BILL ANALYSIS Ó
AB 424
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Date of Hearing: April 11, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 424 (Eng) - As Introduced: February 14, 2011
SUBJECT : Pawnbrokers.
SUMMARY : Makes various changes to California's pawnbroker law.
Specifically, this bill :
1)Defines the term "month" to mean a period of time consisting
of 30 consecutive calendar days.
2)Clarifies that the pawnbroker may assess $3 per month on a
loan, when the established interest rates total less than that
amount.
3)Authorizes a pawnbroker to impose a charge of $1 on any loan
for not more than 3 months which does not exceed $14.99.
4)Makes other clarifying and technical changes.
EXISTING LAW
1)Defines "pawnbrokers" as every person engaged in the business
of receiving goods, including motor vehicles in pledge as
security for a loan. (Financial Code, Section 21000)
2)Provides for the licensing of pawnbrokers by a chief of
police, sheriff, or police commission. (Financial Code,
Section 21300)
3)Establishes a charge not exceeding three dollars a month on
any loan when the monthly charge permitted would otherwise be
less than that minimum charge. (Financial Code, Section
21200)
4)Allows a charge not exceeding one dollar to be made on any
loan for not more than 30 days which does not exceed $14.99.
(Financial Code, Section 21200.5)
FISCAL EFFECT : Unknown.
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COMMENTS :
According to the sponsor, the Collateral Loan and Secondhand
Dealer's Association, AB 424 would provide conformity in the
Financial Code. The terms 90 days, 30 days, 3 months and 1
month refer to time periods that apply to the amount that can be
charged per month to loans of a certain time period, the amount
of interest that can be charged after a month's expiration on a
loan, the amount that can be charged within the first 3 months
of a loan, and to notification periods related to loans.
Current law uses the term "month" for any period after 90 days
when calculating maximum compensation for pawnbroker
transactions. Changing the terms will provide uniformity in the
Financial Code so the same terminology is used regardless of the
length of time of the loan. The sponsor states, "both
pawnbrokers and their customers would more easily be able to
ascertain due dates for loans."
This measure transitions language from days to months. Other
areas in the financial code and business and professions code
uses months instead of days. This change may actually benefit
consumers who use pawnbrokers, for example, it will be easier to
understand if you walk in on April 10th that 4 months from that
period (month 1 is a grace period) that you will need to pay
back the loan on August 10th rather than counting days. Some
months have 28 days and some month have 31 days so it clarifies
month to month.
Background: Pawnbrokers are regulated on a local, state, and
federal level. Pawnbrokers are required to obtain a secondhand
dealers license, report all pledged items to law enforcement on
a daily basis, and hold pledged items for 30 days before putting
the items up for sale.
Pawnbrokers generally function by offering loans to individuals
in exchange for items of value. Those individuals may, within a
certain period of time, purchase the items back for the amount
of the loan plus a certain specified fee. If the time elapses
without that payment, the pawnbroker may then sell the items to
recoup the amount of the loan, usually only a fraction of its
market value. Pawnbrokers may also choose to purchase the item
outright.
According to the California Pawnbrokers Association,
approximately 85-88% of pawned property is redeemed. Thus, most
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pawn transactions are short-term loans of 120 days or less.
Pawn loans can be a safe way to securely store valuable jewelry,
musical instruments, and other valuable items, and have the
items insured, at the pawnbroker's expense. Because pawn loans
are not reported to major credit bureaus, some borrowers choose
pawn loans to avoid impacting their credit scores. Other
borrowers seek out pawn loans, because they cannot obtain
similar sized loans and similar loan lengths from depository
institutions.
Related Legislation:
SB 212 (De Leon) (2011 Legislative Session) Would clarify the
circumstances under which replacement loans can be taken out by
borrowers who are unable to undertake these transactions in
person. Pending in Senate Banking & Financial Institutions
Committee.
SB 217 (Vargas) (2011 Legislative Session) Would increase the
limits on the compensation pawnbrokers are allowed to charge for
their services. Authorizes pawnbrokers to charge borrowers the
greater of $3 per month or 2.5% per month on the unpaid
principal balance of loans greater than 90 days old, and below
$2,500. Consent item in Senate Banking and Financial
Institutions.
Previous Legislation:
AB 1357 (Coto) (2010 Legislative Session) Would have increased
the limits on the compensation pawnbrokers are allowed to charge
for their services. Vetoed by Governoer.
SB 580 (Calderon) (Chapter 340, Statutes of 2008) Revises limits
on pawnbroker compensation. Provides for a minimum charge of no
more than $3 a month on any loan and prohibits the pawn loan
setup fee from exceeding $5 or 2%, whichever is greater, not to
exceed $10.
AB 264 (Mendoza) (2007-2008 Legislative Session) Would have
prohibited a pawnbroker from charging more than 2.5% per month
on the unpaid principal balance of any loan and prohibits the
pawn loan setup fee from exceeding $5 or 2%, whichever is
greater, not to exceed $50. Vetoed by Governor.
AB 1297 (Papan) (Chapter 505, Statutes of 2001) Increased the
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maximum loan setup fee on loans of up to $50 from $2 to $3;
increased allowable handling and storage fees from $3, $9, and
$18, to $5, $10, and $20, depending on the size of the object;
and increased the maximum allowable fee for costs relating to
sending a loan expiration notice from $2 to $3.
REGISTERED SUPPORT / OPPOSITION :
Support
California Pawnbrokers Association
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081