BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 424|
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THIRD READING
Bill No: AB 424
Author: Eng (D)
Amended: 6/6/11 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 6-0, 6/29/11
AYES: Vargas, Blakeslee, Kehoe, Liu, Padilla, Walters
NO VOTE RECORDED: Evans
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 70-0, 5/12/11 (Consent) - See last page
for vote
SUBJECT : Pawnbrokers
SOURCE : California Pawnbrokers Association
DIGEST : This bill increases the limits on the
compensation pawnbrokers are allowed to charge for their
services, would standardize time references in the
pawnbroker statutes to refer to months rather than days,
and defines a month in the pawnbroker statutes as a period
of time consisting of 30 consecutive days.
ANALYSIS :
Existing Law
1. Defines a pawnbroker as any person engaged in the
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business of receiving goods, including motor vehicles,
in pledge as security for a loan, and defines pledged
property as property held as security for a loan, the
title to which remains with the pledgor and not the
pawnbroker
2. Provides for the licensing of pawnbrokers by a chief of
police, sheriff, or police commission.
3. Generally specifies a loan length of four months, and
caps the compensation that may be charged by pawnbrokers
on loans of up to $2,500, as follows:
A. During the first 90 days of the loan, pawnbrokers
may charge borrowers between $1 and $140, depending
on the dollar amount of the loan.
B. From the 91st day forward, pawnbrokers may charge
the greater of $3 per month or 2.5 percent per month
on the unpaid loan balance up to $225; two percent
per month on the unpaid balance between $225.01 and
$900; 1.5 percent per month on the unpaid balance
between $901 and $1,650; and one percent per month on
the unpaid balance in excess of $1,650; one month's
interest may be charged for any part of the month in
which pawned property is redeemed.
NOTE: It is this stair-step rate structure
that would be changed by this bill and
replaced with a single maximum rate of 2.5
percent per month, or $3 per month, whichever
is greater.
C. Pawnbrokers may charge a loan setup fee not to
exceed the greater of five dollars or two percent of
the loan amount, capped at $10.
D. Pawnbrokers may also charge a handling and storage
fee for larger items that is charged upon property
redemption, not to exceed five dollars for any
article larger than one cubic foot, $10 for any
article larger than three cubic feet, $20 for any
article larger than six cubic feet, and an additional
one dollar for each cubic foot in addition to one
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cubic foot.
E. A processing charge of four dollars may be charged
for each firearm pawned.
F. If the borrower fails to redeem a pawned item
during the loan period, a charge of up to three
dollars for services and costs relating to providing
required notices of loan expiration to the borrower
may also be imposed.
4. Provides that the limits on rates and charges listed
above do not apply to any loan of a bona fide principal
amount of $2,500 or more; there is no interest rate cap
on pawn loans of greater than $2,500.
5. Requires all licensed pawnbrokers to post their fees and
charges in a place clearly visible to the general
public.
6. Allows a borrower to request, and a pawnbroker to
consent to a replacement loan, to take effect before
title to the pawned property passes to the pawnbroker.
To obtain a replacement loan, the borrower must pay all
charges and interest due under the original loan. The
principal amount of the replacement loan may be lower
than, the same as, or higher than the loan being
replaced.
This bill:
1. Authorize pawnbrokers to charge borrowers the greater of
three dollars per month or 2.5 percent per month on the
unpaid principal balance of loans greater than three
months old, and below $2,500.
2. Defines a month for purposes of the laws governing
pawnbrokers as a period of time consisting of 30
consecutive days, and would make conforming changes.
Comments
The Pawnbroker Business Model: According to the California
Pawnbrokers Association, approximately 85-88 percent of
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pawned property is redeemed. Thus, most 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 loans of similar sizes and lengths from depository
institutions.
The California Pawnbrokers Association has historically
provided the Legislature with statistics, demonstrating
that the average cost of a pawn transaction is lower than
the cost associated with other forms of short-term credit,
such as payday loans, refund anticipation loans, and credit
card advances. Pawn transactions are also less expensive
than merchant bounced check fees, bank insufficient funds
fees, credit card late fees, and utility reconnection fees.
Pawn transactions are somewhat more expensive than cash
advances obtained from depository institutions.
Prior and Related Legislation
SB 217 (Vargas), 2011-12 Session, authorizes pawnbrokers to
charge borrowers the greater of three dollars per month or
2.5percent per month on the unpaid principal balance of
loans greater than three months old, and below $2,500.
Passed the Senate. Provisions amended out of SB 217 and
into AB 424.
SB 212 (DeLeon), 2011-12 Session, clarifies the
circumstances under which replacement loans can be taken
out remotely by borrowers who are unable to undertake these
transactions in person.
AB 580 (Calderon), Chapter 340, Statutes of 2008, enacts
the minimum interest charge and loan set-up fee changes in
the Mendoza bill, described immediately below.
AB 264 (Mendoza), 2007-08 Session, would have replaced the
current stair-step interest rates applied to pawn loans of
over 90 days with a single monthly interest rate of 2.5
percent, increased the minimum interest charge per month
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from one dollar to three dollars; and changed the cap on
loan set-up fees to the greater of five dollars or two
percent, capped at $10 (up from three dollars on loans of
$50 and below and five dollars on loans above $50). Held
in the Senate Judiciary Committee.
AB 1297 (Papan), Chapter 505, Statutes of 2001, increases
the maximum loan setup fee on loans of up to $50 from two
dollars to three dollars; increased allowable handling and
storage fees from three dollars, nine dollars, and $18, to
five dollars, $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 two
dollars to three dollars.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/15/11)
California Pawnbrokers Association (source)
ASSEMBLY FLOOR :
AYES: Achadjian, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Gatto, Gordon, Grove, Hagman, Halderman, Hall,
Harkey, Hayashi, Hill, Huber, Hueso, Huffman, Jeffries,
Jones, Knight, Lara, Logue, Ma, Mansoor, Mendoza, Miller,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Silva, Skinner, Smyth, Solorio,
Swanson, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. Pérez
NO VOTE RECORDED: Alejo, Cedillo, Conway, Garrick, Gorell,
Roger Hernández, Bonnie Lowenthal, Mitchell, Portantino,
Torres
JJA:do 8/15/11 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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