Under B&P Code Section 7071.9, a contractor may deposit cash or securities instead of obtaining a surety bond. If a contractor chooses this option, where must the deposit be maintained and what happens to interest earned?
Correct Answer
D) Deposit held in approved financial institution; interest belongs to the contractor
B&P Code Section 7071.9 allows contractors to deposit cash or securities with an approved financial institution instead of a surety bond. The deposit must be held in an account approved by the CSLB, and any interest earned on the deposit belongs to the contractor, not the CSLB or consumer funds.
Why This Is the Correct Answer
Under B&P Code Section 7071.9, contractors may deposit cash or securities as an alternative to surety bonds. These deposits must be maintained in financial institutions that are approved by the CSLB, not held directly by the CSLB itself. Importantly, any interest earned on these deposits belongs to the contractor who made the deposit, providing them with the benefit of their own funds while meeting bonding requirements.
Why the Other Options Are Wrong
Option A: Deposit held by CSLB; interest distributed to consumer protection fund
The CSLB does not directly hold contractor deposits. Deposits must be placed in approved financial institutions, and interest earned goes to the contractor, not to any consumer protection fund.
Option B: Deposit held by contractor's bank; interest belongs to the contractor
While the interest does belong to the contractor, the deposit cannot be held at just any bank chosen by the contractor. It must be held at a financial institution specifically approved by the CSLB.
Option C: Deposit held by CSLB; interest retained by CSLB for administrative costs
The CSLB does not directly hold the deposits, nor does it retain any interest earned. Deposits are held at approved financial institutions and interest belongs to the contractor.
Memory Technique
Remember 'AIC' - Approved Institution, Contractor's interest. The deposit goes to an Approved financial Institution, and the Contractor keeps the interest earned.
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Which of the following is an acceptable alternative to a surety bond for meeting California contractor license bond requirements under B&P Code Section 7071.9?
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