BILL ANALYSIS Ó
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