BILL ANALYSIS Ó AB 424 Page 1 Date of Hearing: May 4, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 424 (Eng) - As Introduced: February 14, 2011 Policy Committee: Banking and Finance Vote: 11-0 Urgency: No State Mandated Local Program: Yes Reimbursable: No SUMMARY This bill makes various changes to California's pawnbroker law. Specifically, this bill would define the term "month" to mean a period of time consisting of 30 consecutive calendar days and would make various conforming changes. The bill would make other clarifying changes to these provisions that would bring conformity with the Financial code. FISCAL EFFECT Negligible local law enforcement costs, not reimbursable. COMMENTS 1)Purpose . According to the sponsor, the Collateral Loan and Secondhand Dealer's Association, 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." 2)Background: Pawnbrokers are regulated on the local, state and federal level. Pawnbrokers are required to obtain a second-hand 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. Most pawn transactions are AB 424 Page 2 short-term loans of 120 days or less. According to the California Pawnbrokers Association, approximately 85% of pawned property is redeemed. 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. 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. Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081