BILL ANALYSIS Ó AB 1751 Page 1 Date of Hearing: April 12, 2016 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Rudy Salas, Chair AB 1751 (Low) - As Amended March 28, 2016 NOTE: This bill contains an urgency clause. SUBJECT: Secondhand goods. SUMMARY: Eliminates the requirements for the Department of Justice (DOJ) to develop descriptive categories for the single, statewide, and uniform electronic reporting system for purposes of reporting requirements of tangible personal property for secondhand dealers, and instead requires the DOJ to accept the plain text property descriptions commonly recognized and utilized by the pawn and secondhand dealer industries; requires the DOJ to encode those plain text property descriptions and prohibits the DOJ from using initial licensing fees for that purpose, as specified; requires the single, statewide, and uniform electronic reporting system to be implemented and operated in compliance with the Administrative Procedure Act and prohibits the DOJ from taking any action with respect to the implementation, operation, or maintenance of the electronic reporting system by adoption of an emergency regulation; specifies that a secondhand dealer is not required to provide additional information about a seller or pledger, other than what is required in existing law; and, makes other technical and clarifying amendments. AB 1751 Page 2 EXISTING LAW: 1)Defines a "secondhand dealer" to mean and include any person, copartnership, firm or corporation whose business includes buying, selling, trading, taking in pawn, accepting for sale on consignment; accepting for auctioning, or auctioning secondhand tangible personal property, but does not include a coin dealer or participants at guns shows or events, as specified. (Business and Professions Code (BPC) Section 21626(a)) 2)Defines "tangible personal property" all secondhand tangible personal property which bears a serial number or personalized initials or inscription, or which at the time it is acquired by the secondhand dealer, bears evidence of having had a serial number or personalized initials or inscription. (BPC Section 21627(a)) 3)Defines "tangible personal property" to also mean all tangible personal property that the Attorney General (AG) statistically determines through the most recent DOJ "Crime in California" report to constitute a significant class of stolen goods and requires the DOJ to supply a list of such personal property to all local law enforcement agencies, post it on the AG's Web site, and update it annually beginning January 1, 2016. (BPC Section 21627(c)). 4)Defines a "significant class of stolen goods" to mean those items determined through the DOJ's annual "Crime in California" report to constitute more than 10% of property reported stolen in the calendar year preceding the annual posting of the list of significant classes of stolen goods. (BPC Section 21627(e)) 5)Requires every secondhand dealer or coin dealer, as specified, to report daily, or on the first working day after receipt or AB 1751 Page 3 purchase of secondhand tangible personal property, on forms or through an electronic reporting system approved by the DOJ, all secondhand tangible personal property, excluding firearms, which he or she has purchased, taken in trade, taken in pawn, accepted for sale on consignment, or accepted for auctioning to the chief of police or to the sheriff; provides that the report contain specified information including a complete and reasonably accurate description of serialized property, as specified, a complete and reasonably accurate description of nonserialized property, a certification by the intended seller or pledger that he or she is the owner of the property or has the authority to sell or pledge, a certification of the intended seller that to his or her knowledge and belief information is true and complete, and a legible fingerprint taken from the seller or pledger, as prescribed by the DOJ. (BPC Section 21628(A)(1-7)) 6)Requires every secondhand dealer or coin dealer as specified, to report daily, or on the first working day after receipt or purchase of secondhand tangible personal property, on forms or through an electronic reporting system approved by the DOJ, all secondhand tangible personal property, except for firearms, which he or she has taken in trade or pawn, accepted for sale on consignment, or accepted for auctioning to the chief of police or the sheriff as specified. (BPC 21628) 7)Requires the DOJ, in consultation with appropriate law enforcement agencies, to develop clear and comprehensive descriptive categories denoting tangible personal property, as specified, subject to reporting requirements. (BPC Section 21628(d)(1)) 8)Defines an "item" to mean any single article; however, with respect to a commonly accepted grouping of articles that are purchased as a set, including, but not limited to, a pair of earrings, or place settings of china, silverware, or other table ware, "item" refers to the commonly accepted grouping. THIS BILL: AB 1751 Page 4 9) Authorizes a secondhand dealer or coin dealer, as specified, to submit daily transaction reports to the chief of police or to the sheriff on paper forms until the electronic reporting system operated by the DOJ is operational in the jurisdiction where the secondhand dealer is located, and specifies that the report may only include specified information. 10)Deletes the requirement that the DOJ, in consultation with the appropriate law enforcement agencies, develop clear and comprehensive descriptive categories denoting tangible personal property and instead requires the DOJ to accept the plain text property descriptions generally accepted in the pawn and secondhand industries provided by secondhand dealers, as has been the longstanding practice of chiefs of police and sheriffs when they receive paper reports from secondhand dealers. 11)Requires the DOJ to have the continuing duty to encode the plain text property descriptions received by pawnbrokers and secondhand dealers for law enforcement databases in order for those descriptions to be useful for law enforcement purposes. 12)Specifies that funds collected by DOJ for processing secondhand dealer applications and initial licenses, processing renewal licenses, and implementing, operating, and maintaining the single statewide, uniform electronic reporting system cannot be used by the DOJ for encoding or to train personnel to encode the descriptions in 3 above. 13)Specifies that until the uniform electronic reporting system is implemented, chiefs of police and sheriffs that continue to receive paper forms must also recognize and accept the plain text property descriptions generally recognized in the pawn and secondhand industries. 14)States that unless specifically identified in BPC Section 21628, the DOJ, chiefs of police, and sheriffs cannot require AB 1751 Page 5 a secondhand dealer to include any additional information concerning the seller, the pledger, or the property received by the secondhand dealer in the report, as specified. 15)States that the single, statewide and uniform electronic reporting system, required as specified, must be implemented and operated in compliance with the Administrative Procedures Act and in implementing and operating the single, statewide and uniform electronic reporting system, the DOJ chiefs of police and sheriffs must comply with current reporting and holding requirements as specified. 16)Prohibits the DOJ from taking any action with respect to the implementation, operation, or maintenance of the electronic reporting system by adoption of an emergency regulation. 17)Requires a secondhand dealer to electronically transmit to the DOJ's single, statewide, uniform electronic reporting system on the date of the transaction or, if not possible due to an electrical, telecommunications, or other malfunction, as soon as reasonable thereafter, the report of acquisition of tangible personal property. 18)States that this bill is an urgency statute necessary for the immediate preservation of the public peace, health or safety within the meaning of Article IV of the Constitution, and the facts constituting the necessity include: a) In order to make the single, statewide, uniform electronic reporting system a cost savings for secondhand dealers and pawnbrokers, the plain text property descriptions historically utilized by these industries must be accepted by the DOJ, just as these plain text descriptions have historically been accepted by chiefs of police and sheriffs; and, AB 1751 Page 6 b) Further, to protect the integrity of law enforcement databases, it is necessary to specify that only trained law enforcement personnel are to input classification codes of property reported by these businesses, not the businesses themselves. 19)States that it is the intent of the Legislature to clarify that pawnbrokers and other secondhand dealers are to report their acquisition of tangible personal property in descriptive, plain text language commonly used in the pawn and secondhand industries; by specifying the manner or reporting, it relives all secondhand dealers and pawnbrokers of the inherent costs and burdens imposed under existing law that requires these businesses to report their daily acquisitions of secondhand tangible personal property; further states the intent that the DOJ continue to accept the plain text descriptive language historically used in the pawn and secondhand industries; and, only properly trained law enforcement personnel of the DOJ or local law enforcement classify and encode for law enforcement databases. FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel. COMMENTS: Purpose. This bill revises the DOJ's current requirements for the implementation and construction of the single, statewide and uniform electronic reporting database which was funded as a result of AB 391 (Pan), Chapter, 172, Statutes of 2012. This bill is sponsored by the California Pawnbrokers Association (CPA). According to the author, "the need for this legislation arises because in implementing the [California Automated Pawn and Secondhand Dealer System (CAPSS)] system, the DOJ is requiring that second hand dealers to input optional information beyond what is statutorily authorized by the Legislature. [This bill] will continue the AB 1751 Page 7 requirement of existing law by specifying that the plain text property descriptions commonly recognized and utilized by the pawn and secondhand dealer industries shall be the sole method of describing property acquired by these businesses. [This bill] also makes it clear that the CAPSS system does not expand beyond current law the information that is required to be collected or reported by secondhand dealers and pawnbrokers." Licensing Requirements for Secondhand Dealers. The regulation of secondhand dealers and pawnbrokers occurred as a result of AB 2967 (Young) Chapter 499, Statutes of 1980. The intent of regulation was to provide law enforcement agencies with a means to curtail the selling of stolen property and to facilitate its recovery by means of a uniform statewide, state administered secondhand dealer licensing and reporting program. Secondhand dealers include persons whose business includes buying, selling, trading, taking in pawn, accepting for sale on consignment, accepting for auctioning or auctioning secondhand tangible personal property. Pursuant to BPC Section 21641, local entities such as police chiefs, the sheriff, or where appropriate the police commission, have the responsibility to incorporate the Secondhand Dealer and Pawnbroker licensing process into their local programs. It is the responsibility of the local licensing agency to administer, maintain, and enforce state law regarding the secondhand dealer and pawnbroker licenses. Persons, entities, or corporations wishing to conduct business as a secondhand dealer or pawnbroker, must first apply for a specific license to conduct the business with the local licensing agency (chief of police or sheriff) who then receives background check results and a license number issued by the DOJ's Secondhand Dealer and Pawnbroker Unit. An initial application for local licensure consists of fingerprints, a licensing fee and evidence of a surety bond. Secondhand dealers and pawnbrokers are required to renew their licenses biannually and submit a new application packet with each renewal. AB 1751 Page 8 Once secondhand dealers and pawnbrokers have received the appropriate license from the local agency, in addition to any other locally required business licenses or permits needed to operate, they are eligible to transact business with a wide variety of tangible personal property. Under current law, if someone is operating as a secondhand dealer without a license they are subject to punishment for unlawful conduct. Pawnbroker Industry in California. According to information provided by the CPA, there are thousands of different "articles" that are pawned or bought daily in California by approximately 600 California pawnbrokers. Further, the daily transactions for pawnbrokers vary from shop to shop with a low of 10 to a high of 600, with the average around 50. Reporting Requirements for Secondhand Dealers. To help curtail the dissemination of stolen property, BPC Section 21628 specifies that when secondhand dealers or pawnbrokers take in items, whether buying outright or loaning money and holding for collateral, they are required to report daily or on the first working day after they have taken possession of an item. Until January 1, 2016, that property report was completed on the "JUS 123" standardized paper form which was completed for each item purchased, taken in trade, taken in pawn or accepted for sale on consignment. The form required very specific information including, but not limited to, name and identification of the seller, a description of the property, (such as serial numbers or other identifying marks), certification of ownership, certification that the seller's knowledge of the item is correct, and a fingerprint. Once completed, a copy was provided to local law enforcement, and a copy retained by the dealer. This was to help ensure that items received by a secondhand dealer or pawnbroker were not stolen, and provided a mechanism for law enforcement to review, retrieve or hold as part of an investigation. AB 391 (Pan), Chapter 172, Statutes of 2012, required secondhand dealers and coin dealers to help fund a new reporting system, AB 1751 Page 9 which the DOJ was mandated to develop and implement. The result was the California Pawn and SecondhandDealer System(CAPSS). The CAPSS system was intended to eliminate the need for paper reports in favor of a uniform electronic database. With the advent of the CAPSS system, licensed secondhand dealers and pawnbrokers are able to submit the requisite tangible personal property transaction information to the DOJ online instead of on paper, saving time and providing a functional system for law enforcement purposes. The CAPSS system is funded through licensing fees from the secondhand dealers. As a result of implementing the funding mechanism, licensing fees for secondhand dealers rose from $12 to $300 biannually. The single uniform database was intended to alleviate the need for the submission of multiple paper reports which were described as costly and time consuming, and resource intensive for local law enforcement. The CAPPS System. According to information provided on the DOJ's website, the initial CAPSS system was implemented in December 2014. Since that time, the DOJ reports that its contractor has been working diligently on phase-in improvements. Pursuant to BPC Section 21628(d)(1), in establishing the CAPSS system, the DOJ was required to consult with appropriate law enforcement agencies to develop clear and comprehensive descriptive categories denoting tangible personal property, where the categories are to be incorporated by secondhand dealers and coin dealers for purposes of reporting requirements. The sponsors of this bill, report concerns with the usability of the system. The current CAPSS system allows secondhand dealers to report two ways: 1) through an item-by-item manual transaction on the DOJ's website, via a secure log-in; and 2) through a "bulk upload" which permits a secondhand dealer to report multiple records of seller or pledger records as opposed to a single item by item. The bulk upload feature is necessary for those shops which deal in high volume transaction. AB 1751 Page 10 Issues with the CAPSS System and the Current Reporting Requirements. Prior to the implementation of the CAPSS system, secondhand dealers would utilize paper "JUS 123" forms, which required the use of plain text (handwritten) descriptions to describe the property acquired. Secondhand dealers would fill out the documents using terminology more common to the pawn and secondhand industry, as there was not specific descriptive language requirements or categories that secondhand dealers were required to use. These paper forms were submitted daily or on the next business day to local law enforcement who would in turn enter the data into a database system. Law enforcement would then transfer the property as described on the "JUS 123" into the appropriate law enforcement data base system. The CAPSS system was intended to alleviate the burden of filling out paper "JUS 123" forms where, the report of daily acquisitions of secondhand tangible personal property was limited to a single transaction. However, the revised reporting process implemented through the DOJ's CAPSS system has become an issue for the CPA. According to the CPA, "the DOJ is placing the obligation on secondhand dealers and their employees to categorize the property these businesses acquire utilizing law enforcement classifications rather than the historic plain text descriptions commonly utilized by and recognized in the secondhand and pawn industries. This requirement by the DOJ now obligates the businesses to transmit their property descriptions in the language of law enforcement rather than language recognized in their businesses. Property descriptions utilized by these industries are generally significantly more descriptive because dealing in the trade requires describing items for their customer to review and approve." In addition, the CPA raised concerns about the request to disclose more information about a seller or pledger than what is required under current law. BPC Section 21628 specifies that information that is to be reported by secondhand dealers on the AB 1751 Page 11 "JUS 123," which includes, a report written in English that is legible, contain specified information about the seller or pledger of the property, a complete and reasonable description of the property including serial numbers or other identifiers, a certification from the seller or pledger that he or she is he owner and can sell or pledge the property, a certification that the seller or pledger's knowledge of the item is correct, and a legible fingerprint. Pursuant to BPC Section 21628(b)(1), only upon successful completion of the reporting requirements described above, can the secondhand dealer have the adequate authority to take possession of the property. BPC Section 21628(a)(2) specifies the identification that a secondhand dealer can accept from a seller or pledger which includes: 1) a passport of the United States; 2) a driver's license issued by any state or Canada; 3) any state identification card; 4) a passport from any other country in addition to another item of identification bearing an address; and, 5) a Matricula Consular card. The CPA notes that additional information beyond the identification regarding the seller or pledger has been requested to be reported, which the CPA contends is not explicitly authorized under 21628. This bill seeks to clarify that the DOJ, sheriffs and chiefs of police cannot require secondhand dealers to include any additional information about the seller or pledger, or the property received other than what is specified, under current law. In order to address the multiple issues with the CAPSS system as raised by the CPA, this bill does four things: 1) allow secondhand dealers to use plain text property descriptions when reporting daily; 2) require the information collected about the seller or pledger be only what is required under existing law; 3) authorize the continuation of the paper "JUS 123" with the acceptance of plain text property descriptions; and, 4) require that DOJ's implementation of the CAPSS system follow the Administrative Procedures Act and not through emergency regulations. AB 1751 Page 12 This bill will allow for the continued use of the "JUS 123" until the CAPSS system is fully implemented (if this bill were to pass, the DOJ would need to revise the current database in order to accept electronic reports with the plain text property description), and would allow secondhand dealers to report as soon as possible in the event of a technological malfunction of the system and not be out of compliance for not reporting as specified in existing law. In addition, this bill deletes the requirement for the DOJ to consult with local law enforcement to create clear and comprehensive descriptive categories, and instead recognize and accept the plain text property This bill contains an urgency clause to expedite the requirement for the DOJ to update its current CAPSS system and allow for transaction reports to be accepted with plain text property descriptions. Current Related Legislation. AB 2236 (Santiago and Bonta) of the current legislative session, defines "tangible personal property" to exclude these specified types of property that have a value of $950 or less. Note: This bill is pending in the Assembly Committee on Business and Professions. Prior Related Legislation: AB 1182 (Santiago), Chapter 749, Statutes of 2015 narrowed the definition of tangible personal property, as specified, and requires the DOJ to annually update the list of items which represent a significant class of stolen goods, beginning January 1, 2016, and post it on its Web site, and makes other technical and clarifying amendments. AB 632 (Eggman), Chapter 169, Statutes of 2015, would authorize specified unique identifying numbers to be used as the serial number reported for handheld electronic devices, as specified. AB 1751 Page 13 SB 782 (Hill), Chapter 318, Statutes of 2013, clarifies the interests of licensed pawnbrokers and secondhand dealers relating to the seizure and disposition of property during a criminal investigation or case. AB 391 (Pan), Chapter 172, Statutes of 2012, requires secondhand dealers and coin dealers to report certain information using the electronic reporting system developed by DOJ on and after the date that the system is implemented. AB 1796 (Galgiani), of 2012 would have included in the definition of criminal profiteering activity the unlicensed sale of tangible personal property or other secondhand goods, including gold and other precious metals, without a license. Note: This bill failed passage in the Assembly Public Safety Committee. AB 704 (Ma) of 2011 would have required that a person conducting business as a secondhand dealer provide specified information to any peace officer upon demand and allow for the storage of the item for up to 90 days, required an impounding agency to satisfy specified requirements regarding impounded property and further would have authorized a nonprofit association composed of 50 or more licensed secondhand dealers to bring an action to enjoin a person from conducting business as a secondhand dealer without being licensed. Note: This bill was held in the Assembly Judiciary Committee. SB 1520 (Schiff), Chapter 994, Statutes of 2000, makes the reporting system for pawned and secondhand property more effective for law enforcement purposes through development of specified reporting categories and reporting in electronic form. ARGUMENTS IN SUPPORT: AB 1751 Page 14 The California Pawnbrokers Association writes in support, "The California Pawnbrokers Association is proud to sponsor and support [this bill]. This important urgency measure when enacted may keep hundreds of small businesses operating in California. ARGUMENTS IN OPPOSITION: The California State Sheriffs' Association writes in opposition, "The proponents of this bill now argue that this reporting requirement is difficult or will require additional training and technology. The DOJ has made significant overtures to assist the affected industry with the new reporting methodology. Additionally, abandoning the requirement that person who is in possession of the item (the pawnbroker) describe the item in favor of requiring DOJ to interpret a free-form, plain text description without the benefit of seeing or holding the item will lead to a database that contains less-than-accurate information and will severely limit the utility of this important crime-fighting tool." POLICY ISSUE(S) FOR CONSIDERATION: 1) This bill will likely result in the DOJ modifying or revising the current CAPSS system and will also require, in the process, that the implementation and operation of the system be done in compliance with the Administrative Procedures Act, and not through emergency regulations. The timeframe necessary to complete a system update and navigate through the regulation process will take an unknown amount of time. Although, the current database will may be operational, many secondhand dealers will need to return to the "JUS 123" to report. AB 1751 Page 15 2) To facilitate an exchange of information regarding the DOJ's single, statewide, and uniform electronic reporting system, the author should amend the bill as follows: On or before July 1, 2017, the Department of Justice shall convene a meeting with the Department of Technology to discuss issues pertaining to any proposed changes or upgrades to the single, statewide, and uniform electronic reporting system and the Department of Technology may provide technological assistance for ongoing improvements, updates or changes to the single, statewide, and uniform electronic reporting system, as requested. REGISTERED SUPPORT: California Pawnbrokers Association (sponsor) REGISTERED OPPOSITION: California State Sheriffs' Association California Police Chiefs Association Analysis Prepared by:Elissa Silva / B. & P. / (916) 319-3301 AB 1751 Page 16