BILL NUMBER: AB 583 CHAPTERED 09/21/99 CHAPTER 441 FILED WITH SECRETARY OF STATE SEPTEMBER 21, 1999 APPROVED BY GOVERNOR SEPTEMBER 21, 1999 PASSED THE ASSEMBLY AUGUST 26, 1999 PASSED THE SENATE AUGUST 23, 1999 AMENDED IN SENATE JULY 14, 1999 AMENDED IN ASSEMBLY MAY 3, 1999 INTRODUCED BY Assembly Member Papan FEBRUARY 19, 1999 An act to amend Sections 17005.6, 17200, 17400, 17403.1, 17403.2, 17403.3, and 17403.4 of, to amend and renumber Section 17005.5 of, to add Sections 17004.5, 17005.5, and 17215 to, and to repeal Section 17401 of, the Financial Code, relating to escrow. LEGISLATIVE COUNSEL'S DIGEST AB 583, Papan. Internet escrow agents. Existing law, the Escrow Law, provides that it is unlawful for any person to engage in business as an escrow agent within this state unless by means of a corporation licensed to do so. This bill would make provisions of the Escrow Law applicable to an Internet escrow agent, defined as any person engaged in the business of receiving escrows for deposit or delivery over the Internet, as specified. This bill would make related changes. Among other things, the bill would define "within the state" for purposes of determining the application of the Escrow Law to a transaction to include specified activities. With respect to rules and regulations adopted by the Commissioner of Corporations under the Escrow Law, the bill would authorize the commissioner to waive requirements, as specified. The bill would make conforming changes. Since a willful violation of the Escrow Law is subject to a fine and misdemeanor or felony imprisonment, this bill would expand the scope of that crime and impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. (a) The Legislature finds and declares all of the following: (1) California's electronic technology and Internet related industries have been critical sectors of California's economic resurgence. (2) California is the leading high technology state in the nation and is the home to many electronic technology and Internet related companies that generate substantial employment and state revenues. (3) Electronic commerce is predicted to become a critical component of future economic development. (4) It is important to California's continued economic health that state government work with California's electronic technology and Internet industries to promote an industry friendly environment so as to foster further innovation and development for the benefit of the people of this state. (b) Therefore, it is the intent of the Legislature that state government recognize the unique and rapid technological advances changing electronic commerce and facilitate the development of Internet related commerce, and, while maintaining consumer protection as its highest priority, work to resolve issues presented by laws and regulations that may hamper the development of electronic commerce. SEC. 2. Section 17004.5 is added to the Financial Code, to read: 17004.5. "Internet escrow agent" means any person engaged in the business of receiving escrows for deposit or delivery over the Internet. SEC. 3. Section 17005.5 of the Financial Code is renumbered to read: 17005.3. "Person subject to this division" means any person undertaking the performance of escrow agent services. Unless specifically exempted, as in Section 17006, however, this definition shall not be used to exclude anyone. SEC. 4. Section 17005.5 is added to the Financial Code, to read: 17005.5. "Within this state" means any activity of a person relating to receiving escrows for deposit or delivery that originates from this state and is directed to persons outside this state, or that originates from outside this state and is directed to persons inside this state, or that originates inside this state and is directed to persons inside this state, or that leads to the formation of a contract and the offer or acceptance thereof is directed to a person in this state, whether from inside or outside this state and whether the offer was made inside or outside this state. SEC. 5. Section 17005.6 of the Financial Code is amended to read: 17005.6. Except as provided for in Section 17004, "escrow agent" as used in this division includes joint control agents and Internet escrow agents. SEC. 6. Section 17200 of the Financial Code is amended to read: 17200. It shall be unlawful for any person to engage in business as an escrow agent within this state except by means of a corporation duly organized for that purpose licensed by the commissioner as an escrow agent. SEC. 7. Section 17215 is added to the Financial Code, to read: 17215. Whenever the commissioner issues a license or order under this division, the commissioner may impose conditions that are necessary and appropriate to carry out the provisions and purposes of this division and, with respect to Internet escrow agents, are also consistent with the intent of the Legislature. SEC. 8. Section 17400 of the Financial Code is amended to read: 17400. The commissioner may from time to time make, amend, and rescind the rules, forms, and orders that are necessary to carry out the provisions of this division, and define any terms, whether or not used in this division, insofar as the definitions are not inconsistent with the provisions of this division. For the purpose of rules and forms, the commissioner may, among other things, classify persons and matters within the commissioner's jurisdiction and may prescribe different requirements for different classes. The commissioner may, in the commissioner's discretion, waive any requirement of any rule or form in situations where in his or her opinion the requirement is not necessary in the public interest or for the protection of the public. SEC. 9. Section 17401 of the Financial Code is repealed. SEC. 10. Section 17403.1 of the Financial Code is amended to read: 17403.1. No person subject to this division shall describe as an escrow, whether orally, in writing, or electronically, any transaction that is not defined as such in Section 17003. SEC. 11. Section 17403.2 of the Financial Code is amended to read: 17403.2. (a) No person subject to this division shall solicit or accept an escrow instruction or amended or supplemental escrow instruction containing any blank to be filled in after signing or initialing of the escrow instruction or amended or supplemental escrow instruction, nor permit any person to make any addition to, deletion from, or alteration of an escrow instruction or amended or supplemental escrow instruction, unless the addition, deletion or alteration is signed or initialed by all persons who had signed or initialed the escrow instruction or amended or supplemental escrow instruction prior to the addition, deletion or alteration. (b) In addition to subdivision (a), no Internet escrow agent subject to this division shall solicit or accept electronically over the Internet an escrow instruction or amended or supplemental escrow instruction containing any blank to be filled in after executing that escrow instruction or amended or supplemental escrow instruction, nor permit any person to electronically, over the Internet, make any addition to, deletion from, or alteration of an escrow instruction or amended or supplemental escrow instruction, unless that addition, deletion or alteration is executed by all persons who had executed the escrow instruction or amended or supplemental escrow instruction prior to the addition, deletion, or alteration. SEC. 12. Section 17403.3 of the Financial Code is amended to read: 17403.3. (a) At the time of execution a copy of each escrow instruction or amended or supplemental escrow instruction shall be delivered to all persons executing the same. (b) Internet escrow agents shall deliver electronically over the Internet a copy of each executed escrow instruction or amended or supplemental escrow instruction to all persons executing the same. In the event a person is not able to electronically receive the instructions, the Internet escrow agent shall mail a true and correct copy of the instructions to the person within 24 hours of execution. SEC. 13. Section 17403.4 of the Financial Code is amended to read: 17403.4. All written escrow instructions and all escrow instructions transmitted electronically over the Internet executed by a buyer or seller, whether prepared by a person subject to this division or by a person exempt from this division under Section 17006, shall contain a statement in not less than 10-point type which shall include the license name and the name of the department issuing the license or authority under which the person is operating. This section shall not apply to supplemental escrow instructions or modifications to escrow instructions. This section shall become operative on July 1, 1993. SEC. 14. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.