BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 1751 Hearing Date: June 27, 2016 ----------------------------------------------------------------- |Author: |Low | |----------+------------------------------------------------------| |Version: |June 20, 2016 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |Yes |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Mark Mendoza | |: | | ----------------------------------------------------------------- Subject: Secondhand goods SUMMARY: Revises and recasts the Department of Justice's (DOJ) requirements for the implementation, construction, and maintenance of the single, statewide, and uniform electronic reporting system, defined as the California Automated Pawn and Secondhand Dealer System (CAPSS); revises and clarifies the reporting requirements for pawnbrokers and secondhand dealers; makes numerous other technical and clarifying changes, as specified. Existing law: 1) Provides for the Secondhand Goods Law that regulates the sale or other disposition of secondhand goods. (Business and Professions Code (BPC) § 21500 et seq.) 2) Declares that it is the intent of the Legislature to curtail the dissemination of stolen property and to facilitate the recovery of stolen property by means of a uniform, statewide, state-administered program of regulation of persons whose principal business is the buying, selling, trading, auctioning, or taking in pawn of tangible personal property. (BPC § 21625) 3) Defines a "secondhand dealer" to mean and include any person, co-partnership, firm or corporation whose business includes buying, selling, trading, taking in pawn, accepting for sale AB 1751 (Low) Page 2 of ? 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. (BPC § 21626(a)) 4) Defines "tangible personal property" as 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 § 21627(a)) 5) Defines "tangible personal property", among other things, as all tangible personal property, new or used, received in pledge as a security for a loan by a pawnbroker. (BPC § 21627(b)(1)) 6) 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 § 21627(c)). 7) 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 § 21627(e)) 8) 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) 9) Requires the form, among other things, to include specified AB 1751 (Low) Page 3 of ? information such as a complete and reasonably accurate description of serialized property, a complete and reasonably accurate description of non-serialized 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 § 21628(A)) 10)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 § 21628(d)(1)) 11)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. (BPC § 21628(d)(5)) This bill: 1) 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. 2) Provides that, by specifying the manner or reporting, all secondhand dealers and pawnbrokers are relieved of the inherent costs and burdens imposed under existing law that requires these businesses to report their daily acquisitions of secondhand tangible personal property. 3) Provides 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. AB 1751 (Low) Page 4 of ? 4) Defines "CAPSS" to mean "the California Pawnbroker and Secondhand Dealer System, which is a single, statewide, uniform electronic reporting system that receives secondhand dealer reports and is operated by the DOJ consistent with Resolution Chapter 16 of the Statutes of 2010. The maintenance and operation of CAPSS is funded by the Secondhand Dealer and Pawnbroker Fund." 5) Replaces "single, statewide and uniform electronic reporting system" with "CAPSS". 6) Revises the reporting requirements to require every secondhand dealer or coin dealer, as specified, to report daily or no later than the next business day, excluding weekends and holidays, after receipt or purchase of secondhand tangible personal property, to CAPSS, all secondhand tangible personal property, except for firearms, which he or she has purchased, taken in trade, taken in pawn, accepted for sale on consignment, or accepted for auctioning 7) Revises the property description requirement to be a complete and reasonably accurate description of the property, including, but not limited to, the following: serialnumber, personalized inscriptions, and other identifying marks or symbols, owner-applied numbers, the size color, material, and, if known by the secondhand dealer, the manufacturer's pattern name. Requires the property description include the brand and model name or number of the item if known to, or reasonably ascertainable by, the secondhand dealer. Provides that the property description be a plain text description of the item generally accepted by the secondhand industry. 8) Authorizes a secondhand dealer to optionally utilize an AB 1751 (Low) Page 5 of ? article field descriptor, the format which must be provided by the DOJ, if using the article field descriptor would, in whole or in part, accurately populate the property description with a plain text description generally accepted in the secondhand industry. 9) Specifies that the lack of an article field descriptor by a secondhand dealer is not relevant to any determination as to whether the secondhand dealer has received evidence of authority to sell or pledge the property, as specified. 10)Specifies that a report submitted by a pawnbroker or secondhand dealer is deemed to have been accepted by the DOJ if a good faith effort has been made to supply all of the required information. 11)Specifies that an error or omission on the report be noted, the pawnbroker or secondhand dealer be notified of the error by the DOJ, and the reporting pawnbroker or secondhand dealer has three business days from the notice by the DOJ to amend or correct the report before being subject to any enforcement violation. 12)Requires a secondhand dealer to report any business conducted at a gun show to the CAPSS system, as specified. 13)Deletes the requirement that the DOJ, in consultation with AB 1751 (Low) Page 6 of ? 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. 14)Prohibits the DOJ, chiefs of police, and sheriffs from collecting any additional information concerning the seller, the pledger, or the property received by the secondhand dealer in the report required by statute. 15)States that if there is a future change to the reporting requirement of CAPSS that substantively alters the reporting standards, as specified, those changes must be implemented and operated in compliance with the Administrative Procedures Act and in implementing and operating a future change to CAPSS, 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 CAPSS by adoption of an emergency regulation. 17)Requires on or before July 1, 2017, the DOJ to convene a meeting with the Department of Technology to discuss issues pertaining to any proposed changes or upgrades to CAPSS, as specified. 18)Requires a secondhand dealer or coin dealer to electronically transmit to CAPSS, no later than the next business day, on the date of the transaction, excluding weekends or holidays 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. AB 1751 (Low) Page 7 of ? 19)Deletes the provisions related to reporting on paper forms, as specified. 20)Deletes current requirements pertaining to the development and implementation of the CAPSS, as specified. 21)States that this bill is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of California Constitution Article IV, and the facts constituting the necessity include: a) In order to make the CAPPS 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, 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. 22)Makes numerous technical and clarifying amendments to secondhand dealer reporting requirements. FISCAL EFFECT: This bill has been keyed "fiscal" by Legislative Counsel. According to the Assembly Appropriations Committee analysis dated on May 11, 2016, this bill would impose significant costs to the DOJ for IT programming for backend mapping to CAPSS and ongoing costs to monitor and maintain the IT system. COMMENTS: AB 1751 (Low) Page 8 of ? 1. Purpose. The California Pawnbrokers Association (CPA) is the Sponsor of this bill. 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 second hand dealers to input optional information beyond what is statutorily authorized by the Legislature. [This bill] will continue the 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." According to information provided by the CPA, there are thousands of different items 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 ten to a high of 600, with the average around 50. 2.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 § 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 AB 1751 (Low) Page 9 of ? specific license to conduct such business with the local licensing agency (chief of police or sheriff) that is required to accept an application from any individual seeking a license within their jurisdiction. Following the receipt of the requisite fees and results of the fingerprint-based criminal history background check, the DOJ Secondhand Dealer and Pawnbroker Unit provides the local licensing agency with the background check results and a license number. Upon receipt of any subsequent arrest and disposition information regarding a licensed secondhand dealer or pawnbroker, the Secondhand Dealer and Pawnbroker Unit will notify the respective local licensing agency. Secondhand dealers and pawnbrokers are required to renew their licenses biannually and submit a new application packet with each renewal. 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. 3.Reporting Requirements for Secondhand Dealers. To help curtail the dissemination of stolen property, BPC § 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 AB 1751 (Low) Page 10 of ? completed, a copy was provided to local law enforcement, and a copy was 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. As of now, however, many secondhand dealers continue to use the "JUS 123" form because of the CAPSS systems inability to accept only plain text descriptions. AB 391 (Pan, Chapter 172, Statutes of 2012) required secondhand dealers and coin dealers to help fund a new reporting system, which the DOJ was mandated to develop and implement. The result was the CAPPS system. The CAPSS system was intended to eliminate the need for paper reports in favor of a uniform electronic database. Secondhand dealers and pawnbrokers are now required to enter information that was currently captured on the DOJ's "JUS 123" form into the CAPSS through a web interface. 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 and made available free of charge to authorized law enforcement agencies. 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, as well as resource intensive for local law enforcement. 4.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 § 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 AB 1751 (Low) Page 11 of ? requirements. The sponsors of this bill report concerns with the usability of the system since categories typically used by federal law enforcement may not be applicable to the items being reported. The current CAPSS system allows secondhand dealers to report in 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 that deal in high volume transaction. 5.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 AB 1751 (Low) Page 12 of ? businesses. Property descriptions utilized by these industries are 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 (e.g. photograph and license plate number). BPC § 21628 specifies that information that is to be reported by secondhand dealers on the "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 § 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 § 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 BPC § 21628. For example, CPA reports that secondhand dealers have been asked to report photographs of the person selling an item and their car's license plate. 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) allows secondhand dealers to use plain text property descriptions AB 1751 (Low) Page 13 of ? when reporting daily; 2) requires the information collected about the seller or pledger be only what is required under existing law; 3) requires that DOJ's implementation of the CAPSS system follow the Administrative Procedures Act and not through emergency regulations; 4) authorizes secondhand dealers to optionally use an article field when describing an item. If this bill were to pass, this measure 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. 6.Prior Related Legislation. AB 1182 (Santiago, Chapter 749, Statutes of 2015) narrowed the definition of tangible personal property and required DOJ to annually update the list of items that represent a significant class of stolen goods beginning January 1, 2016 and post it on its Web site. AB 632 (Eggman, Chapter 169, Statutes of 2015) authorized specified unique identifying numbers to be used as the serial number reported for handheld electronic devices, as specified. ACR 101 (Jones-Sawyer, Resolution Chapter 154, Statues of 2014) requested DOJ to convene meetings with representatives from law enforcement, prosecutors, the secondhand dealer and pawnbroker industry, and interested members of the public to discuss potential changes in law regarding internet pawnbrokers. AB 1751 (Low) Page 14 of ? SB 782 (Hill, Chapter 318, Statutes of 2013) clarified 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) required the DOJ to develop and implement a statewide, uniform electronic reporting system. Required the DOJ to charge a licensure fee and a renewal fee of no more than $300 to cover the costs of the reporting system. It also authorized the police chief, sheriff, or police commission to charge a fee not to exceed the actual costs incurred to process the renewal application of the license and to collect and transmit the feed charged by the DOJ. 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. ( Status: This bill failed passage in the Assembly Public Safety Committee.) AB 704 (Ma) of 2011 would have required secondhand dealers to provide specified information to any peace officer upon demand and allowed for the storage of the item for up to 90 days, and would have required an impounding agency to satisfy specified requirements regarding impounded. ( Status: This bill was held in the Assembly Judiciary Committee.) 7. Arguments in Support. Supporters underscore that "this bill will help ensure that we are able to provide our electronic AB 1751 (Low) Page 15 of ? JUS123 form data directly to law enforcement via the DOJ's database as mandated and agreed upon with AB 391. As you are aware, despite our efforts, the system currently in place is inadequate for law enforcement and unusable for pawnbrokers in many respects. AB 1751 addresses these points directly and will allow for an operable system to be put in place for the benefit of all." SUPPORT AND OPPOSITION: Support: Capital City Loan & Jewelry, II Empire Jewelry and Loan Granter Jewelry and Loan Company LLC Jewelry-N-Loan Precious Metal Investments Royal Loan San Francisco Gold Buyer The Pawnshop Inc. Opposition: California Peace Officers' Association California Police Chiefs Association California State Sheriffs' Association -- END --