California License Law Blog : California License Lawyer & Attorney : Fredrick M. Ray Law Firm : Professional Licensing Revocation & Suspension : CA License Law Blog

On January 1, 2012, the California Board of Registered Nursing was dissolved by a sunset provision in its authorizing statute.  California licensing boards, by law, must be renewed by legislation periodically.  The California Board of Registered Nursing, or BRN, was to expire on January 1, 2012, unless new legislation was enacted, which is typically a routine matter.  In October 2011, Governor Brown refused to sign Senate Bill 538, which would have extended the authority of the BRN for another four years.  He did this because there were provisions in the bill to authorize the BRN to have its own sworn peace officers as investigators, which would impose further financial burdens on the state by expanding pension liabilities.  The BRN currently employs Department of Consumer Affairs (DCA) investigators to handle its investigations.

The last time this happened prominently, in 2008, the Dental Board and Vocational Nursing Board, among others, were sunset.  However, the legislature passed emergency legislation to continue those boards as bureaus (with their boards converted to advisory committees) until they could be reauthorized as boards.  No such legislation has been enacted to continue the Board of Registered Nursing as a bureau.

In order to continue its licensing and enforcement functions, the Board of Registered Nursing has renamed itself the Registered Nursing Program within the Department of Consumer Affairs.  To attempt to solve the sunset problem, the BRN authorized an Interagency Agreement between BRN and DCA before the sunset date to transfer the powers of the BRN to the DCA, which has in turn delegated those powers to the executive officer of the Registered Nursing Program acting on behalf of the DCA.  Interestingly, the Interagency Agreement cites no statutes, regulations or case law authorizing this action between the two agencies.

There exists a genuine issue as to whether the newly constituted Registered Nursing Program acts with any lawful authority.  It appears that in the coming weeks or months, the legislature should act upon new legislation to reauthorize the BRN without its own investigators.  However, troubling jurisdictional questions will cloud all nursing discipline orders issued and other such actions taken in this interim period.  Since having come under scrutiny in recent years for being perceived as lax in disciplining nurses, the BRN, having filed thousands of discipline cases, seems to have too many cases in its pipeline to halt license discipline litigation during this period of uncertainty.  Under what jurisdictional authority the "program" will act seems to have been left to license lawyers, administrative law judges and perhaps ultimately to the courts to sort out.   

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In 2010, all 50 states were required to implement the SAFE Act, with a compliance deadline of December 31, 2010.  With the passing of this deadline, individuals acting as Mortgage Loan Originators who are either California Department of Real Estate (DRE) licensed real estate brokers or salespeople, or are employed by a lender licensed by the California Department of Corporations, must complete a 20 hour approved course for the initial application, 8 hours of continuing education for renewal, pass the SAFE MLO test, and undergo a background check.  Applicants begin by completing the extensive Nationwide Mortgage Licensing System, or NMLS, application.  For anyone coming from a broker-dealer background, this application will look familiar, as it is the equivalent of FINRA's form U-4 or U4.   For individuals who are applying to be mortgage loan originators, it is called the MU4 or MU-4.

For those who have passed the coursework and test, challenges may arise in background checks.  In addition to a criminal record background check, the SAFE Act requires that all applicants permit their credit to be checked as well.  Regulators will be looking for bankruptcies, unsatisfied liens, judgments, and other evidence of prior financial mismanagement.  Currently, these cases are reaching the legal departments of the DRE and DOC, and may result in the first litigated administrative MLO endorsement cases.

The SAFE Act contains certain prohibitions for issuance of the endorsement.  If an applicant has been ever convicted of a felony involving fraud, dishonest, breach of trust, or money laundering, they cannot get an MLO endorsement.  Also, the SAFE Act bars issuance of an MLO endorsement if someone has been convicted of any felony within the prior seven years.  Apparently, individuals who have criminal records, but are not barred from issuance of the MLO endorsement by these rules, will be evaluated on a case-by-case basis, just as they are for any state occupational licenses. 

Also, the SAFE Act requires applicants to submit to credit checks to determine if an applicant has demonstrated "financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a determination that applicants will operate honestly, fairly, and effectively".  So how bad must your credit be to run afoul of the SAFE Act?  No one will exactly know until these cases are litigated.  It seems likely that if someone's credit is bad enough, the licensing agency will want to see an explanation of the misfortune that occurred.  Clearly, the person whose credit was trashed due to medical bills will do better than a compulsive gambler.  Also, credit can be cleaned up.  NMLS websites actively encourage applicants to check their credit first and clean up their credit reports before applying.  

Review of credit reports by state agencies to make licensing decisions is a new, and uncomfortable area.  The poor credit criteria draws a correlation between financial mismanagement and dishonesty that is a difficult analogy.  My suspicion is that absent unsatisfied judgments or liens that cast an applicant in an appalling light, this criteria alone, without some prior criminal misconduct, will be a difficult standard to apply to deny the endorsement.

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California's insurance brokers are licensed and disciplined by the Insurance Commissioner through the Department of Insurance (DOI).  It has been my experience that the Department of Insurance takes a firm stance in disciplining its licensees.  In my view there are three reasons that account for this: 1) the Insurance Commissioner is an elected public official who has political concerns should his Department be perceived as being weak in disciplining licensees, 2) the legacy of  the Insurance Commissioner Chuck Quackenbush scandal in 2000, and 3) the subsequent enactment of Insurance Code section 12921 which makes the Insurance Commissioner solely responsible for the administrative settlements.  There are particular public protection issues relative to insurance brokers, because theft of premium monies and the failure to bind insurance, which leaves consumers unprotected and vulnerable, are constant problems.

The DOI also has some powerful tools in its tool chest, including Insurance Code section 1669, which allows for summary revocation of a license (that is, revocation without a hearing), as well as summary denial of a license application, where a licensee or license applicant has been convicted of a felony, has lost another occupational license, or has been convicted of a criminal violation of the Insurance Code.  The Insurance Code also permits the DOI to revoke a license when a licensee is "not of good business reputation" or it is simply "against the public interest" for them to have a license.   No profession, not even physicians, is subject to such vague and broad standards of discipline.

Despite these considerable legal hurdles, we have found that licensees and license applicants can be successfully represented before the DOI.  In the case of the Order of Summary Revocation, the DOI will consider a timely filed Petition for Reconsideration under Government Code section 11521.  In cases where a licensee or applicant is entitled to a hearing, the DOI tends to respect the outcome of administrative hearings, and is very receptive to a strong showing of character fitness or rehabilitation by its licensees or license applicants.  In most of the cases we have handled, those cases that were not dismissed resulted in license restriction.  License restriction by the DOI is less onerous that license probation typically used by other licensing agencies and usually requires little of the licensee or license applicant beyond compliance with all laws until the license restriction is lifted.  Restriction can later be lifted by a petition to the DOI, clearing the insurance broker's license of discipline.

The pitfalls of a license denial or license discipline case usually arise at the beginning of the case.  License applicants, seeking to avoid disclosure of past indiscretions, sometimes file false or incomplete applications that do not list prior convictions.  Current licensees either fail to notify the DOI of changes to their background information, fail to respond to a demand for information, or make statements that are later used against them.  It is absolutely critical that a license applicant or licensee handle all communications with DOI properly, employing honesty and sincere cooperation in most cases, but exercising one's right to remain silent in cases that can lead to criminal charges, and of course carefully choosing one's words in all communications.  The words of the Miranda warning are true here - everything you say can be used against you in a court of law.

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