanctions for misconduct.  Bail is intertwined with criminal  
            justice, but that does not mean that misconduct by a bail  
            licensee is most effectively addressed by criminal sanctions.   
            The DOI has had a very strong criminal focus to its regulation  
            of bail licensees. This proposal appears to reinforce the  
            focus on using criminal sanctions to enforce its  
            administrative obligations.  





           1)Amendments  .  The Chair proposed a set of amendments to the  
            author that would have doubled bail agent license fees for a  








                                                                    AB 2449


                                                                    Page  8





            two-year period (beginning in 2018) and required the DOI to  
            report to the legislature by January 1, 2018 on what changes,  
            if any, have been made to the 1977 regulations governing bail  
            agents.  These amendments were unacceptable to the author and  
            sponsor.



           2)Previous Legislation  .  Last year, this committee passed  
            Assembly Bill 1406 (Gordon) which would have imposed a $15 per  
            bond fee to fund increased bail agent enforcement activity by  
            DOI and, like this bill, set aside 30% of the revenue to  
            provide grants to local prosecutors to fund bail investigation  
            and prosecution efforts.  That bill was estimated to provide  
            $2.5 million per year and was held on the Assembly  
            Appropriations Committee Suspense File.  
          REGISTERED SUPPORT / OPPOSITION:




          Support


          Department of Insurance (sponsor)


          Al Graf Bail Bonds


          California District Attorney's Association


          California State Sheriffs' Association


          El Dorado County District Attorney










                                                                    AB 2449


                                                                    Page  9





          Kern County District Attorney


          One Individual


          Riverside County District Attorney


          Santa Clara County District Attorney


          Siskyou County District Attorney


          Ventura County District Attorney




          Opposition


          All-Pro Bail Bonds


          American Bail Coalition


          California Bail Agents Association


          Golden State Bail Agents Association




          Analysis Prepared by:Paul Riches / INS. / (916) 319-2086









                                                                    AB 2449


                                                                    Page  10