California Beefs Up Protections Against False Advertising, Unfair Competition

Businesses that defraud consumers sometimes pay a couple of thousand dollars in civil penalties under current California law. Or they’ll be ordered to pay millions of dollars but close down or declare bankruptcy, leaving their victims without compensation.

A new law effective Jan. 1 will help change that: It will establish a restitution fund in the state treasury that can be used to reimburse consumers fully.

Assembly Bill 1366 will let the state attorney general pursue disgorgement, or repayment of ill-gotten gains, in cases where companies violate unfair competition or false advertising laws. The money recovered would go into the new fund.

“When a predatory business takes advantage of a consumer, it’s only right that the proceeds gained from illegal conduct should go towards compensating victims rather than remaining in the bank accounts of bad actors,” state Assemblymember Brian Maienschein, a Democrat from San Diego who authored the legislation, said after the governor signed it in October.

In his legislation, Maienschein cited huge judgments won by the attorney general’s office in which victims received little to no compensation. They included a $1.1 billion judgment against Corinthian Colleges over predatory marketing and lending tactics and a $20 million judgment against Paul Blanco’s Good Car Co., a chain of auto dealerships, over violations of false advertising and other consumer protection laws.

In another case, a multistate judgment found that USA Discounters defrauded military servicemembers with high-interest loans and hidden fees, and 4,000 victims in the state should have received $7 million in debt relief.

Attorney General Rob Bonta sponsored the bill, saying after its signing, “AB 1366 is a game changer — it will allow my office to compensate those victims using proceeds that predatory businesses receive from their misconduct.”

Other supporters of the bill included the California Low-Income Consumer Coalition and the Consumer Financial Protection Bureau. Nobody filed opposition to the bill.