BILL ANALYSIS Ó
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Loni Hancock, Chair A
2011-2012 Regular Session B
3
9
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AB 391 (Pan)
As Amended April 18, 2012
Hearing date: May 8, 2012
Business and Professions Code (URGENCY)
JM:mc
SECONDHAND DEALERS AND PAWN SHOPS:
FEES TO SUPPORT SYSTEM OF
ELECTRONIC REPORTING OF TRANSACTIONS
HISTORY
Source: Attorney General
Prior Legislation: SB 1520 (Schiff) - Ch. 994, Stats. 2000
SB 1893 (Burton) - failed in Assembly Business and
Professions, 2004
SCR 63 (Yee) - Reso. Ch. 16., Stats. 2010
Support: National Federation of Independent Business; California
Farm Bureau Federation; Broadway Jewelry and Pawn, San
Diego; California Pawnbrokers Association; California
Peace Officers Association; California State Sheriffs'
Association; Capital City Loan and Jewelry; Bell
Gardens Police Department; Fresno Police Department;
Los Angeles County Sheriff; Novato Police Department;
Santa Ana Police Department; Santa Barbara Police
Department; Peace Officers Research Association of
California; Royal Loan; San Diego County Chiefs' and
Sheriff's Association; San Diego Jewelry and Loan;
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Trader Stan's Pawn Shop; Westminster Jewelry and Loan
Opposition:Antiques by the Bay, Inc.; California Coin and
Bullion Merchants Association (unless amended); AdvoCal
(unless amended); California Alliance of Resale
Merchants and Collectors (unless amended)
Assembly Floor Vote: No longer relevant
KEY ISSUE
SHOULD THE CURRENTLY UNFUNDED SYSTEM FOR ELECTRONIC REPORTING OF
TRANSACTIONS IN PAWNED AND SECONDHAND GOODS BE IMPLEMENTED THROUGH
FUNDING OF THE SYSTEM BY FEES PAID BY PAWNBROKERS AND SECONDHAND
PROPERTY DEALERS?
PURPOSE
The purpose of this bill is to implement the currently unfunded
system for electronic reporting of transactions in pawned and
secondhand goods through fees from secondhand property dealers
and pawnbrokers.
Secondhand Dealers and Pawn Generally
Existing law includes a statement of legislative intent to
curtail the dissemination of stolen property, to facilitate the
recovery of stolen property and to detect possible sales tax
evasion by means of a uniform, statewide, state-administered
program of regulation of persons whose principal business is
dealing in tangible personal property, as specified. (Bus. &
Prof. Code § 21625; Fin. Code § 21051.)
Existing law includes legislative intent that reports of
transactions in pawned and secondhand property should be
correlated with law enforcement reports so as to trace and
recover stolen property. (Bus. & Prof. Code § 21625.)
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Existing law , for purposes of the system for curtailing
dissemination of stolen property, defines a "secondhand dealer"
as any person or entity whose business includes buying, selling,
trading, taking in pawn, accepting for sale on consignment or
auctioning any "tangible personal property." (Bus. & Prof.
Code § 21625.)
Existing law defines "tangible personal property" thus:
All secondhand personal property that has a serial
number or personalized markings;
All tangible property, new or used, taken by a
pawnbroker as security for a loan;
All tangible personal property commonly sold by
secondhand dealers that constitutes a significant class of
stolen property. (Bus. & Prof. Code § 21627, subds.
(a)-(b).)
Existing law provides that tangible personal property does not
include new goods purchased by a secondhand dealer from a bona
fide manufacturer or distributor. (Bus. & Prof. Code § 21627,
subd. (c).)
Existing law provides that tangible personal property does not
include coins, monetized bullion or commercial grade ingots of
precious metals. (Bus. & Prof. Code § 21627, subd. (d).)
Existing law defines a pawnbroker<1> as a "person engaged in the
business of receiving goods in pledge for security for a loan."
(Fin. Code § 21000.)
Existing law defines a "coin dealer" as a person or entity
"whose principal business is the buying, selling, and trading of
coins, monetized bullion, or commercial grade ingots of gold, or
---------------------------
<1> For purposes of this analysis, the terms pawnbroker and
secondhand dealer are used interchangeably. Secondhand dealers
also handle property for consignment sale and resale.
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silver, or other precious metals." (Bus. & Prof. Code § 21626,
subd. (b).) A coin dealer is not a secondhand dealer, except as
concerns transactions in tangible personal property. (Bus. &
Prof. Code § 21626, subd. (a).)
Existing law includes a statement of legislative intent to
require the uniform statewide reporting of transactions in and
acquisitions of secondhand and pawned property by pawnbrokers
and secondhand dealers. (Bus. & Prof. Code § 21625; Fin. Code §
21051.)
Existing law provides that pawnbrokers and coin dealers shall
report daily on forms approved or provided by the Department of
Justice (DOJ), all personal property purchased, taken in trade,
taken in pawn, etc., to local law enforcement. The report shall
include the following information:
The name and current address and identification of the
intended seller or pledgor of the property;
A complete and reasonably accurate description of
serialized or nonserialized property;
A certification by the intended seller or pledgor that
he or she is the owner of the property, or has the
authority of the owner to sell or pledge the property and
that any information provide is true and complete, and a
legible fingerprint taken from the intended seller or
pledgor. (Bus. & Prof. Code § 21628.)
Existing law provides the following concerning the
identification that must be offered by a pledgor of property in
pawn or seller of property:
The identification provided by the pledgor shall include
a photograph, a description or both, and a signature.
The identification shall be verified by the person
taking the property.
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The following forms of identification are acceptable:
o U.S. passport;
o Driver's license issued by any state or
Canada;
o identification card issued by any state;
o identification card issued by the United
States;
o Matricula Consular, in addition to another
form; or
o A passport from any other county, or a
Matricula Consular, in addition to another form of
identification bearing an address.
Existing law generally provides that violations of the licensing
and reporting requirements for transactions in pawned or
(secondhand) tangible personal property are misdemeanors. (Bus.
& Prof. Code § 21645; Fin. Code § 21209.)
Existing Law on the Electronic Reporting of Transactions by
Secondhand Dealers and Pawnbrokers in Tangible Personal Property
Existing law requires secondhand dealers, as defined, to make
reports to local law enforcement by electronic means about
transactions in tangible personal property, as follows:
DOJ and local law enforcement agencies, in consultation
with representatives from the secondhand dealer and coin
dealer businesses, to develop a standard format to be used
statewide to transmit a report electronically of all pawned
and secondhand property, as follows:
Twelve months after the format and the categories have
been developed, each secondhand dealer and coin dealer will
be required to electronically report using this format the
information required by this bill under these reporting
categories.
Until that time, each secondhand dealer and coin dealer
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will be allowed to either continue to report this
information using existing forms and procedures or may
begin electronically reporting this information under the
reporting categories and using the format described in this
bill as soon as each has been developed. (Pen. Code §
21628, subd. (j).)
Existing law requires a coin dealer who engages in less than ten
specified transactions each week involving tangible personal
property to report the transaction on a paper form developed by
DOJ. The form shall be transmitted each day by facsimile
transmission or by mail to the chief of police or sheriff. A
transaction shall consist of not more than one item. When a
coin dealer engages in at least 10 transactions per week, the
coin dealers shall report electronically, as with any pawnbroker
or secondhand dealer. (Bus. & Prof. Code § 21628, subd.
(j)(B)(3).)
Implementation of the System of Electronic Reporting of
Transactions by Secondhand Dealers and Pawnbrokers in Tangible
Personal Property - Payment of a Fee by Licensees
This bill provides that on the date that DOJ implements the
statewide electronic reporting system for pawned or secondhand
tangible personal property, each secondhand dealer, pawnbroker
or coin dealer shall electronically report applicable
transactions, as specified.
This bill provides that the duty of a coin dealer to
electronically report transactions in tangible personal property
shall apply when the coin dealer makes at least 10 transactions
per week, and the coin dealer shall otherwise provide reports on
paper forms.
This bill provides that for 30 days after implementation of the
electronic system, dealers shall continue to report on paper
forms.
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This bill provides that DOJ shall charge all secondhand dealers
and pawnbrokers a fee for the operation of the electronic
reporting system.
This bill provides that the secondhand dealer licensing
authority - the sheriff, police chief or police commission as
applicable - shall collect the electronic system reporting fee
and transmit the fee to DOJ.
This bill provides that the secondhand dealer licensing
authority may charge a fee, not to exceed actual costs, to
process the renewal application.
This bill provides that pawnbrokers shall comply with property
transaction reporting requirements imposed on secondhand
dealers.
This bill provides the following as to the calculation of the
electronic reporting system fee:
The fee shall be paid at the time the original license
is granted and when the license is renewed every two years.
The fee shall be no more than $300 in any event.
The fee shall be no more than necessary to reflect the
costs of the following:
o Processing of the initial application.
o Processing renewal applications.
o Implementing, operating and maintain the
statewide reporting system.
This bill provides that within 120 days of the effective date of
this bill, all license holders, as specified, shall pay a fee
not to exceed $288 to DOJ.
This bill establishes the Secondhand Dealer and Pawnbroker Fund
and continuously appropriates money in the fund to DOJ for the
implementation, operation, and maintenance of the pawned and
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secondhand property electronic reporting system.
This bill provides that any applicant for a secondhand dealer or
pawnbroker shall submit fingerprints and related information
required by DOJ for the purpose of determining, pursuant to
Penal Code section 11105, subdivision (l) the applicant's
criminal record, including convictions and arrests. Arrest
records under this provision do not include charges resulting in
exoneration, or successful diversion, or deferred entry of
judgment proceedings.
This bill directs DOJ to provide subsequent arrest information
of the applicant to appropriate local government licensing
entities.
This bill provides that DOJ shall charge a fee sufficient to
cover the costs of the criminal record check process.
RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
("ROCA")
In response to the unresolved prison capacity crisis, since
early 2007 it has been the policy of the chair of the Senate
Committee on Public Safety and the Senate President pro Tem to
hold legislative proposals which could further aggravate prison
overcrowding through new or expanded felony prosecutions. Under
the resulting policy known as "ROCA" (which stands for
"Receivership/Overcrowding Crisis Aggravation"), the Committee
has held measures which create a new felony, expand the scope or
penalty of an existing felony, or otherwise increase the
application of a felony in a manner which could exacerbate the
prison overcrowding crisis by expanding the availability or
length of prison terms (such as extending the statute of
limitations for felonies or constricting statutory parole
standards). In addition, proposed expansions to the
classification of felonies enacted last year by AB 109 (the 2011
Public Safety Realignment) which may be punishable in jail and
not prison (Penal Code section 1170(h)) would be subject to ROCA
because an offender's criminal record could make the offender
ineligible for jail and therefore subject to state prison.
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Under these principles, ROCA has been applied as a
content-neutral, provisional measure necessary to ensure that
the Legislature does not erode progress towards reducing prison
overcrowding by passing legislation which could increase the
prison population. ROCA will continue until prison overcrowding
is resolved.
For the last several years, severe overcrowding in California's
prisons has been the focus of evolving and expensive litigation.
On June 30, 2005, in a class action lawsuit filed four years
earlier, the United States District Court for the Northern
District of California established a Receivership to take
control of the delivery of medical services to all California
state prisoners confined by the California Department of
Corrections and Rehabilitation ("CDCR"). In December of 2006,
plaintiffs in two federal lawsuits against CDCR sought a
court-ordered limit on the prison population pursuant to the
federal Prison Litigation Reform Act. On January 12, 2010, a
three-judge federal panel issued an order requiring California
to reduce its inmate population to 137.5 percent of design
capacity -- a reduction at that time of roughly 40,000 inmates
-- within two years. The court stayed implementation of its
ruling pending the state's appeal to the U.S. Supreme Court.
On May 23, 2011, the United States Supreme Court upheld the
decision of the three-judge panel in its entirety, giving
California two years from the date of its ruling to reduce its
prison population to 137.5 percent of design capacity, subject
to the right of the state to seek modifications in appropriate
circumstances. Design capacity is the number of inmates a
prison can house based on one inmate per cell, single-level
bunks in dormitories, and no beds in places not designed for
housing. Current design capacity in CDCR's 33 institutions is
79,650.
On January 6, 2012, CDCR announced that California had cut
prison overcrowding by more than 11,000 inmates over the last
six months, a reduction largely accomplished by the passage of
Assembly Bill 109. Under the prisoner-reduction order, the
inmate population in California's 33 prisons must be no more
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than the following:
167 percent of design capacity by December 27, 2011
(133,016 inmates);
155 percent by June 27, 2012;
147 percent by December 27, 2012; and
137.5 percent by June 27, 2013.
This bill does not aggravate the prison overcrowding crisis
described above under ROCA.
COMMENTS
1. Need for This Bill
Updating the state's antiquated reporting process for
pawnshops and secondhand dealers is long overdue and
will provide tools for law enforcement agencies to use
to curtail the sale of stolen goods and will expedite
the rapid recovery of stolen property. The Department
of Justice will create an on-line database in which
secondhand dealers and pawn brokers will enter the
information required on form, in lieu of submitting
the JUS-123 - that information will be available for
all law enforcement agencies in a searchable format.
This system would be fully funded by increasing the
application and renewal fees currently being paid by
pawn brokers and secondhand dealers from $12 to $300.
The new system will also streamline the existing
burdensome reporting process for entities covered
under existing law. This may provide for some level
of economic stimulus in the affected industries as
each covered store stands to save thousands of
dollars.
2. Secondhand Property Dealers are Broadly Defined in Existing
Law - Separate Regulatory Scheme for Flea Markets and Swap
Meets
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General Definition of Secondhand Property Dealers
Business and Professions Code Section 21626 defines a
"secondhand dealer" as any person or entity "whose business
includes buying, selling, trading, taking in pawn, accepting for
sale on consignment, accepting for auctioning, or auctioning
secondhand tangible personal property." (Italics added.) A
person or entity is a secondhand dealer regardless of whether or
not secondhand property transactions form the major part of the
person's or entity's business. For example, it would appear
that a music store that regularly accepts a few instruments on
consignment is a secondhand dealer. However, Business and
Professions Code Section 21625 states that the intent of the
reporting system for tangible personal property is to regulate
"persons whose principal business" is dealing in tangible
personal property so as to curtail theft and prevent and detect
sales tax evasion.
Limited Appellate Decisions on Secondhand Dealer Status
There are surprisingly very few appellate decisions discussing
who is a secondhand property dealer. A litigant in one
appellate case has provided the Committee, the author and the
sponsor with a decision from the Court of Appeal of California,
Second Appellate District, in Los Angeles interpreting and
applying the Los Angeles City ordinance regulating secondhand
dealers. In that case, the appellate court held that a person
who buys and collects, but does not sell, used books and
"ephemera" is not a secondhand dealer within the meaning of the
local ordinance. (Hopp v. City of Los Angeles (2010) 183
Cal.App.4th 713,717-722.) The Los Angeles ordinance at issue in
Hopp is similar to state law in defining persons who buy
property as secondhand dealers. As such, the decision in Hopp
could well to apply to a similar challenge of state law.
Separate Regulatory Scheme for Vendors at Flea Markets and Swap
Meets - Paper Reporting would appear to continue for these
Persons
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It would also appear that a person who occasionally sells items
at a flea market or similar venue fits the statutory definition
of a secondhand dealer. However, an article of the Business and
Professions Code chapter on secondhand goods includes a
regulatory scheme for flea markets and swap meets. (Bus. &
Prof. Code §§ 21660-21669.1.) A swap meet is specifically
defined as a flea market or open-air market at which two or more
persons offer merchandise for sale and either 1) the operator
charges a fee to vendors; or 2) the operator charges attendees
for parking or admission. Further, regardless of the number of
persons involved or whether or not a fee is charged, a swap meet
includes events where secondhand property is offered on more
than six occasions in a year. Swap meets do not include
specified charitable sales or auctions. (Bus. & Prof. Code §
21661.)
Swap meets or flea market vendors must report their names and
addresses and vehicles used to transport property to the events.
Vendors must list and describe property they offer for sale,
including through any serial numbers or identifying marks or
symbols. The information is recorded on forms provided by DOJ.
Vendors give the forms to the operator of the swap meet or flea
market, who then provides the form to the chief of police or
sheriff. Swap meet and flea market operators must retain copies
of the forms for six months and make the copies available for
law-enforcement inspection. (Bus. & Prof. Code § 21663-21665.)
The chief of police or sheriff can waive the reporting
requirements if that "is not necessary or appropriate in the
public interest." (Bus. & Prof. Code § 21668.)
It appears that this bill would not apply to swap meet or flea
market vendors. The paper reporting system would thus continue
for these persons.
3. Determination of Electronic Reporting Fee
This bill provides that each pawnbroker and secondhand property
dealer shall pay a fee to support an electronic reporting system
for transactions in secondhand and pawned property. The bill
states that the fee shall be no more than necessary to implement,
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operate, and maintain the system. The fee is the same for each
licensee, regardless of the number of transactions the licensee
makes.
Concerns have been raised that the existence of such a fee would
cause law enforcement to become relatively aggressive in
enforcing the laws applicable to secondhand dealers, regardless
of the size of a person's business. Further, concerns have been
raised that it would be unfair for persons who only engage in a
relatively small number or transactions in secondhand goods to
pay a fee that supports a regulatory system for full-time
business, including pawnbrokers, who engage in the business of
lending money and take property as collateral for loans.
The sponsor and the author have stated that under Proposition 26
of the November, 2010 General Election, a proportional fee based
on the number of transactions made by the licensee would require
a 2/3 vote as a tax measure.
Proposition 26 amends Section 3 of Article XIII A of the
California Constitution: In relevant part, the proposition
provides:
(b) As used in this section, "tax" means any levy,
charge, or exaction of any kind imposed by the State,
except the following:
(2) A charge imposed for a specific government service
or product provided directly to the payor that is not
provided to those not charged, and which does not exceed
the reasonable costs to the State of providing the
service or product to the payor.
(3) A charge imposed for the reasonable regulatory
costs to the State incident to issuing licenses and
permits, performing investigations, inspections, and
audits, enforcing agricultural marketing orders, and
the administrative enforcement and adjudication
thereof.
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It appears that paragraph 2 and 3 could be said to apply to this
bill. As concerns paragraph 2, a fee for the electronic
reporting system maintained by DOJ can be described as a method
provided to pawnbrokers and secondhand dealers to comply with
and perform their statutory duty to daily report transactions in
specified property. As concerns paragraph 3, a fee for the
electronic reporting system can be described as a charge for the
reasonable regulatory costs to the State incident to the
regulation of licensees who deal in pawned and secondhand
property.
The sponsor has analogized the electronic reporting fee to a
business license imposed by a local government entity or the fee
for the issuance of a driver's license. Each holder of
commercial driver's license pays the same fee, regardless of the
number of miles driven by the operator, or the amount of
property or persons transported.
SHOULD THE FEE PAID BY EACH PAWNBROKER AND SECONDHAND DEALER
LICENSEE BE THE SAME FOR EACH LICENSEE?
IS A UNIFORM FEE FOR EACH PAWNBROKER OR SECONDHAND DEALER
REQUIRED TO AVOID A DETERMINATION THAT THE FEE IS A TAX?
4. No Specificity About How and to Whom Pawnbrokers Pay the
Electronic Reporting Fee - Suggested Amendment
This bill requires secondhand dealers and pawnbrokers, as part of
the licensing process for these businesses, to pay a fee of up to
$300 for the operation and maintenance of an electronic reporting
system to track transactions in pawned and secondhand goods. The
bill specifically provides that secondhand dealers shall pay the
fee to the local licensing authority - the sheriff or police
chief - and that the local law enforcement entity will transmit
the fee to DOJ. The bill does not specify how or to whom
pawnbrokers shall pay the fee for the electronic reporting
system. The bill merely states that DOJ shall charge a fee for
the reporting system and that the local licensing authority may
charge a fee to cover the cost of processing the application by
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the pawnbroker.
In discussions with Committee staff, representatives of the
Attorney General (the bill sponsor) stated that the process for
paying the fee for the electronic reporting system should be the
same for pawnbrokers and secondhand dealers. Making this clear
in the bill would prevent confusion and inconsistent application
of the bill. It is suggested that the bill be amended to
provide that pawnbrokers shall pay the fee for operation and
maintenance of the electronic reporting system to the local
licensing authority at the time the pawnbroker applies for an
original license or renews an existing license.
SHOULD THE BILL BE AMENDED TO SPECIFY THAT PAWNBROKERS SHALL PAY
THE FEE FOR THE ELECTRONIC REPORTING SYSTEM TO THE POLICE CHIEF
OR SHERIFF THAT LICENSES THE PAWNBROKER AND THAT THE POLICE
CHIEF OR SHERIFF SHALL TRANSMIT THE FEE TO DOJ?
5. Electronic Reporting of Secondhand and Pawn Transactions in
other Jurisdictions
When this Committee heard SB 1893 (Burton) in 2004, Committee
staff noted that Minneapolis had instituted an electronic
reporting system. Since that time, a number of jurisdictions
have begun electronic reporting. These include Tulsa, Oklahoma,
Scottsdale, Arizona and Madison, Wisconsin, among others.
Reporting is done voluntarily in Tulsa, but by law in other
jurisdictions. The Madison ordinance became effective in
February, 2012.
A company called Leads Online<2> markets databases for reporting
pawned and secondhand goods, as well as numerous other law
enforcement tracking systems, such as purchases from pharmacies.
The company Website states that "thousands of law enforcement
agencies across the country" and businesses that are required to
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<2>
http://leadsonline.com/main/about-leadsonline/about-leadsonline.p
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report pawn and secondhand transactions use the company's
systems. Another company called Business Watch International<3>
(BWI) markets products specifically for reporting pawned and
secondhand property. BWI states that its products are used by
280 law enforcement agencies in 200 cities in the United States
and Canada. It is not known how many other companies market
such services to law enforcement or state and local legislative
bodies. Concerns have been raised by Tulsa, Oklahoma, pawn shop
owners about using a private, third-party to transmit pawn
information to law enforcement.
The Minneapolis Police Department's pawn reporting system, APS -
Automated Pawn System, is distributed to other law enforcement
agencies through a consortium called Gov to Gov Solutions. APS
is a trademark registered to the City of Minneapolis. As
implied by the name, Gov to Gov Solutions operates through
sharing of technology across government entities. The Gov to
Gov Solutions system<4> appears to be cost-effective. APS is
used in many jurisdictions in Minnesota and Wisconsin. The
Website states:
The Automated Pawn System service is available to all
law enforcement agencies. Agencies that license pawn
and/or secondhand shops will find APS is a proven, low
cost way to effectively manage and regulate their
shops, as well as all the transaction information
their shops are required to report. Law enforcement
agencies use the customizable tools within the APS
application to manage and regulate their licensed
dealers according to local ordinance requirements, and
to investigate reported crimes. Pawn and secondhand
dealers use the point-of-sale software of their
choice, with minor customization required to
accommodate APS transaction reporting requirements.
***************
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<3> http://www.bwipolice.com/
<4> http://www.govtogovsolutions.org/Default.aspx
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