The State Bar seeks public comment on a proposed rule to allow certain nondisbarred and nonresigned licensees whose actions have resulted in reimbursements to clients by the Client Security Fund to request a payment plan for outstanding interest on such reimbursements.
Deadline: April 21, 2021
Comments should be submitted using the online Public Comment Form. [Link removed; this comment process is archived.] The online form allows you to input your comments directly and can also be used to upload your comment letter and/or other attachments.
The Client Security Fund (CSF) is a victim restitution fund that reimburses clients who have lost money or property due to the theft or dishonest conduct of a California licensee. Reimbursement is ordered after an administrative adjudication in which the licensee has the opportunity to object to the reimbursement and present evidence. If CSF reimburses a client, the licensee must then reimburse CSF for the amount of the reimbursement, plus processing costs and interest (CSF debt). The interest rate is approved annually by the Board (rule 3.45) and has been set at 10 percent per year, calculated from the date of the disbursement. The State Bar must add any CSF debt to the license fee in the year following the CSF disbursement for a publicly reproved or suspended licensee. (Cal. Bus. & Prof. Code § 6140.5.)
Because the State Bar was only undertaking collection efforts on CSF debt owed by disbarred and resigned licensees, there are 120 nondisbarred and nonresigned licensees who never received subsequent notice of their CSF debt, including updates on accrued interest, after the conclusion of their CSF proceeding. The State Bar also did not add CSF debt to the license fees of those nondisbarred and nonresigned licensees who were publicly reproved and suspended (79 of 120 licensees). This led to these licensees disregarding their CSF reimbursement obligations for several years. A small number of these licensees (17) were reinstated to active status in violation of California Busines and Professions Code section 6140.5.
The State Bar added unpaid CSF debt to the 2021 and 2022 license fees of 79 publicly reproved or suspended licensees. Going forward, the State Bar will add any outstanding CSF debt to the license fees of publicly reproved and suspended licensees in the year immediately following the CSF disbursements pursuant to Business and Professions Code section 6140.5. If these licensees do not pay the full amount of their outstanding CSF debt by their respective license fee deadlines, the State Bar will recommend to the Supreme Court that such licensees should be suspended for nonpayment of their license fees and the State Bar will take collection efforts against them.
There are also 41 nondisbarred and nonresigned licensees who were not publicly reproved or suspended but owe CSF debt. While the State Bar is unable to add the CSF debt to the license fee for these 41 licensees (as they were not publicly reproved or suspended), the State Bar has informed these licensees of the current amount owed by adding a line item for this debt on their 2021 fee statement. The fee statement includes the license fee as well as other debt owed to the State Bar. If these licensees do not pay the full amount of their outstanding CSF debt in 90 days, the State Bar is authorized to take collection efforts against them.
The rule is proposed to provide these 120 licensees additional time to pay interest on their CSF debt. As the interest rate is 10 percent, the CSF debt owed has risen significantly since the State Bar last informed these licensees of their CSF reimbursement obligation.
On March 19, 2021, the State Bar Board of Trustees approved this rule on an emergency basis.
The proposed rule 3.453 allows a nondisbarred and nonresigned licensee whose actions have resulted in a reimbursement from CSF to submit a written request to the State Bar for a payment plan for the outstanding interest on such reimbursement, if all of the following criteria are met:
There are 120 nondisbarred and nonresigned licensees on whose behalf CSF has made reimbursements prior to December 18, 2020. This date was chosen because this was the State Bar’s internal deadline for adding the CSF debt to the 2021 and 2022 license fees and fee statements. Prior to this date, the State Bar had not added the CSF debt to the license fees and/or fee statements for these licensees.
The rule sets forth the key terms and conditions that the licensee must agree to in order to receive a payment plan:
The rule also includes a sunset provision so the rule will be automatically repealed on October 31, 2023, unless the Board deletes or extends this date. This rule is only intended to provide a payment plan for each of the 120 nondisbarred and nonresigned licensees for the equitable reasons described above. This rule will not be necessary after the year 2023, as the State Bar will be timely adding any CSF debt to the license fees or fee statements in the year following the CSF disbursements for any nondisbarred and nonresigned licensees.
If adopted, this rule will allow the State Bar to collect several hundred thousand dollars through the payment plans for the outstanding interest on CSF debt.
Adoption of this rule could also necessitate additional resources in Attorney Regulation & Consumer Resources to oversee and manage the payment plans.
Board of Trustees
April 21, 2021