BILL ANALYSIS Ó
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
SB 386 (Allen)
Page 3 of ?
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
SB 386 (Allen)
Page 4 of ?
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.
SB 386 (Allen)
Page 5 of ?
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
SB 386 (Allen)
Page 6 of ?
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
SB 386 (Allen)
Page 7 of ?
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;
SB 386 (Allen)
Page 8 of ?
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.
**************