SB 386
Page 1
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.
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)
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
SB 386
Page 2
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.
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 shortduration 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, the California Department of
Business Oversight (DBO) issued an alert warning veterans and investors about the lending
SB 386
Page 3
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 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.”
SB 386
Page 4
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
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