BILL ANALYSIS Ó
AB 424
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 424 (Eng)
As Amended June 6, 2011
Majority vote
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|ASSEMBLY: |70-0 |(May 12, 2011) |SENATE: |33-0 |(August 29, |
| | | | | |2011) |
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Original Committee Reference: B. & F.
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 three months which does not exceed $14.99.
4)Makes other clarifying and technical changes.
The Senate amendments prohibit a pawnbroker from charging or
receiving compensation at a rate exceeding 2.5% per month on the
unpaid principal balance of any loan.
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 $3 a month on any loan when
the monthly charge permitted would otherwise be less than that
minimum charge. (Financial Code, Section 21200)
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4)Allows a charge not exceeding $1 to be made on any loan for
not more than 30 days which does not exceed $14.99.
(Financial Code, Section 21200.5)
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version passed by the Senate, but added the introduced
version of SB 217 (Vargas) into the measure, which would
authorize 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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, negligible local law enforcement costs, not
reimbursable.
COMMENTS : According to the sponsor, the Collateral Loan and
Secondhand Dealer's Association, this bill would provide
conformity in the Financial Code. The terms 90 days, 30 days,
three months and one 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 three 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 four months from
that period (month one 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.
In addition, according to the sponsor this measure will ensure
the continued existence of pawnbrokers in California. According
to the trade association, the number of pawnbrokers operating in
California has declined over time, as pawnbroker operating costs
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have increased, while the charges they are allowed to impose
have remained flat. Among the operating costs cited by the
Pawnbrokers Association: workers' compensation costs that are
among the highest in the state, the cost of training employees
to accurately value collateral, the need to upgrade security to
ensure the safety of pawned items, antiquated and burdensome
reporting requirements, and the costs of licenses and permits.
The California Pawnbrokers Association is concerned that,
without an increase in its compensation structure, the number of
pawnbrokers in the state will continue to decline, which will
result in many potential pawn customers utilizing other, more
costly forms of short-term credit.
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
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.
Previous legislation:
SB 217 (Vargas) of 2011 contents of this legislation were
amended into this bill. SB 217 would have authorized
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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.
AB 1357 (Coto) of 2010 would have increased the limits on the
compensation pawnbrokers are allowed to charge for their
services. Vetoed by Governor Schwarzenegger.
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) of 2007 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 Schwarzenegger.
AB 1297 (Papan), Chapter 505, Statutes of 2001, increased the
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.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0001787