BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          SB 386 (Allen)
          Version: February 24, 2015
          Hearing Date: May 12, 2015
          Fiscal: No
          Urgency: No
          TH:rm


                                        SUBJECT
                                           
                                  Consumer Affairs

                                      DESCRIPTION  

          This bill would add to the list of acts prohibited by the  
          Consumer Legal Remedies Act the act of advertising or offering  
          for sale a financial product that is illegal under state or  
          federal law, including any cash payment for the assignment to a  
          third party of a consumer's right to receive future pension or  
          veteran's benefits.

                                      BACKGROUND  

          Late last year, the California Department of Business Oversight  
          (DBO) issued an alert about deceptive investment schemes  
          involving future interests in military veteran benefits.   
          According to the DBO, several companies in California are  
          purchasing interests in future benefits by paying veterans  
          lump-sum cash payments in exchange for the right to receive  
          their benefit payments for a certain period of time, and then  
          selling investors interests in the revenue stream generated by  
          the receipt of those future benefit payments.  Federal law,  
          however, prohibits the assignment of future veteran's benefits  
          to third parties, and because of the non-assignability of these  
          payments and the consequent risk to investors; the cash payments  
          offered veterans through these investment schemes are typically  
          worth much less than the value of the future benefit payments.   
          (California Department of Business Oversight Issues Advisory on  
          Military Pension Advance Plans (Nov. 2014)  
           [as of May 7, 2015].)   
          Media reports on this activity indicate that the number of  
          military veterans who have taken out pension advances in  
          California "could be high, considering that California is home  
          to roughly half - 18 of 38 - of the U.S. companies selling this  
          type of financial product."  (Claudia Buck, Pension Cash-Out  
          Contracts Scam Vets, Sacramento Bee (Dec. 13, 2014)  
           [as of May 7, 2015].)  Military pension  
          advances "fall in line with other predatory financial schemes  
          that target military members and retirees, such as payday loans  
          and check cashing outlets that charge excessive fees," which,  
          when all fees and charges are added up, "can push the annual  
          percentage rate (APR) [of these products] above 100 percent."   
          (Id.)

          Consumers have some remedies in existing law to seek redress  
          against individuals and companies that illegally purchase  
          assignments of future veteran's benefits.  This bill would add  
          to those existing remedies by adding the act of advertising or  
          offering for sale a financial product that is illegal under  
          state or federal law, including any cash payment for the  
          assignment to a third party of a consumer's right to receive  
          future pension or veteran's benefits, to the list of activities  
          prohibited under the Consumer Legal Remedies Act.

                                CHANGES TO EXISTING LAW
           
           Existing federal law  states that payments of veteran's benefits  
          shall not be assignable except to the extent specifically  
          authorized by law, and such payments made to, or on account of,  
          a beneficiary shall be exempt from taxation, shall be exempt  
          from the claim of creditors, and shall not be liable to  
          attachment, levy, or seizure by or under any legal or equitable  
          process whatever, either before or after receipt by the  
          beneficiary.  (38 U.S.C. Sec. 5301(a)(1).)

           Existing federal law  provides that in any case where a  
          beneficiary entitled to compensation, pension, or dependency and  
          indemnity compensation enters into an agreement with another  
          person under which agreement such other person acquires for  
          consideration the right to receive such benefit by payment of  
          such compensation, pension, or dependency and indemnity  
          compensation, and including deposit into a joint account from  
          which such other person may make withdrawals, or otherwise, such  







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          agreement shall be deemed to be an assignment and is prohibited.  
           (38 U.S.C. Sec. 5301(a)(3).)  

          Existing law  , the Consumer Legal Remedies Act (CLRA), prohibits  
          unfair methods of competition, acts or practices by any person  
          which either results in or is intended to result in the sale or  
          lease of goods or services to any consumer.  (Civ. Code Sec.  
          1770.)

          Existing law  enumerates several methods of unfair competition,  
          acts, or practices, including:
           representing that a transaction confers or involves rights,  
            remedies, or obligations which it does not have or involve, or  
            which are prohibited by law; and
           representing that goods or services are of a particular  
            standard, quality, or grade, or that goods are of a particular  
            style or model, if they are of another.  (Civ. Code Sec.  
            1770.)

           Existing law  provides that any consumer who suffers damage as a  
          result of a practice declared to be unlawful under the CLRA may  
          bring an action against that person to recover damages, as  
          specified.  Existing law allows for a class action suit to be  
          filed on behalf of a class of consumers adversely affected by an  
          unfair method of competition, act, or practice.  (Civ. Code  
          Secs. 1780, 1781.)

           Existing law  provides that the CLRA shall be liberally construed  
          and applied to promote its underlying purposes, which are to  
          protect consumers against unfair and deceptive business  
          practices and to provide efficient and economical procedures to  
          secure such protection.  (Civ. Code Sec. 1760.)

           This bill  would add to the list of acts prohibited by the  
          Consumer Legal Remedies Act the act of advertising or offering  
          for sale a financial product that is illegal under state or  
          federal law, including any cash payment for the assignment to a  
          third party of the consumer's right to receive future pension or  
          veteran's benefits.

           This bill  would make other technical changes to the Consumer  
          Legal Remedies Act.

                                        COMMENT
           







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           1.Stated need for the bill
           
          The author writes:

            Veterans of the United States Armed Forces face many  
            challenges when they return to civilian life, and some have  
            been preyed upon by unscrupulous businesses promising a lump  
            sum of money in exchange for signing over their future monthly  
            benefits.  Although these "pension poaching" schemes are  
            against federal law, advertisements for them continue to  
            appear in publications targeting veterans.  

            In pension advance schemes, an opportunistic company preys on  
            vulnerable veterans who have sacrificed, often for decades, to  
            earn a pension.  In many cases, these pensioners have no other  
            source of income when they return from active duty. An advance  
            company convinces a veteran to sign over his or her rights to  
            future compensation in return for quickly "advancing" often a  
            small fraction of the long-term money to which he or she is  
            entitled.  The interest on such transactions can be as high as  
            100 percent.
           
            Sadly, military retirees and recently returned veterans have  
            become a prime target of the pension advance industry.  As  
            with most fraud schemes targeting veterans, pension advance  
            companies routinely don't disclose key information or they  
            present it in misleading ways.  Many veterans do not realize  
            until it is too late that they have entered into a complex  
            financial transaction that could permanently deprive them of  
            retirement income they'd put their lives on the line to earn.   
            Indeed, the veteran is frequently led to think that he or she  
            is agreeing only to a short-duration loan to temporarily get  
            them through a rough patch.

















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            Cashing out a federal benefit and assigning it to a third  
            party is illegal under [federal law].  SB 386 would include  
            advertisements for a cash payment that reassigns veterans'  
            benefits to a third party as an illegal practice prohibited  
            under . . . California's Consumer Legal Remedies Act, which  
            would allow prosecutors and private attorneys general to file  
            suit against these unscrupulous "pension poachers."

           2.Consumer Protection
           
          The Legislature has long considered consumer protection to be a  
          matter of high importance.  State law is replete with statutes  
          aimed at protecting California consumers from unfair, dishonest,  
          or harmful market practices.  For example, California's Unfair  
          Practices Act has protected California consumers from "unlawful,  
          unfair or fraudulent business act[s] or practice[s]" for over 70  
          years.  (Bus. & Prof. Code Sec. 17200.)  The Consumer Legal  
          Remedies Act (CLRA), similarly, was enacted "to protect the  
          statute's beneficiaries from deceptive and unfair business  
          practices," and to provide aggrieved consumers with "strong  
          remedial provisions for violations of the statute."  (Am.  
          Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11.)

          By adding the act of advertising or offering for sale a  
          financial product that is illegal under state or federal law,  
          including cash payments for the assignment of non-alienable  
          veteran's benefits, to the list of acts prohibited by the CLRA,  
          this bill upholds the Legislature's longstanding policy of  
          providing strong consumer remedies for victims of unfair and  
          deceptive business practices.  Generally speaking, the CLRA is  
          intended "to protect consumers against unfair and deceptive  
          business practices and to provide efficient and economical  
          procedures to secure such protection."  (Civ. Code Sec. 1760.)   
          Among other things, it prohibits merchants from "representing  
          that a transaction confers or involves rights, remedies, or  
          obligations which it does not have or involve, or which are  
          prohibited by law," or representing that goods "are of a  
          particular standard, quality, or grade" when they are of  
          another.  (Civ. Code Sec. 1770.)  Consumers who are harmed by  
          unlawful practices specified in the Act have a right of action  
          under the CLRA to recover damages and other remedies, including  
          actual damages; an order to enjoin the unlawful act;  
          restitution; punitive damages; or any other relief that the  
          court deems proper.  (Civ. Code Sec. 1780.)  Additionally, the  







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          statute authorizes courts to award attorney's fees to prevailing  
          plaintiffs, and contains mechanisms for securing remedies on a  
          class wide basis.  (Civ. Code Secs. 1780, 1781.)

          Importantly, the CLRA attempts to balance its strong remedial  
          provisions with certain protections for defendants, including a  
          statutory provision granting a potential defendant the right to  
          cure.  Pursuant to Civil Code Section 1782(b), a potential  
          defendant has the ability to correct or "cure" a violation  
          within 30 days after receipt of the consumer's notice, and if  
          the potential defendant successfully corrects the problem, no  
          civil action can be maintained.  Similarly, the CLRA authorizes  
          a court to award reasonable attorney's fees to a prevailing  
          defendant upon a finding that a plaintiff's prosecution of an  
          action was not in good faith, and also provides affirmative  
          defense in cases where violations were not intentional and  
          resulted from a bona fide error, provided the defendant takes  
          appropriate steps to correct, repair, replace, or otherwise  
          remedy the offending act.  (Civ. Code Secs. 1780, 1784.)

          Providing victims of deceptive investment schemes involving  
          future interests in military veteran's benefits with strong  
          remedies under the CLRA arguably undercuts the economic  
          rationale that drives individuals to market these unlawful  
          investment schemes in the first place.  Further, the prospect of  
          class wide relief under the CLRA may make consumer attorneys  
          more likely to go after businesses and individuals involved in  
          these unlawful schemes.  If either of these possibilities come  
          to pass, the net benefit would be good for California's military  
          veterans insofar as each would likely reduce the marketing of  
          unlawful military pension advances in the state.

           3.Existing Remedies
           
          Staff notes that existing law already provides some remedies for  
          individuals harmed by investment schemes involving  
          non-assignable future pension or veteran's benefits.  Like most  
          violations of law, these acts fall within the broad scope of the  
          Unfair Competition Law (Bus. & Prof. Code Sec. 17200), which  
          provides remedies for "anything that can properly be called a  
          business practice and that at the same time is forbidden by  
          law."  (Cel-Tech Communications, Inc. v. Los Angeles Cellular  
          Telephone Co. (1999) 20 Cal.4th 163, 180 [citations omitted].)   
          The Unfair Competition Law (UCL) provides that a court "may make  
          such orders or judgments . . . as may be necessary to restore to  







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          any person in interest any money or property, real or personal,  
          which may have been acquired by means of such unfair  
          competition."  (Bus. & Prof. Code Sec. 17203; see also Korea  
          Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1146  
          ["An order for restitution, then, is authorized by the clear  
          language of the [UCL."]].)  The law also permits courts to award  
          injunctive relief and, in certain cases, to assess civil  
          penalties against the violator.  (Bus. & Prof. Code Sec. 17203;  
          17206.)

          In addition to the UCL, the Civil Code provides remedies for  
          individuals who have suffered damages as a result of fraud or  
          deceit, including situations involving fraudulent  
          misrepresentations.  (See Civil Code Secs. 1709-1710,  
          1572-1573.) A fraudulent misrepresentation is a representation  
          or statement made with the knowledge that it is or may be  
          untrue, with the intention that the person to whom it is made  
          would act in reliance on it.  (Wilke v. Coinway, Inc. (1967) 257  
          Cal.App.2d 126, 136.)  Under the Civil Code, deceit includes:  
          (1) the suggestion, as a fact, of something that is not true, by  
          one who does not believe it to be true; (2) the assertion, as a  
          fact, of something that is not true, by one who has no  
          reasonable ground for believing it to be true; (3) the  
          suppression of a fact, by one who is bound to disclose it, or  
          who gives information or other facts that are likely to mislead  
          for want of communication of that fact; or (4) a promise, made  
          without any intention of performing it.  (Civ. Code Sec. 1710.)   
          The Code specifies that an individual who "willfully deceives  
          another with intent to induce him to alter his position to his  
          injury or risk, is liable for any damage which he thereby  
          suffers."  (Civ. Code Sec. 1709.)

          As noted in Comment 2, this bill would add to these existing  
          remedies by specifying that the act of advertising or offering  
          for sale a financial product that is illegal under state or  
          federal law, including any cash payment for the assignment of  
          future pension or veteran's benefits, is prohibited under the  
          Consumer Legal Remedies Act (CLRA).  Making the strong remedies  
          for consumers under the CLRA available to those victimized by  
          these sorts of unlawful investment schemes arguably places  
          injured parties in a better position to secure complete relief  
          than is possible under current law.


           Support  :  American Legion-Department of California;  







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          AMVETS-Department of California; California Association of  
          County Veterans Service Officers; California State Commanders  
          Veterans Council; Military Officers Association of America,  
          California Council of Chapters; VFW-Department of California;  
          Vietnam Veterans of America-California State Council

           Opposition  :  None Known

                                        HISTORY
           
           Source :  Author

           Related Pending Legislation  :  SB 202 (Hernandez) would add to  
          the list of acts prohibited by the Consumer Legal Remedies Act  
          the act of advertising or offering for sale products that  
          contain synthetic cannabinoids or synthetic stimulants, as  
          defined.  This bill is pending in the Senate Judiciary  
          Committee.

           Prior Legislation  :

          AB 1108 (Nielsen, 2011) would have revised the Consumer Legal  
          Remedies Act to require a court to award court costs and  
          attorney's fees to the prevailing party in an action.  This bill  
          died in the Assembly Committee on Judiciary.

          AB 292 (Hayes, Ch. 1550, Stats. 1970) enacted the Consumer Legal  
          Remedies Act, which authorizes a consumer who suffers damage  
          from the use of specified unfair methods of competition and  
          unfair or deceptive acts to bring an action to recover damages  
          or other relief.

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