BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 386


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          Date of Hearing:  July 7, 2015


                ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION


                                  Mike Gatto, Chair


          SB  
          386 (Allen) - As Amended July 1, 2015


          SENATE VOTE:  38-0


          SUBJECT:  Unlawful business practices.


          SUMMARY:  Prohibits, pursuant to the Consumer Legal Remedies Act  
          (CLRA), the advertising,  offering for sale, or selling of 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.  Specifically, this bill:  


          1)Adds advertising, offering for sale, or selling 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, to the list of acts prohibited by the CLRA.  



          2)Provides that it is unlawful for any person to advertise,  
            offer, or enter into any agreement with a pension beneficiary  
            that would involve an assignment of pension benefits that is  
            prohibited by state or federal law.








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          3)Makes other technical, non-substantive changes to the CLRA. 
          EXISTING LAW:  


          1)Provides, pursuant to federal law, 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. Section 5301(a)(1))



          2)Provides, pursuant to federal law, 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 agreement shall be deemed to be an assignment  
            and is prohibited.  (38 U.S.C. Section 5301(a)(3))



          3)Prohibits, pursuant to the CLRA, 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, as specified.  (Civil Code  
            (CC) Section 1770)
           










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           4)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.  (CC 1770)

          5)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 also 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.  (CC 1780,  
            1781)
           


           6)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.  (CC 1760)



          FISCAL EFFECT:  None.  This bill has been keyed non-fiscal by  
          the Legislative Counsel. 


          COMMENTS:  


           1)Purpose of this bill  . This bill is intended to combat the  
            growing practice of veterans being targeted by pension-advance  
            companies through aggressive and misleading advertising  
            practices by including it under the CLRA and enabling access  
            to its remedies.  This measure is author-sponsored. 









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           2)Author's statement  .  According to the author, "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 ?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.  Cashing out a federal benefit and  
            assigning it to a third party is illegal under U.S. Statute  
            (Title 38, 5301(a)(1)).  

          "SB 386 would include advertisements for a cash payment that  
            reassigns veterans' benefits to a third party as an illegal  
            practice prohibited under the California's Consumer Legal  
            Remedies Act, which would allow prosecutors and private  
            attorneys general to file suit against these unscrupulous  
            'pension poachers'."
           3)The military pension advance problem  .  In November of 2014,  








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            the California Department of Business Oversight (DBO) issued  
            an alert warning veterans and investors about the lending  
            practice of giving veterans money up front in exchange for  
            signing over their monthly benefits for a defined period of  
            time.  This scheme involves companies selling investors the  
            revenue stream from veterans' pension or disability benefits.   
            Additionally, some lenders require participants to purchase  
            life insurance policies naming the lender as the beneficiary.   
            The DBO issued an order to stop an Arkansas-based firm's sale  
            of such securities in November of 2014. 


            Federal law already prohibits the assignment of U.S.  
            government pension and disability benefits.  However, the  
            firms offering and selling the benefit payments often fail to  
            tell investors about the federal prohibition, and that failure  
            violates other state laws that prohibit deceptive practices in  
            the offering or sale of securities. This bill would simply add  
            an additional remedy under the CLRA.


            But despite the restriction in existing law, pension advance  
            schemes remain a significant problem.  According to a June  
            2014 audit conducted by the federal Government Accountability  
            Office (GAO), there were at least 38 companies that offered  
            lump-sum advance products in exchange for pension payment  
            streams.  Of those 38 companies, 18 operated out of  
            California.  The GAO audit found that the full amount of  
            additional fees was not always transparently disclosed in the  
            written quotes that six pension advance companies provided to  
            the GAO undercover investigator.  The GAO audit found that  
            most of these interest rates were significantly higher than  
            the legal limits set by some states on interest rates assessed  
            for consumer credit, known as usury rates or usury ceilings.   
            In comparison to the California usury rate of 12%, the GAO  
            determined that the quotes for lump-sum payments received from  
            three pension advance companies for a resident of California  
            had effective interest rates ranging from approximately 27% to  
            83%.  For example, because some of these quotes required life  








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            insurance for the pensioner, this, in effect, was an added fee  
            for a pension advance if the life insurance had to be paid for  
            by the pensioner.


           4)The Consumer Legal Remedies Act  .  The CLRA exists to provide  
            protection to consumers from unfair methods of competition and  
            unfair or deceptive acts or practices related to the sale or  
            lease of goods or services.  The statute currently prohibits  
            26 commercial practices, which cover a range of general  
            misrepresentations as well as specific restrictions on  
            solicitations related to prerecorded messages, public social  
            service applications, home solicitations of senior citizens,  
            and veteran's benefits.  



          The CLRA provides a range of remedies to an injured consumer,  
            including actual damages of at least $1000, injunction,  
            restitution, punitive damages, attorney's fees, and other  
            relief as the court may direct.  The law also contains  
            provisions for class action suits.  However, the CLRA provides  
            an affirmative defense for unintentional violations and bona  
            fide errors if corrected within 30 days of being notified by  
            the consumer.   
           5)Arguments in support  .  A coalition of veterans organizations  
            writes in support of this bill, stating that "this legislation  
            will help reduce the targeting of elderly veterans by shady  
            financial scammers." 



          The Consumer Federation of California writes in support that,  
            "SB 386 would add the act of offering or advertising a  
            financial product involving the assignation of veteran's  
            benefits to the list of practices prohibited under the CLRA,  
            thereby expanding the recourse available to aggrieved  
            consumers."  
           








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           6)Related Legislation  .  SB 202 (Hernandez) would add to the list  
            of acts prohibited by the CLRA the act of advertising or  
            offering for sale products that contain synthetic cannabinoids  
            or synthetic stimulants.  SB 202 was held in the Senate  
            Judiciary Committee.

           7)Prior Legislation  .  AB 1108 (Nielsen), of 2011, would have  
            revised the CLRA to require a court to award court costs and  
            attorney's fees to the prevailing party in an action.  AB 1108  
            failed passage in the Assembly Judiciary Committee.
             
             AB 292 (Hayes), Chapter 1550, Statutes of 1970, enacted the  
            CLRA, which authorized 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. 

          REGISTERED SUPPORT / OPPOSITION:




          Support


          American Legion-Department of California


          AMVETS-Department of California


          California Association of County Veterans Service Officers


          California Council of Chapters










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          California State Commanders Veterans Council


          Consumer Federation of California


          Military Officers Association of America


          VFW-Department of California


          Vietnam Veterans of America-California State Council




          Opposition


          None on file.




          Analysis Prepared by:Jessica Langtry and Hank Dempsey/ P. & C.P.  
          / (916) 319-2200