BILL ANALYSIS
AB 370
Page 1
Date of Hearing: March 31, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 370 (Eng) - As Amended: March 23, 2009
SUBJECT : Unlicensed contractors.
SUMMARY : Increases the maximum criminal penalties for
unlicensed contractors, imposes a mandatory jail sentence for a
third or subsequent conviction for unlicensed contracting, and
requires the court to order an unlicensed contractor to pay
restitution to its victims. Specifically, this bill :
1)Makes a first conviction a misdemeanor punishable by a fine
not exceeding $5,000 or by imprisonment in a county jail for
no more than six months, or both.
2)Requires that the fine for a second conviction be the greatest
of 20% of the contract price, 20% of the aggregate payments
made to, or at the direction of, the unlicensed contractor, or
$5,000.
3)Requires that a third or subsequent conviction be punishable
by both a fine and imprisonment in a county jail for between
90 days and one year. The fine must be no less than $5,000
and no more than the greatest of $10,000, 20% of the price of
the contract, or 20% of the aggregate payments made to, or at
the direction of, the unlicensed contractor.
4)Clarifies that an unlicensed person who offers to perform
contracting work is subject to the specified penalties.
5)Provides that a person who used the services of an unlicensed
contractor is a victim of crime, regardless of whether that
person had knowledge that the contractor was unlicensed.
6)Requires a court to order that a convicted unlicensed
contractor make restitution to all persons who utilized the
services of the unlicensed contractor and that this
restitution include all payments made to, or at the direction
of, the unlicensed contractor and not be offset or reduced by
any act or performance.
EXISTING LAW :
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1)Creates the Contractors State License Board (CSLB) within the
Department of Consumer Affairs for the purposes of licensing
and regulating contractors in California.
2)Allows CSLB to bring disciplinary actions against a contractor
who willfully or deliberately violates building laws of the
state.
3)Makes it a misdemeanor for a person to engage in the business
or act in the capacity of a contractor without having a
license and makes a first offense punishable by imprisonment
in the county jail for no more than six months, or by a fine
not exceeding $1,000, or both.
4)Requires that a second conviction be punishable by both a fine
and imprisonment in the county jail for not less than 90 days,
except as specified. The fine must be the greater of 20% of
the price of the contract or $4,500.
5)Requires that a third or subsequent conviction be punishable
by a fine or imprisonment in the county jail for between 90
days and one year, or both. The fine must be no less than
$4,500 and no more than the greater of $10,000 or 20% of the
price of the contract.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"Contractor fraud, most of which involves unlicensed
contractors, consistently ranks in the top ten lists of consumer
complaints both nationally and statewide. According to the U.S.
Office of Consumer Affairs, unscrupulous contractors defraud
consumers of more than $100 billion annually. In addition to
the financial loss they cause, unlicensed contractors generally
do not obtain proper insurance, leaving their workers without
any protection and the homeowner potentially liable."
"Despite this immense harm, violators of this law are only
punishable by up to only six months in jail and a maximum fine
of $1,000 - regardless of how much money the victim paid that
unlicensed contractor. Although second-time offenders must pay
an increased fine, the potential jail time is similarly
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restricted to six months. Only a third-time violator is subject
to up to one year jail sentence."
Current law states that a person who uses an unlicensed
contractor may bring a civil action to recover all compensation
paid to the unlicensed contractor. However, no statute
specifically addresses the issue of criminal restitution for
victims of unlicensed contractors. Unlicensed contractors are
the beneficiaries, retaining the monies paid them by crime
victims which the civil statutes require to be disgorged.
Background . According to the CSLB, unlicensed contracting is a
considerable part of California's estimated annual $60-$140
billion underground economy. Numerous approaches have been used
to address this problem, but it continues to impact legitimate
licensees and consumers alike with injurious economic results.
The victims of these violations include consumers, often the
elderly, who pay thousands of dollars to an unlicensed person
who never finishes the job or does incompetent or negligent
work. Research conducted by the Department of Industrial
Relations, Economic and Employment Enforcement Coalition shows
that unlicensed contractors drive down wages, undercut
legitimate businesses, and avoid licensing requirements, and it
is often hard to find them and bring them into compliance with
state and local laws.
Support . The Los Angeles City Attorney Rocky Delgadillo states,
"My office is pleased to sponsor your bill, AB 370, which
clarifies that existing law requires restitution to victims of
unscrupulous unlicensed contractors, including victims affected
by natural disasters, and increases the maximum criminal fine
for unlicensed contractors. . . . AB 370 is necessary because
the current criminal statutes do not clearly require unlicensed
contractors to disgorge the amounts paid to them, despite the
fact that civil law specifically mandates such disgorgement. As
a result, victims of unscrupulous unlicensed contractors have
often been denied restitution. Since many of these victims do
not have the means to pursue their loss through the civil
courts, the unlicensed contractors are the beneficiaries of this
serious flaw in the current criminal statute."
Previous Legislation . AB 2412 (Eng) of 2008 was a substantially
similar bill that the Governor vetoed. The Governor vetoed a
substantial number of bills that year with the same message
that, due to the delay in passing the 2008-2009 State Budget, he
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would only sign bills that were "the highest priority for
California." AB 2412 was vetoed for this reason.
SB 488 (Soto), Chapter 205, Statutes of 2005, enhances penalties
for a third and subsequent convictions for contracting without a
license and provides that it is a misdemeanor for the qualifying
person of a contractor's license to violate workers'
compensation insurance requirements.
SB 443 (Figueroa), Chapter 706, Statutes of 2003, requires a
court of law to sentence repeat offenders of unlicensed
contracting activity to county jail for not less than 90 days.
REGISTERED SUPPORT / OPPOSITION :
Support
Los Angeles City Attorney Rocky Delgadillo (sponsor)
California Chapter of American Fence Contractors Association
California District Attorneys Association
California Fence Contractors Association
California Landscape Contractors Association
California Spa and Pool Industry Education Council
Contractors State License Board (CSLB)
Engineering Contractors Association
Flasher/Barricade Association
Opposition
None on file.
Analysis Prepared by : Whitney Clark / B. & P. / (916)
319-3301