Attorney General Bonta, Assemblymember Maienschein Announce Bill to Compensate Victims of Consumer Protection Violations

AB 1366 would establish restitution fund to make victims of consumer fraud whole, even if the business that defrauded them goes bankrupt or is insolvent  

SAN DIEGO — California Attorney General Rob Bonta, and Assemblymember Brian Maienschein (D-San Diego), today announced new legislation, Assembly Bill 1366 (AB 1366) to protect victims of predatory businesses found to have violated California consumer protection laws. While current state law allows victims to be eligible for restitution after a judgment has been reached, in many cases of successful prosecutions by the Attorney General, these businesses collapse or become insolvent, leaving no resources to compensate victims for their losses. The legislation, authored by Assemblymember Maienschein and sponsored by Attorney General Bonta, would establish a new Victims of Consumer Fraud Restitution Fund in the state Treasury that would be funded by the penalties paid by businesses that violate the law, and would be used to help make victims whole.

“True justice is not served when victims are left behind,” said Attorney General Rob Bonta. “While our office continues to hold predatory businesses accountable for misconduct, the success feels hollow when we know that the consumers who were defrauded cannot be made whole because the business has no money left to compensate its victims for their losses. This legislation would create a mechanism to help compensate victims in such situations. I urge our legislature to join the states that have already implemented this simple and commonsense protection for victims.”

“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,” said Assemblymember Brian Maienschein. “AB 1366 will ensure that victims can and will receive restitutions for the wrongdoings they endure by crooked businesses on the brink of collapse."

“The Victims of Consumer Fraud Restitution Fund legislation will be an effective, commonsense addition to California‘s consumer protection toolkit," said Professor Christopher L. Peterson, John J. Flynn Endowed Professor of Law, University of Utah. "AB 1366 is an example of strong leadership in the fight to put consumers first and to stop scammers and predatory companies from profiting through deceit."

Under AB 1366, the restitution would be funded from the ill-gotten gains of businesses that violate California’s consumer protection laws, rather than through taxes or fees charged to law-abiding businesses. Specifically, AB 1366 would allow the Attorney General to seek the remedy of disgorgement in actions brought under the Unfair Competition Law and False Advertising Law. Disgorgement would require companies that have violated the law to give up the profits that they made through their illegal conduct. These funds would be held in the new Restitution Fund as a future source of funding to help provide restitution to victims who cannot otherwise be made whole by the defendant who defrauded them. 

Attorney General Bonta cites a number of instances where the California Department of Justice successfully obtained judgments against a company where victims were unable to obtain restitution due to insolvency or collapse of the company after prosecution:

• In November 2022, Attorney General Bonta obtained a $20 million judgment against Paul Blanco’s Good Car Company. Ultimately, Paul Blanco became insolvent, went out of business and left its victims with little to no compensation.
• In March 2016, the California Department of Justice obtained a $1.1 billion judgment against Corinthian Colleges, Inc., a predatory chain of for-profit schools. That judgment ordered Corinthian to pay $820 million in restitution to tens of thousands of defrauded students in California, which went unpaid by the company following Corinthian’s bankruptcy filing and liquidation.
• In September 2016, the California Department of Justice secured a multistate judgment against USA Discounters, which had defrauded and illegally discriminated against servicemembers at stores outside military bases across the country. While the Attorney General’s Office secured $7 million in debt relief for more than 4,000 California victims through the bankruptcy, the company — which had closed and liquidated in bankruptcy — had insufficient assets left to make all of its victims whole.  

While California has strong consumer protection laws, other states have stepped ahead in providing this safeguard for consumers. For example, attorneys general in some other states — including New York and Arizona — can obtain disgorgement under their consumer protection laws, but this is not the case under California law. Additionally, the federal government has established the Civil Penalty Fund, allowing the Consumer Financial Protection Bureau to compensate victims who haven’t received full compensation for their harm through redress paid by the defendant.