Consumer Protection

OAKLAND — Attorney General Edmund G. Brown Jr. today issued a consumer alert warning of a “serious health hazard” after he demanded that retail stores Rainbow and 5-7-9 remove from their shelves jewelry with parts containing as much as 97% lead, a potentially fatal health hazard, especially for young children.

“This jewelry represents a serious health hazard,” Brown said, “and it is especially dangerous if a child gets a hold of it and puts it in his or her mouth. Some of these bangles are almost solid lead. The jewelry must be banished from retailers’ shelves once and for all.”

Some pieces of the lead-infested jewelry were labeled “KIDS” and one piece was marked “lead free” although its clasp contained more than 80% lead.

There is no safe level of lead exposure. In 2006, a four-year-old Minnesota boy died after he swallowed a pendant from jewelry that was more than 90% lead, and it became stuck in his intestinal tract.

In a letter to the stores’ corporate parent, Rainbow Apparel, Brown said, “Some of the jewelry had components that would be highly toxic, and potentially lethal, if ingested, and all of it contains sufficient lead to contribute to long-term health risks.”

California law bans the sale of jewelry that fails to comply with strict limits on the amount of lead it contains. The law was the result of a 2006 settlement of a lawsuit brought by the Attorney General and two environmental groups, Center of Environmental Health and As You Sow.

In that settlement, Rainbow and other retailers agreed to stop selling jewelry containing more than traces of lead. But four times in a little more than a year, the Attorney General has sent notices of violation to Rainbow for breaking the law and the terms of the settlement by selling jewelry made of lead.

Using a fund created in the 2006 settlement, the Center for Environmental Health monitors the stores. In May, it purchased 16 items containing lead from Rainbow stores in Northern California. Fifteen of the pieces contained more than 50% lead. One was 97% lead, and one labeled “KIDS” and “lead free” had a clasp that contained 81% lead. It’s all inexpensive costume jewelry made in China.

Brown’s letter to Rainbow Apparel follows:

June 24, 2010

RE: NOTICE OF VIOLATION to Rainbow Apparel of America, Inc.

This is a Notice of Violation to Rainbow Apparel of America, Inc., Rainbow Apparel Distribution Center Corp., A.I.J.J Enterprises, Inc., and The New 5-7-9 and Beyond, Inc. (collectively, “Rainbow Parties”). I am writing to you about jewelry purchased at Rainbow and 5-7-9 stores in northern California that exceeds the lead standards established in a consent judgment that applies to the Rainbow Parties, and that violates California Health and Safety Code section 25214.2(b)(3). This letter constitutes a Notice of Violation pursuant to Section 4.2 of the consent judgment. A copy of the consent judgment is available on our web site, at http://ag.ca.gov/prop65/pdfs/amendedConsent.pdf.

Using a grant from the Jewelry Testing Fund created under the consent judgment, the Center for Environmental Health purchased sixteen different pieces of jewelry with excess lead at your stores. Most of the pieces contained plated metal components with more than 80 percent lead, and two of the pieces had more than 95 percent lead. The consent judgment prohibits plated metal components with more than six percent lead. (§ 3.2.2.1.) One of the violations is for a plastic faux leather bracelet with 955 parts per million lead, which is nearly five times above the standard of 200 ppm. (§ 3.2.2.3.) Similarly troubling is the fact that one of the necklaces is labeled “lead free” even though its pendant contains 80 percent lead, and several of the pieces are marked “KIDS” below the bar code.

Enclosed with this letter is a table that lists the reference number for each piece of jewelry, a description of the jewelry, the date and location where the jewelry was purchased, the component with lead, and the lead level. Photographs of each piece of jewelry and the test results also are enclosed. We will provide additional documentation from the lab upon request.

This is the fourth notice of violation for illegal jewelry we have sent the Rainbow Parties in little over a year. Previously we sent notices of violation on May 22, 2009, October 5, 2009, and January 29, 2010. Each time the company has responded that it shares the Attorney General’s concern regarding the sale of jewelry with excess lead, but each time more jewelry is discovered that violates the consent judgment and California’s ban on lead-containing jewelry. We understand that the Rainbow Parties have instructed their vendors to provide compliant jewelry, and after each notice of violation it has addressed the violation with the vendors involved. But clearly that is not enough. Some of the jewelry at issue here has components that would be highly toxic, and potentially lethal, if ingested, and all of it contains sufficient lead to contribute to long-term health risks. Moreover, labeling jewelry as “lead free” when it contains a component with 80 percent lead raises additional concerns about false and misleading advertising. The company must do more to stop selling jewelry that is potentially dangerous and that violates the law.

We therefore request, in addition to responding to this notice under section 4.2.3 of the consent judgment, that you and your client meet with our office to discuss what steps the company will take to ensure that it stops selling jewelry with excess lead. Please contact me to schedule a meeting. Further, in your written response to the notice of violation, we ask that you provide specific data about the amount of the each kind of jewelry offered for sale, sold, and removed from shelves in California stores.

Sincerely,

EDMUND G. BROWN JR.
Attorney General

Photos of some of the pieces of jewelry found to be in violation are attached.

SACRAMENTO – Attorney General Edmund G. Brown Jr. today launched an investigation aimed at protecting the rights of the “forgotten victims” of the housing market collapse -- the tens of thousands of tenants facing eviction from buildings that have been foreclosed by banks.

“Tenants who live in properties in foreclosure are the forgotten victims of the collapse of the housing market,” Brown said. “We’ll fight every step of the way to ensure they aren’t rousted from their homes in violation of the law.”

As a part of his investigation, Brown today sent letters to 24 banks, loan servicers, private investors, and law firms demanding information about whether they are complying with federal, state, and local laws regarding foreclosed properties and their treatment of tenants.

More than 20 housing rights and public interest groups from across California have petitioned the Attorney General to take action, citing a “pattern of illegal conduct” and tenant harassment by banks, real estate agents and lawyers attempting to speed up evictions so that foreclosed properties can be sold.

More than one-third of all California residential units in foreclosure are rentals, according to tenants’ rights groups, and more than 200,000 California tenants have been uprooted from their homes during the housing crisis.

Since March 2009, Tenants Together, a statewide tenants’ rights organization, has assisted 3,000 tenants involved in foreclosures. The group cited many examples of abusive tactics by banks and their representatives in foreclosure situations, including intimidation, threats and misrepresentations. One case involved a Chula Vista tenant who found a chilling letter posted on his door indicating the property was “being monitored.” A Dublin tenant found a note on his door saying the locks on his unit had been changed and giving a contact if he wished to claim “personal property” left inside.

In his letter, Brown requires banks, loan servicers, private investors and law firms to provide information by July 19 about their policies and procedures when dealing with foreclosed properties and current tenants. It specifically asks the recipients to outline how they “promote or preserve tenancies after foreclosure”.

In May 2009, the federal government enacted the “Protecting Tenants at Foreclosure Act” giving tenants new protections, such as the right to stay in their homes for at least 90 days after receiving an eviction notice. While state and local laws also contain strong protections, unlawful evictions and harassment of tenants continue.

Tenants should know their rights under the law. These rights include:

• Tenants cannot be required to move out of their homes for at least 90 days following an eviction notice.
• Tenants can insist on staying until the end of their leases. The only exception occurs when the new owner of a single-family home wants to move in.
• Tenants can require banks and their agents to put all communication in writing.
• Tenants are not obliged to accept “cash for keys” money to move out sooner than the law prescribes.
• Harassment, such as improper entry into a person’s home, shutting off water and lights, or changing the locks without a court order is illegal.
• The above rights extend to tenants living in government-subsidized Section 8 housing, who may also have additional protections under state and local laws.
• If a city has a just cause for eviction law, a landlord must have a specific reason to evict a tenant, and foreclosure may not be recognized as a legitimate basis for eviction. Tenants should check local ordinances.

Sixteen cities in California have just cause for eviction ordinances: Berkeley, Beverly Hills, East Palo Alto, Glendale, Hayward, Los Angeles, Maywood, Oakland, Palm Springs, Richmond, Ridgecrest, San Diego, San Francisco, Santa Monica, Thousand Oaks, and West Hollywood.

Brown’s office has fought for Californians’ rights during the housing crisis by shutting down loan modification scams and other illegal mortgage practices. To learn more about these actions, visit: http://ag.ca.gov/loanmod/.

If you think your rights as a tenant have been violated and want to file a complaint, contact the Attorney General’s Public Inquiry Unit at http://ag.ca.gov/consumers/general.php.

Brown’s letter, sent today, is copied below:

Re: Protecting the Rights of Tenants Residing in Foreclosed Property

Dear Sir or Madam:

California is facing an unprecedented threat to its economy because of skyrocketing residential property foreclosures. As the foreclosure crisis continues to plague California homeowners, renters in foreclosed properties have become innocent victims of the crisis. It is estimated that more than one third of all California residential units in foreclosure are rentals. Once a rental property goes into foreclosure, renters may face a multitude of problems, including utility shutoffs, lockouts, and unlawful evictions. The Office of the Attorney General has learned of numerous instances where tenants have reported harassment and misconduct by realtors, brokers, and landlords, as well as improper attempts to evict them from their homes by eviction law firms.

The recently enacted Protecting Tenants at Foreclosure Act (PTFA) grants certain protections for tenants residing in foreclosed property, including the right to continue living in the premises for the duration of their lease, and the right to a 90-day eviction notice when there is no lease. State and local laws also provide specific protections for tenants residing in foreclosed property. We are concerned about the increasing number of tenant evictions without compliance with federal and state law. Given the importance of this issue, we ask that you provide the following information by July 19:

1. What policies and procedures do you have that promote or preserve tenancies after foreclosure?

2. What process do you use for determining whether a residential property is owner or renter occupied?

3. When it is determined that a renter occupies the residential property, do you notify the occupant that a Notice of Default has been filed? If so, what notice do you provide?

4. What procedures do you use to notify tenants in advance of the trustee sale? Please furnish a sample copy of a Notice of Sale and the specific language advising renters of their rights.

5. How do you notify tenants that you are the new owner of the property following the trustee sale? Please furnish a sample copy of any such letter or notice and the specific language advising renters of their rights.

6. Once it is determined that the foreclosed property is renter occupied, how do you determine whether renters are protected under the PTFA and/or local rent control ordinances?

7. What policies or guidelines are in place for your contractors, agents or property managers when it has been determined that a foreclosed property is tenant occupied? Do you have any policies that call for the properties to be vacated in order to prepare them for sale? Are your contractors, agents or property managers given any monetary compensation or other incentives if the properties are vacated?

a. Please furnish an example of any written contracts, agreements, or memoranda of understanding that you have with your contractors, agents or property managers.

b. Please furnish copies of any written policies, procedures, or guidelines advising rental agents or property managers about renters’ rights.

c. Please furnish copies of any written contracts, guidelines, policies, or procedures relating to any “cash-for-keys” incentives offered to occupants.

8. What steps are taken when a rental agent or property manager does not comply with those policies, procedures, or guidelines as described above?

9. Which California attorneys or law firms do you retain for the purpose of terminating a tenancy or bringing eviction proceedings against occupant renters?

10. Please furnish us with the following information regarding California properties that you obtained through foreclosure since January 1, 2009:

a. The number of foreclosures of single family homes, condominiums, and multi- unit rental property that resulted in you becoming the new owner or successor in interest.

b. Of the foreclosed properties described in subparagraph a. above, the number of tenant termination notices or unlawful detainer evictions you filed against the remaining occupants. Please include the name of the occupants, the property address, the date of the trustee sale, and the date that any unlawful detainer was filed against the occupants of the foreclosed property.

c. The number of foreclosures of elderly residential-care facilities that resulted in you becoming the new owner or successor in interest. These residential-care facilities include assisted living facilities, skilled nursing homes, group homes, and intermediate care facilities.

d. Of the foreclosed properties described in subparagraph c. above, the number of tenant termination notices or unlawful detainer evictions you filed against the remaining occupants. Please include the names of occupants, the property address, the date of the trustee sale, and the date that any unlawful detainer was filed against the occupants of the foreclosed property.

We look forward to receiving the requested information and also welcome any suggestions you may have to help eliminate these and other problems facing renters occupying properties in foreclosure.

SAN FRANCISCO – Attorney General Edmund G. Brown announced today that 3,500 investors, whose holdings in auction rate securities were frozen in the financial crisis of 2008, have recovered $1.4 billion through a settlement the Attorney General hammered out with Wells Fargo affiliates.

“We went to bat for people who believed their investments were like cash,” Brown said, “but discovered after the financial meltdown that they couldn’t get their hands on even a dime of their money for two long years. Now, because of the settlement, they have all of their money back.”

The investors, big and small, included retirees, working families, small businessmen, and charities. Nearly half are Californians, who received $695 million through buybacks of their securities by Wells Fargo.

Many invested in the securities because of assurances they were “like cash” -- safe and liquid. The securities turned out to be neither. Unable to sell the securities, investors were stuck.

More than 90 percent of the owners of the securities elected to take the Wells Fargo buyback offer under the settlement.

“Getting this money back takes a lot of pressure off me,” said Johanna Markley of Newport Beach, who suffers from cancer. “I wondered who would fight for us.”

“I’m retired and over 70 years old,” said William O’Brien of El Dorado County. “It was frustrating to have that money just sitting there for over two years and being unable to access it when we needed it.”

“Getting the investment back has helped save jobs in our company,” said Boris Levine, a San Francisco businessman.

Brown said Wells Fargo was co-operative throughout the repayment process and did what it said it would do.

In November, the Attorney General reached a settlement with Wells Fargo Investments, LLC; Wells Fargo Brokerage Services, LLC; and Wells Fargo Institutional Investors, LLC. The buybacks were made pursuant to that agreement.

Auction rate securities are long-term bonds whose interest rates are adjusted frequently at auction. If there are no takers for the bonds, they can become frozen and effectively worthless.

The Attorney General’s Office has submitted a request for dismissal of its action against Wells Fargo in San Francisco Superior Court, signaling the successful completion of the repayments.

LOS ANGELES — Attorney General Edmund G. Brown Jr. today joined the California Department of Real Estate and the State Bar of California to warn homeowners about an alarming rise in short sale fraud across California in a field “rife with scam artists”.

A short sale is an arrangement in which a homeowner sells his or her home for less than the outstanding mortgage, with the consent of the lender.

“While short sales can provide homeowners with a last-ditch alternative to foreclosure, this market is rife with scam artists,” Brown said. “Homeowners and buyers, agents, and lenders should beware of short sale negotiators who operate without licenses, use straw buyers or charge illegal fees.”

With so many homeowners now considering short sales, an entire industry of so-called short sale negotiators has emerged. These individuals solicit homeowners by promising to expedite the process and help coax lenders into taking part in the transaction.

The Department of Real Estate is investigating more than 40 complaints of short sale fraud, up from “virtually zero” cases only three months ago, a spokesman said.

In April, the Obama administration launched a new initiative called the Home Affordable Foreclosure Alternatives Program, which encourages homeowners in financial distress -- especially those who have failed to complete a trial modification or qualify for a loan modification -- to consider a short sale as an alternative to foreclosure.

Before working with -- or paying -- any short sale negotiator, homeowners should consider the following red flags:

No license
With limited exceptions, only licensed real estate agents or attorneys can engage in short sale negotiations with a homeowner’s lender.

Up-front fees
Licensed real estate agents wishing to collect up-front fees from homeowners for short sale transactions must first submit an advance fee contract to the Department of Real Estate and receive a no-objection letter.

Surcharges
With many distressed properties listed well below market value, negotiators and agents are charging potential buyers thousands of dollars in surcharges and hidden fees just to place an offer on a home. These illegal fees are frequently not disclosed and are paid outside escrow.

Straw buyers and house flipping
In this scheme, short sale negotiators misrepresent the market value of a property to a homeowner’s lender by only submitting offers on the property from an affiliated straw buyer. After the home is purchased below market value, the fraudsters immediately flip it and pocket the difference.

Short sale negotiators and agents use a number of titles including debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale processor, short sale coordinator and short sale expeditor.

If you are a homeowner who has been scammed, contact Brown’s office at 1-800-952-5225 or file a complaint online at: www.ag.ca.gov/consumers/general.php.

Homeowners can also learn more about avoiding mortgage and real estate fraud by visiting the Department of Real Estate website at: http://www.dre.ca.gov/cons_alerts.html. A complaint form can be accessed online at: http://www.dre.ca.gov/frm_consumer.html.

“Short sale fraud appears to be the fraud of the moment, and it is proliferating statewide,” according to Real Estate Commissioner Jeff Davi. “Consumers, licensees and lenders must all arm themselves with the tools necessary to avoid such scams.”

Homeowners can file a complaint against a lawyer, a legal specialist or a company purporting to operate as a law firm with the State Bar by calling 1-800-843-9053 or visiting: www.calbar.ca.gov.

Homeowners can learn more about the federal government’s Home Affordable Foreclosure Alternatives Program by visiting: http://makinghomeaffordable.gov/hafa.html.

Non-profit housing counselors certified by the U.S. Department of Housing and Urban Development are also available to provide free help to homeowners. To find a counselor in your area, call 1-800-569-4287.

For more information on Brown’s work against loan-modification fraud visit: http://ag.ca.gov/loanmod.

SACRAMENTO - Attorney General Edmund G. Brown Jr. today announced the arrests of five members of a suspected loan-sharking syndicate, headed by a reputed Chinese mobster, that trapped casino gamblers in a “never-ending loop of debt and fear” by loaning them hundreds of thousands of dollars at exorbitant interest rates.

Working inside tribal casinos in the Sacramento area – including Red Hawk and Thunder Valley -- over the last 18 months, the suspects often preyed on Asian gamblers. Once the gamblers accepted loans, the amount they owed began to skyrocket. Some were charged 5 percent interest a week. Because of high interest rates and other charges, one gambler’s $100,000 loan mushroomed to $400,000 in five months.

“Loan shark enterprises like this one terrorize people through spiraling financial obligations and threats of violence,” Brown said. “Victims are trapped in a never-ending loop of debt and fear.”

Authorities said there were about 40 victims.

The charges against the five suspects include felony assault, extortion and conspiracy. Other suspects are being sought.

Among those arrested was the leader of the enterprise, Weixiong Kuang, 44, a suspected member of an organized crime syndicate called the Big Circle Boys, a violent gang out of China.

Working with a staff of armed collectors, lenders and bodyguards for more than 18 months, Kuang met his potential victims by visiting high-limit tables at casinos in the Sacramento area. He would befriend gamblers who suffered losses and offer to loan them money. If repayments were slow, Kuang would threaten the borrowers or threaten to hurt family members living in China. He is suspected of assaulting two gamblers who did not pay their debts, including one woman who was hospitalized for her injuries.

Kuang was arrested on two counts of felony assault, three counts of extortion, and felony conspiracy. Jian Liu, 43, Zhi Huang, 23, Yezhi Lei, 46, and Zi Zhen, 35, were arrested for felony conspiracy. All were booked into the El Dorado County Jail.

During searches of several residences in Sacramento, law enforcement agents found an assault rifle, large amounts of cash and some drugs.

Initiated in October 2009, the investigation was prompted by reports from citizens in the Sacramento region. The Department of Justice’s Bureau of Gambling Control worked with the Federal Bureau of Investigation, the Sacramento Police Department, tribal gaming authorities, as well as the Red Hawk Casino and the Thunder Valley Casino.

For more information about the Bureau of Gambling Control, please see http://ag.ca.gov/gambling/.

LOS ANGELES — In a continuing probe into a defunct Southern California mortgage brokerage, Attorney General Edmund G. Brown Jr. today announced the arrests of president and co-owner Sean McConville and two associates who used “deceptive promises and forged documents” to steal almost $1 million from homeowners falsely guaranteed attractive home loan refinancing packages.

“These criminals employed a classic bait-and-switch in their refinance scheme,” Brown said. “With deceptive promises and forged documents, they maliciously cheated homeowners who trusted them and just wanted a fair deal.”

Brown’s office initiated its investigation in October 2008 in response to more than 70 complaints against the defendants and their mortgage brokerage business, ALG Capital, Inc. The brokerage operated out of Calabasas from early 2006 until late 2007 and then moved to Mission Hills until it shut its doors in 2008.

Brown’s investigation found that from April 2007 to October 2008, the owners and their associates lured dozens of borrowers into refinancing home loans by falsely promising low interest rates, minimal broker fees and other attractive terms. The brokerage then negotiated different terms with lenders.

When homeowners were presented with closing documents, they bore the terms promised, but which the lenders never approved. After homeowners signed the closing documents, key pages were removed and replaced with pages bearing the terms that the lender had actually agreed to. The homeowners’ signatures were then forged on the replacement pages, and ALG forwarded the forged documents to the escrow company.

Homeowners only discovered they had been defrauded when they received the final loan documents with the true terms and their signatures forged on closing cost disclosures, Truth-in-Lending disclosures, loan applications and other documents.

Additionally, ALG collected almost $1 million in undisclosed fees, charging homeowners up to $57,000 in broker fees. In total, dozens of homeowners were locked into almost $30 million in loans with terms they did not agree to.

As a result of this scheme, many homeowners were forced to sell their homes, come out of retirement, or tap retirement savings. Others paid significant prepayment penalties, including over $21,000 in one case. Borrowers also rarely received the large cash-outs they were promised as part of the refinance.

Sean McConville, 30, of Austin, Texas, president and co-owner of the brokerage, was arrested early yesterday morning at his residence. He is being held at the Travis County Jail in Texas pending extradition. He was previously convicted of robbery in November 1997.

Matthew Bourgo, 27, of Thousand Oaks, who posed as a licensed notary for the brokerage, was arrested yesterday afternoon at his residence. He is being held in Ventura County Jail and will be transferred to Los Angeles County.

Joseph Nguyen, 37, of Woodland Hills, a former loan officer for the brokerage, was also arrested yesterday afternoon at his business, where he worked as a chiropractor. He is being held by authorities in Los Angeles County.

The suspects are each being held on $29.5 million bail.

In September 2009, Brown’s office arrested three others involved in the bait-and-switch scam, including Michael McConville, 32, of Simi Valley, Sean’s brother and co-owner of the brokerage, Alan Ruiz, 29, of Huntington Beach, a former loan officer and Garrett Holdridge, 24, of Palmdale, who was convicted of seven felonies in March for his involvement in the scam.

Investigators located victims in dozens of California cities, including: Auburn, Altadena, Arroyo Grande, Azusa, Bakersfield, Berkeley, Burbank, Calabasas, Castro Valley, Chino, Compton, Corona, Fairfield, Fontana, Fremont, Fresno, Garden Grove, Glendale, Hemet, Highland, Huntington Beach, La Habra, La Mesa, La Mirada, La Quinta, Lancaster, Livermore , Los Angeles, Long Beach, Manteca, Martinez, Monterey, Murrieta, Nice, Northridge, Oakland, Ontario, Palmdale, Pasadena, Perris, Petaluma, Pomona, Quartz Hill, Rancho Cucamonga, Redlands, Reedley, Rialto, Sacramento, San Clemente, San Diego, San Jose, Santa Rosa, Sierra Madre, Spring Valley, Stanton, Temecula, Whittier, and Winnetka.

The complaint, filed in Los Angeles County Superior Court, includes the following charges: 38 counts of grand theft, 19 counts of forgery, three counts of elder abuse, and one count of conspiracy to commit grand theft.

Brown also filed suit against the McConville brothers in May 2009 for running a property tax reassessment scam which targeted Californians looking to lower their property taxes. The brothers billed tens of thousands of homeowners throughout California nearly $200 each for property tax reassessment services that were almost never performed and are available free of charge from local tax assessors.

OAKLAND — Attorney General Edmund G. Brown Jr. today sent a letter to House Speaker Nancy Pelosi, calling on Congress to pass tough financial services reform legislation that contains strong consumer protection and allows state attorneys general to “enforce all federal consumer protection laws against national banks, not just regulations that may be adopted by the new Consumer Financial Protection Agency.”

Brown’s letter:

Dear Speaker Pelosi:

In anticipation of a compromise on the House and Senate financial services reform bills, I urge you to press for the strongest possible language to protect consumers and our economy from another debilitating crisis caused by reckless Wall Street banking practices and complicit federal regulators.

Two elements of a compromise bill are key to that protection. One, national banks should be subject to the same state consumer protection laws as state banking institutions and virtually all companies operating in industries other than financial services. And, two, state attorneys general should have the authority to enforce all applicable consumer protection laws against national banks.

The House language is preferable on both points, and I recommend that you push for its adoption. It would establish a higher burden for the OCC to preempt state consumer protection laws. It also would allow state attorneys general to enforce all federal consumer protection laws against national banks, not just regulations that may be adopted by the new Consumer Financial Protection Agency.

Sincerely,

EDMUND G. BROWN JR.

OAKLAND — Attorney General Edmund G. Brown Jr. today demanded that federal authorities keep their hands off a popular California program that allows property owners to install solar panels and other energy efficiency improvements and repay the cost later on their property taxes.

The voluntary program known as PACE (Property Assessed Clean Energy) has the ability to assist thousands of California homeowners and businesses from Berkeley to Palm Desert in securing billions of dollars to make their structures greener, reduce energy waste and shrink their utility bills.

“This is an enormously popular and powerful program that helps to drive the state’s green economy and creates thousands of jobs,” Brown said.

Half the counties in the state either have such a program or are in the process of starting one. Sonoma County alone has already financed more than 800 solar and other projects worth more than $30 million.

PACE is designed to encourage property owners to make energy efficiency improvements to their buildings, such as installing solar panels or better insulation, through a 20-year tax assessment that is paid back through their property taxes. If the property is sold before the bill is fully paid, the new owner takes over the remaining payments as part of the property’s annual tax bill.

Federal officials have sent mixed signals about federal support for the program, which was launched in California. In a letter today, Brown insists that the Federal Housing Finance Agency must pledge it will not interfere with California’s successful operation of PACE.

“California’s program creates reliable markets for new green technologies,” Brown said. “It has put Californians back to work installing and maintaining energy efficient equipment up and down the state.”

Brown’s letter follows:

Edward DeMarco
Acting Director
Federal Housing Finance Agency
1700 G Street, N.W.
Washington, DC 20552-0003

Dear Acting Director DeMarco:

Property Assessed Clean Energy (PACE) programs authorize local governments to finance energy efficiency and renewable energy improvements to the benefit of homeowners and small businesses. In California, PACE financing is not accomplished through loans in the traditional sense, but rather through local governments’ long-standing and well-recognized powers to assess and tax. PACE programs in California can assist thousands of individual participants statewide, help to drive the State’s green economy, and create thousands of jobs.

On May 5, 2010, Fannie Mae and Freddie Mac issued short, somewhat cryptic lender and industry advice letters concerning PACE programs. While the advice letters do not expressly mention California PACE programs, they have nonetheless caused confusion and concern among California PACE stakeholders. By this letter, we request that the Federal Housing Finance Authority (FHFA) immediately confirm in writing that the advice letters do not affect PACE in California.

As you are likely aware, the California Attorney General’s Office at the end of last year began a discussion with FHFA staff about PACE in California. During these discussions, your staff assured this Office that we would continue to work together on issues related to PACE. Relying in part on this assurance, California has invested substantial resources in PACE programs, consistent with the White House’s “Recovery Through Retrofit” policy document and with the express support of the Department of Energy. A substantial portion of the approximately $300 million in Energy Efficiency and Block Grant funding, and a substantial portion of the over $220 million in additional American Recovery and Reinvestment Act funds administered by the California Energy Commission through its State Energy Program, have been dedicated to PACE programs. Moreover, California recently passed legislation creating a $50 million state reserve fund that will allow participating local governments to obtain financing for PACE on more favorable terms.

The disruption caused by Fannie Mae and Freddie Mac’s recent actions may have serious financial implications for participating local governments and the thousands of homeowners and small businesses currently participating in these programs in California. To take just one example, Sonoma County, through its PACE program, already has financed over 800 energy improvement projects. But the repercussions will be wider still. PACE programs in California create reliable markets for new technologies in energy efficiency, renewable energy, and water efficiency. They thus support green manufacturing jobs and thousands of additional jobs associated with installation and maintenance of energy efficiency and renewable energy projects. Now is not the time to create unnecessary uncertainty in these important emerging businesses and industries.

Based on our recent conversation with your General Counsel, Alfred Pollard, we understand that the May 5, 2010, letters were not intended in any way to signal a change in the position of FHFA, Fannie Mae or Freddie Mac regarding PACE in California. Accordingly, we request that FHFA immediately confirm in writing that participants in California PACE programs are not in violation of Fannie Mae/Freddie Mac Uniform Security Instruments prohibiting loans that have a senior lien status to a mortgage. We are open to discussing with you what form that confirmation should take, including, but not limited to, withdrawal of the May 5, 2010, letters.

We would prefer not to have to pursue some form of declaratory relief to resolve the confusion, but, because of the importance of the issue to California, we certainly reserve that as an option if a clear and unequivocal response is not forthcoming.

Once this immediately pressing matter is resolved, we look forward to discussing with you what longer-term solutions may be warranted to foster the continued responsible development of PACE programs in California.

Sincerely,

EDMUND G. BROWN JR.
Attorney General

SAN DIEGO — Attorney General Edmund G. Brown Jr. today announced settlements that will bring $400 million in refunds for California consumers who were victimized by market manipulation and exorbitant prices during the energy crisis of 2000-2001.

The two-part agreement with San Diego-based Sempra Energy will provide reimbursement of $270 million to California utility customers who each month pay off debt from the utility crisis on their gas and electric bills. Sempra will also pay $130 million to consumers to settle separate claims by the state Public Utilities Commission and the Department of Water Resources.

“The settlements,” Brown said, “will put hundreds of millions of dollars back into the pockets of California energy consumers who suffered blackouts and great economic harm during the energy crisis.”

Including the prior settlement of a class-action suit, Sempra has now paid more than $700 million for the benefit of state utility customers.

During the energy crisis, Enron, Sempra and other energy companies created phony energy shortages, blackouts and record high energy prices. As a result, California’s two largest utilities, PG&E and Southern California Edison, became insolvent, forcing the state to spend billions of dollars for huge amounts of emergency power to keep the lights on.

In legal documents, Sempra was accused of “Enron-style gaming” of the energy markets and “a pervasive pattern of market manipulation and abuse.” It was accused of entering “Enron-style partnerships” that had a destructive impact on the market, driving prices higher and reducing energy availability and reliability. It was accused of a variety of other exotic schemes called “False Import, Paper Trading and Circular Scheduling” to short-circuit the proper functioning of energy markets.

Customers of PG&E, Southern California Edison and San Diego Gas and Electric (a subsidiary of Sempra) continue to pay for the energy crisis in a line item on their utility bills labeled “DWR bond charge.” Funds received in the settlements will go toward reducing those costs to ratepayers.

For the past nine years, the Attorney General has investigated, litigated and negotiated with Sempra and other energy sellers whose misconduct caused the energy crisis.

The Sempra settlement is the latest of 39 settlements hammered out by the Attorney General, in co-operation with the Public Utilities Commission, Department of Water Resources, PG&E, and Southern California Edison, that will provide more than $3 billion in ratepayer relief. The Attorney General continues to press California’s claims for compensation to ratepayers for overpriced energy sold to the state.

LOS ANGELES - As a financial reform package advances in the Senate and an unrelenting swarm of Wall Street lobbyists descends on Capitol Hill to block it, Attorney General Edmund G. Brown Jr. today urged senators to preserve a critical portion of the legislation which allows states to join the fight against financial fraud on the front line.

Provisions of the Senate’s current bill restore the authority of attorneys general to prosecute financial crimes at the state level, a move that would safeguard consumers, bolster federal oversight, and halt reckless, quick-money schemes before they spiral into national crises.

“Today, more than two years after the recession began, as thousands more Americans lose their homes, jobs and savings, states remain hamstrung in the fight against financial fraud. Even if a state witnesses a crime on its own front porch, it has limited, if any, authority to act,” Brown said. “If Congress is committed to preventing another downturn and enacting robust reform, it must preserve the provisions in the current package that untie states’ hands and allow us to join the fight.”

To press for these provisions, Brown sent letters today to Senators Reid, McConnell, Dodd, Shelby, Feinstein and Boxer urging them to uphold the role of the states in enforcing consumer protection laws. This follows a letter Brown and 39 other state attorneys general sent in November to members of Congress on the same issue.

While big banks on Wall Street announced billions in quarterly profits this week, another 200,000 California homeowners received a foreclosure notice between January and March. During the first three months of 2010, California alone accounted for almost a quarter of the nation’s foreclosure activity. Meanwhile, since the recession began, the state’s unemployment rate has more than doubled, rising to 12.6 percent in March.

Brown’s letter is copied below:

Dear Senator:

As California continues to struggle through the current financial crisis, with one of the highest foreclosure rates in the nation and a 12.6% unemployment rate, I urge you to adopt financial reform legislation that protects consumers against the predatory banking practices that led to this collapse. Ensuring that state Attorneys General have the authority to protect consumers against reckless Wall Street practices is critical to that protection. The current version of the Restoring American Financial Stability Act (SB 3217) gives back to states the authority to take action against national banks. I call on you to ensure that that state authority remains in the final bill, and that you resist the pressure exerted by Wall Street and its lobbyists to maintain the status quo of no government oversight.

Predatory lending and the avalanche of foreclosures it triggered lie at the core of our current crisis. Missing-in-action federal agency enforcement, and, indeed, active federal agency protection of national banks engaged in predatory lending, enabled this crisis. The federal laws and regulations that barred my office from stepping into the void to prosecute those banks and their subsidiaries for their deception contributed significantly. In the end, our current regulatory system gave national banks a free pass, while consumers and our economy paid the price.

The pending Senate bill gives Congress the opportunity to reverse course and provide a much-needed level playing field between Main Street consumers and Wall Street. The bill does away with regulations that shielded predatory practices and allows states to enforce their own consumer protection laws, and laws adopted by the new federal Consumer Financial Protection Agency, against Wall Street banks.

Wall Street's warning against a resulting unmanageable patchwork of state laws is a red herring. States routinely seek to harmonize their laws with related state and federal laws, and they often work together to bring multistate enforcement actions. Moreover, national banks have demonstrated their ability to market differently to different states when it suits them, as in the case of Pay Option Arm loans targeted to markets like California that, at the time, experienced steeply escalating property values.

And while the bill’s new Consumer Financial Protection Agency moves federal oversight in the right direction, it isn’t enough. One agency in Washington, regardless of how well-intended, can’t have its ears to the ground in all 50 states to prosecute misconduct the way each Attorney General can in his or her home state. State Attorneys General are the cops-on-the-beat who consumers turn to to sound the alarm on new threats targeting them. Prompt state action can limit the spread of those threats before they become national crises.

Congress need look no further than the failure of Washington Mutual to see why state Attorney General enforcement is an essential component of the reform needed to stop opportunistic, predatory actors from taking advantage of lax rules and absent enforcement. The Senate panel investigating the current crisis concluded that WAMU’s deceptive lending practices and employee incentive plans that promoted them created a “mortgage time bomb” with toxic loans destined to fail. When that time bomb exploded, and WAMU loans started plunging into foreclosure, federal laws and regulations prevented state Attorneys General from suing WAMU to halt its predatory practices. Instead, that responsibility was reserved for federal regulators who did nothing, notwithstanding the findings of at least one of those regulators that WAMU had engaged in a pattern of fraud and weak risk management.

By contrast, my office and other state Attorneys General have worked together to hold state-licensed banks accountable for their fraudulent practices. After suing Countrywide Financial Corporation and its subsidiaries for predatory lending practices in the Summer of 2008, our settlement with Countrywide forced it to modify loans of homeowners facing foreclosure and to pay restitution to consumers who had lost their homes.

Unfortunately, I couldn’t take action against WAMU for the harm it caused Californians in the way I could against Countrywide. And if the existing regulatory structure remains in place, banks will continue to flock to national charters to avoid state action like ours against Countrywide. But, if the Senate steps up and does the right thing now to protect consumers, and the nation’s economy, by adopting financial reform that protects the authority of states to enforce consumer protection rights, then we will have real change, and unscrupulous banks won’t be able to hide behind federal regulators who were complicit in their misdeeds.