BILL ANALYSIS Ó
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Block, Chair
2015 - 2016 Regular
Bill No: SB 285 Hearing Date: April 15,
2015
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|Author: |Block |
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|------------+----------------------+-----------+-----------------|
|Version: |February 19, 2015 | | |
|------------+----------------------+-----------+-----------------|
|Urgency: |No |Fiscal: |Yes |
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|Consultant: |Eileen Newhall |
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Subject: Pawnbrokers: compensation: loans
SUMMARY Increases the maximum rates and fees that may be charged by
California pawnbrokers and allows pawnbrokers to substitute
electronic notices for mailed notices, as specified.
DESCRIPTION
1. Authorizes pawnbrokers to charge a storage fee when they
issue a new loan or a subsequent loan (at present, the
storage fee may only be collected upon redemption of an
item).
2. Authorizes a storage fee of up to $1 per month on items
less than one cubic foot in size (at present, no storage fee
is allowed on these small items).
3. Increases the maximum allowable loan set-up fee to the
greater of $5 or 3% of the loan principal, not to exceed $30
(up from the greater of $5 or 2% of the loan principal, not
to exceed $10).
4. Collapses the 21-tier rate schedule that currently applies
during the first three months of a pawn loan into the
following 6-tier rate schedule:
-----------------------------------------
| Maximum Charge For | |
| First Three Months | Size of Pawn Loan |
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|--------------------+--------------------|
| $3 | <$20 |
|--------------------+--------------------|
| $6 | $20 to $49.99 |
|--------------------+--------------------|
| $9 | $50 to $74.99 |
|--------------------+--------------------|
| $12 | $75 to $99.99 |
|--------------------+--------------------|
| $15 | $100 to $174.99 |
|--------------------+--------------------|
| 9% of principal |$175 to |
| amount |$2,499 |
| | |
-----------------------------------------
5. Increases the maximum allowable interest rate that may be
charged during the fourth month and any subsequent months of
a pawn loan to 3% of the loan principal (up from 2.5%).
6. Authorizes a pawnbroker to notify a pledgor (i.e., a
borrower) electronically regarding the termination of the
pledgor's loan period, if such method of notice delivery is
acceptable to the pledgor.
EXISTING LAW
7. Defines a pawnbroker as any person engaged in the 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 (Financial Code Sections 21000 and
21002).
8. Provides for the licensing of pawnbrokers by a chief of police,
sheriff, or police commission (Section 21300).
9. 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 three months of the loan, pawnbrokers
may charge borrowers between $1 and $140, depending on the
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dollar amount of the loan (Sections 21200.5 and 21201.4).
-----------------------------------------
|Maximum Charge For | |
|First Three Months |Size of Pawn Loan |
|--------------------+--------------------|
| $1 | <$15 |
|--------------------+--------------------|
| $3 | $15 to $19.99 |
|--------------------+--------------------|
| $4 | $20 to 24.99 |
|--------------------+--------------------|
| $5 | $25 to $39.99 |
|--------------------+--------------------|
| $6 | $40 to $49.99 |
|--------------------+--------------------|
| $7 | $50 to $64.99 |
|--------------------+--------------------|
| $8.50 | $65 to $74.99 |
|--------------------+--------------------|
| $10 | $75 to $99.99 |
|--------------------+--------------------|
| $12.50 | $100 to $124.99 |
|--------------------+--------------------|
| $13.50 | $125 to $149.99 |
|--------------------+--------------------|
| $15 | $150 to $224.99 |
|--------------------+--------------------|
| $20 | $225 to $324.99 |
|--------------------+--------------------|
| $25 | $325 to $449.99 |
|--------------------+--------------------|
| $35 | $450 to $599.99 |
|--------------------+--------------------|
| $45 | $600 to $799.99 |
|--------------------+--------------------|
| $55 | $800 to $999.99 |
|--------------------+--------------------|
| $70 |$1,000 to $1,199.99 |
|--------------------+--------------------|
| $85 |$1,200 to $1,499.99 |
|--------------------+--------------------|
| $100 |$1,500 to $1,799.99 |
|--------------------+--------------------|
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| $120 |$1,800 to $2.099.99 |
|--------------------+--------------------|
| $140 |$2,100 to |
| |$2,499.99 |
| | |
-----------------------------------------
b. During the fourth and subsequent months, pawnbrokers may
charge a maximum of 2.5% per month, or $3 per month,
whichever is greater (Sections 21200 and 21201.4).
c. Pawnbrokers may charge a loan setup fee not to exceed
the greater of $5 or 2% of the loan amount, capped at $10
(Section 21200.1).
d. Pawnbrokers may also charge a handling and storage fee
upon property redemption. This storage fee equals $5 for
items greater than one cubic foot and up to three cubic feet,
$10 for items greater than three cubic feet and up to six
cubic feet, $20 for items greater than six cubic feet, plus
one additional dollar for each additional cubic foot in
excess of 6 cubic feet.
e. Pawnbrokers may charge a processing fee of $4 for each
firearm pawned (Section 21200.8).
f. If the borrower fails to redeem a pawned item during the
loan period, pawnbrokers may charge of up to $3 for services
and costs relating to providing required notices of loan
expiration to the borrower (Section 21201.2).
10. 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 (Section 21051).
11. Requires all licensed pawnbrokers to post their fees and
charges in a place clearly visible to the general public
(Sections 21200.5 and 21200.7).
12. Requires a pawnbroker to notify a pledgor (i.e., a borrower) in
writing, at his or her last known address, regarding the
termination of the borrower's loan period, by a means for which
verification of mailing can be provided by the pawnbroker. This
notification must inform the borrower that they are entitled to
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an extra ten days in which to redeem their pawned item,
beginning on the date the notice is mailed, and must clarify
that if the tenth day falls on a day that the pawn shop is
closed, the time period is extended to the next day the pawn
shop is open (Section 21201).
13. 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 (Section 21201.5).
COMMENTS
1. Purpose: This bill is sponsored by the California
Pawnbroker's Association (CAPA) to help ensure the survival
of California's pawn industry.
Background: SB 285 would increase the rates and fees that
California pawnbrokers may charge their customers, helping
sustain the long-term viability of the pawn industry in
California. California's pawn lending rates and fees are
set by statute and have periodically been increased over the
years to keep up with the cost of doing business. The last
increase occurred in 2011 (AB 424, Eng, Chapter 318,
Statutes of 2011).
According to CAPA, California's interest rate and fee caps
on pawn loans of up to $2,500 are among the lowest in the
country. California currently ranks 48th out of 51, when
our allowable pawnbroker compensation is compared to the
other states and the District of Columbia. Many of
California's pawnbrokers --- particularly our smallest ones
- are struggling to remain in business in a state whose cost
of living and cost of doing business is among the highest in
the country.
CAPA, sponsor of this bill, counts approximately half of
California's licensed pawnbrokers among its membership. In
2014 alone, thirteen of CAPA's members shut their doors,
unable to make ends meet. Without an increase in allowable
compensation, CAPA asserts that California's pawn industry
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will not survive.
According to national figures provided by CAPA, about 80% of
pawn customers are repeat customers. Repayment rates
nationally are in the 70% to 80% range, with California
trending toward the upper level of that range.
2. The Cost Of A Pawn Loan, If This Bill Is Enacted: The
out-of-pocket cost and annual percentage rate of various
sizes of pawn loans is summarized below.
-------------------------------------------------
| AMOUNT | COST TO BORROWER | ANNUAL |
| BORROWED | AT END OF |PERCENTAGE RATE |
| | FOUR-MONTH LOAN | |
| | PERIOD* | |
|-------------+------------------+----------------|
| $100 | $24.00 |72.00 |
|-------------+------------------+----------------|
| $250 | $38.50 | 46.20 |
|-------------+------------------+----------------|
| $500 | $76.00 | 45.60 |
|-------------+------------------+----------------|
| $1000 | $151.00 | 45.30 |
|-------------+------------------+----------------|
| $1500 | $226.00 | 45.20 |
|-------------+------------------+----------------|
| $2000 | $301.00 | 45.15 |
|-------------+------------------+----------------|
| $2499 | $330.88 |39.72 |
| | | |
-------------------------------------------------
*Assumes a storage fee of $1.
3. Summary of Arguments in Support: CAPA is sponsoring this
bill to help ensure the survival of California's pawn
industry. CAPA asserts that pawn loans are among the least
expensive, short-term credit options available to
individuals who are having trouble making ends meet, and
provide more flexibility to borrowers than other types of
short-term credit options. For example, pawn loans are
available in a variety of different sizes to best meet the
needs of the borrower. They are typically less expensive
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than payday loans, provide consumers with access to borrowed
money for a longer period of time than payday loans (at
least four months for a pawn loan, versus a maximum of 30
days for a payday loan), and allow the payment of fees and
interest at the end of the loan period, rather than
up-front.
CAPA also believes that consumers are far better pawning an item
than falling behind on one or more of their utility bills,
rent, or mortgage payments, or than allowing a check to
bounce. Service restoration charges imposed by utilities,
insufficient funds fees charged by banks, and late payment
penalties imposed by landlords and mortgage lenders exceed
the cost of pawning a possession to avoid these charges.
4. Summary of Arguments in Opposition: None received.
5. Amendments: Although no amendments are recommended at this
time, amendments will eventually be necessary to avoid
chaptering problems, if both SB 285 and SB 300 advance to
the Governor.
6. Prior and Related Legislation:
a. AB 424 (Eng), Chapter 318, Statutes of 2011:
Defined a month for purposes of the Pawnbroker Law as a
period of thirty consecutive days, and replaced a tiered
interest rate model that had previously applied to loans
older than three months with a uniform charge equal to
the greater of $3 per month or 2.5% per month on the
unpaid principal balance of the loan.
b. SB 580 (Calderon), Chapter 340, Statutes of 2008):
Increased the minimum monthly interest charge from $1 to
$3 on loans older than 90 days and changed the cap on
loan set-up fees to the greater of $5 or 2%, capped at
$10 (up from $3 on loans of $50 and below and $5 on loans
above $50).
c. 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
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maximum allowable fee for costs relating to sending a
loan expiration notice from $2 to $3.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Pawnbrokers Association (sponsor)
Opposition
None received
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