BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 285|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: SB 285
Author: Block (D), et al.
Amended: 5/5/15
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 7-0, 4/15/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE JUDICIARY COMMITTEE: 6-0, 4/28/15
AYES: Jackson, Anderson, Hertzberg, Leno, Monning, Wieckowski
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Pawnbrokers: compensation: loans
SOURCE: California Pawnbrokers Association
DIGEST: This bill 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.
ANALYSIS:
Existing law:
1)Defines a pawnbroker as any person engaged in the business of
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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).
2)Specifies, generally, a loan length of four months, and caps the
compensation that may be charged by pawnbrokers on loans of up to
$2,500, as specified.
3)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
(Financial Code Section 21201).
This bill:
1)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).
2)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).
3)Collapses the 21-tier rate schedule that currently applies
during the first three months of a pawn loan into the
following six-tier rate schedule:
-----------------------------------------
| Maximum Charge for | |
| First Three Months | Size of Pawn Loan |
|--------------------+--------------------|
| $3 | <$20 |
|--------------------+--------------------|
| $6 | $20 to $49.99 |
|--------------------+--------------------|
| $9 | $50 to $74.99 |
|--------------------+--------------------|
| $12 | $75 to $99.99 |
|--------------------+--------------------|
| $15 | $100 to $174.99 |
|--------------------+--------------------|
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| 9% of principal |$175 to |
| amount |$2,499 |
| | |
-----------------------------------------
4)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%).
5)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.
Background
SB 285 increases the rates and fees that California pawnbrokers
may charge their customers, to help sustain the long-term
viability of the pawn industry in California. According to the
California Pawnbrokers Association (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, 13 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 will not survive.
Comments
The following table illustrates the cost of various sizes of
pawn loans, if SB 285 is enacted.
-------------------------------------------------
| Amount | Cost to Borrower | Annual |
| Borrowed | at End of |Percentage Rate |
| | Four-Month Loan | |
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| | 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.
Prior/Related Legislation
AB 424 (Eng, Chapter 318, Statutes of 2011) defined a month for
purposes of the Pawnbroker Law as a period of 30 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.
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).
AB 1297 (Papan, Chapter 505, Statutes of 2001) increased the
maximum loan set-up 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
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SUPPORT: (Verified5/15/15)
California Pawnbrokers Association (source)
OPPOSITION: (Verified5/15/15)
None received
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 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.
Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
5/19/15 9:45:07
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