BILL ANALYSIS SENATE COMMITTEE ON JUDICIARY A David Roberti, Chairman B 1993-94 Regular Session 5 7 X AB 57X (Archie-Hudson) As amended June 28, 1994 Hearing date: July 5, 1994 Civil Code; Penal Code MLK:rs CONSUMER PROTECTION: PRICE GOUGING: HOME SOLICITATION CONTRACTS HISTORY Source: Author/ Restoration Contractors of California Prior Legislation: None Support: City of Los Angeles; California Grocers Association; š California Medical Association Opposition: None known Assembly Floor vote: Ayes 46 - Noes 25 KEY ISSUE SHOULD IT BE A MISDEMEANOR FOR ANY PERSON TO SELL OR ATTEMPT TO šSELL IN ANY AREA THAT HAS BEEN DECLARED A STATE OR FEDERAL DISASTER šAREA, ANY CONSUMER GOOD, AS DEFINED, AT A PRICE WHICH EXCEEDS THE šAVERAGE STATEWIDE PRICE BY MORE THAN 10% FOR THAT COMMODITY? SHOULD THE HOME SOLICITATION LAW BE AMENDED TO ALLOW FOR CONTRACTS šMADE FOLLOWING A DISASTER TO BE VOIDED UNDER SPECIFIED CONDITIONS? PURPOSE Existing law enumerates a number of provisions relating to natural, šman-made or war-caused emergencies in the California Emergency Services Act. (Government Code section 8550 et. seq.) These provisions generally address emergency powers of the Governor and state agencies in periods of emergency; the Office of Emergency Services; and the coordination of public services during states of emergency. (More) SB 57X (Archie-Hudson) Page 2 This bill generally would make the act of increasing prices for specified retail products by more than 10 percent during 30 days immediately following a state of emergency proclamation a misdemeanor. Specifically, this bill would create a misdemeanor for increasing by more than 10 percent the price charged for šconsumer food items, consumer goods, goods or services used for šemergency cleanup, emergency supplies, medical supplies, home šheating oil or gasoline or other motor fuels during the 30 days after a proclamation of a state of emergency by the Governor or the šPresident, unless the seller can prove the price increase was directly attributable to 1) additional costs imposed by a supplier; šor 2) additional costs for labor or materials used to provide the services. The misdemeanor would be punishable by county jail time not exceeding one year and/or a fine of not more than $10,000. Under existing law the content and effect of home solicitation šcontracts, as defined, is regulated. Services includes among other šthings, services furnished in connection with the repair, šalteration, or improvement of residential premises. (Civil Code šsection 1689.5.) Under existing law it is a misdemeanor to willfully make or publish šany false statement,spread any false rumor, or employ any other šfalse or fraudulent means or device with intent to affect the šmarket price of any kind of property. (Penal Code section 536.) This bill revises the definition of services to also include šservices furnished in connection with the "restoration" of šresidential premises. This bill provides that any home solicitation contract for the šrepair or restoration of a residence signed by the home owner šwithin seven days after the home is damaged by disaster is void, šunless contact is first initiated by the homeowner at the seller's šappropriate place of business. This bill provides that in addition to any other right to revoke an šoffer, a buyer has the right, within a seven business days, to šcancel a home solicitation contract or offer for the repair or šrestoration of residential premises damaged by a disaster that was šnot otherwise void. This bill specifies that the above provision shall not apply to a šcontract that is initiated by the buyer or his or her agent, and šthat is executed in connection with the making of prescribed šemergency repairs or services, among other conditions. (More) SB 57X (Archie-Hudson) Page 3 The purpose of this bill is to prohibit, on a statewide basis, unscrupulous retail pricing practices and home solicitation šcontracts for repair during declared emergencies. COMMENT 1. Need for the bill Following the January 17th earthquake in Los Angeles, there were numerous instances of price gouging documented by the City of Los Angeles. Los Angeles had passed a city ordinance which prohibited price gouging, following the 1992 civil unrest, however, there are no such statewide provisions and thus an individual's protection is dependent on whether their local government has passed such an ordinance. 2. Similar bills There are two other bills before the legislature which address the price gouging issue. SB 1538 (Wright) which passed this committee 9-0 on April 4, 1994, and is to be heard in the Assembly Committee on Public Safety July 5, 1994. AB 36X (Katz; Bowen) which is also before this committee today. All three measures are generally the same with regards to the price gouging issue. This bill is the only one which addresses home solicitation contracts. 3. Comparison between the three bills a) Misdemeanor to gouge AB 57X (Archie-Hudson) For 30 days following the declaration of a state of emergency by the President, Governor or local government executive officer it is a misdemeanor to sell any consumer food items, consumer goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, or gasoline or other motor fuels at a price that exceeds 10% the price charged by the person prior to the emergency unless the increase is directly attributable to cost imposed by the supplier or attributable to the extra costs of labor. The provisions of the section may be extended for an additional 30 days by the local governing body. (More) SB 57X (Archie-Hudson) Page 4 AB 36X (Katz; Bowen) Identical to 57X except that "emergency" is defined as and earthquake, flood, fire, riot, storm or natural or manmade disasters. SB 1538 (Wright) Nearly identical to the other bills except that it does not include locally declared emergencies. It also applies the 30 day time frame to repair and reconstruction services (see below). b) Repair or reconstruction services AB 57X For 180 days following a proclamation of a state of emergency by the President, Governor or local government executive officer, it is a misdemeanor for a contract to sell or offer to sell within the area repair, reconstruction or services used in emergency cleanup for a price that exceed 10% of what was charged by the contractor immediately prior to the proclamation of emergency unless the increase can be directly attributable to additional costs imposed by the supplier or for labor or materials used. AB 36X Identical to 57X except that it defines "emergency" as resulting from an earthquake, flood, fire, riot or storm. SB 1538 Includes repair and reconstruction services in the provision stating that no increase of more than 10% for 30 days following the proclamation of emergency. c) Punishment AB 57X Misdemeanor punishable by imprisonment in the county jail not to exceed one year and/or a fine of not more than $10,000. AB 36X Misdemeanor punishable by imprisonment in the county jail not to exceed one year and/or a fine of not more than $10,000. (More) SB 57X (Archie-Hudson) Page 5 A violation constitutes an unlawful business practice and an act of unfair competition under the Business and Professions Code, and thus remedies under that code are available. SB 1538 Misdemeanor punishable by imprisonment in a county jail for a period not exceeding six months and/or a fine not more than $1,000. d) Definitions Each bill defines various terms under the section. Each definition varies slightly as to what the term is to include. The bills define the following terms: AB 57X "State of Emergency"; "Consumer food item"; "Repair or reconstruction services"; "Emergency Supplies"; "Medical supplies"; "Gasoline"; "Transportation"; "Housing"; "Consumer goods". AB 36X "State of Emergency"; "Local Emergency"; "Consumer Food Item"; "Repair or reconstruction services"; "Emergency supplies"; "Medical supplies". SB 1538 "Consumer food item"; "Repair or reconstruction services"; "Emergency supplies"; "Medical supplies". e) Pre-emption SB 1538 and AB 36X state that they are not intended to pre-empt local ordinances with stricter regulations. AB 57X states that it is not intended to pre-empt any local ordinance prohibiting the same or similar conduct. f) Sale items All three bills state that if the item was being offered at a reduced "sale" price immediately prior to the emergency, the business may use the price at which it normally offers the item for calculations under this section. AS ALL THREE BILL HAVE THE SAME PURPOSE, THEIR DIFFERENCES NEED (More) SB 57X (Archie-Hudson) Page 6 TO BE WORKED OUT IN ORDER TO AVOID CHAPTERING OUT PROBLEMS. 4. Home solicitation contracts As noted above, this bill also addresses the issue of home solicitation contracts. The sponsor asserts that after the Los Angeles earthquake, and other similar disasters, many unscrupulous contractors will take advantage of those in need of services and charge prices many times the normal cost. a)Definition of home solicitation contract This bill expands the existing definition of home solicitation contract to include restoration services. b) Revocable for seven days In addition to existing rights to revoke a home solicitation contract, this bill provides that a buyer has the right to cancel a home solicitation contract for repair or restoration of residential premises damaged by a disaster until midnight of the seventh business day after the contract was signed, unless the contract was initiated by the buyer at the sellers place of business. Cancellation occurs when the buyer gives written notice of cancellation to the seller. c) Contract signed on day of disaster void This bill provides that a home solicitation contract or offer for the repair or restoration of residential property signed by the buyer on or after the date or the day after a disaster causes damage is void unless the contract was solicited by the buyer or his agent at the trade premises of the seller. The intent of making the contract void is to protect a person who has just been through a disaster and therefore may not be making a rational decision regarding the value of the services. However, because the contract is void, the buyer cannot enforce it even if they want to. If was voidable by the buyer, the buyer would have the option of enforcing the contract if in fact it was a good deal. Thus, the buyer is protected from an unfair contract, but is not kept from making a good deal. SHOULD A CONTRACT SIGNED THE DAY OF THE DISASTER BE VOIDABLE BY THE BUYER AS OPPOSED TO VOID? IF THE CONTRACT IS REVOCABLE FOR SEVEN DAYS AFTER BEING SIGNED IS THIS SECTION NECESSARY? SB 57X (Archie-Hudson) Page 7 ***********