BILL ANALYSIS Ó
SB 285
Page 1
Date of Hearing: June 22, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
SB
285 (Block) - As Amended June 4, 2015
SENATE VOTE: 39-0
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. Specifically,
this bill:
1)Allows for the following changes to rates and fees charged by
pawnbrokers:
a) Increase certain amounts that may be charged during the
first three months of any loan less than $2,500 by
consolidating the existing 21 loan brackets into 6 and
setting new maximum charges within those brackets;
b) Increase from 2.5 percent to 3 percent the maximum monthly
rate of compensation that may be charged for the fourth and
subsequent months on the unpaid principal balance of any
loan;
c) Increase from 2 percent to 3 percent the allowable loan
SB 285
Page 2
setup fee for each loan, and increase from $10 to $30 the
maximum allowable loan setup fee; and
d) Increase the amount that may be charged for the handling
and storage of pawned articles.
2)Authorizes a pawnbroker to deliver, at the sole option of the
pledgor, specified notices via electronic mail.
EXISTING LAW:
1)Defines "pawnbroker" as every person engaged in the business of
receiving goods, including motor vehicles, in pledge as security
for a loan. (Fin. Code Sec. 21000.)
2)Requires every loan made by a pawnbroker to be evidenced by a
written contract that provides for a four-month loan period, as
specified. If a pledged article is not redeemed during the
four-month period, and there is not a written agreement to
extend the loan period, the pawnbroker must notify the borrower
at his or her last known address within 30 days after expiration
of the loan period and provide a 10 day extension to redeem the
pledged property, as specified. Existing law provides that if
the pawnbroker fails to notify the borrower within 30 days after
the expiration of the loan period, the pawnbroker shall not
charge interest from the day after the expiration of the one
month period. (Fin. Code Sec. 21201.)
3)Permits a pawnbroker to charge fees pursuant to a set schedule
of charges that are based upon the amount of the loan, including
a charge not exceeding one dollar per month for any loan that
does not exceed $14.99. (Fin. Code Sec. 21200.5.) Existing law
provides that charges for the first 90 days of a loan shall be
determined by that schedule of charges. Charges for any period
of time following the first 90 days of the loan shall not exceed
the lesser of $3 per month or 2.5 percent of the unpaid
SB 285
Page 3
principal balance. (Fin. Code Secs. 21200, 21201.4.)
4)Provides that a loan setup fee not to exceed $5 or 2 percent,
whichever is greater, may be charged for each loan. However,
the maximum loan setup fee shall not exceed $10. (Fin. Code
Sec. 21200.1)
5)Provides that, in addition to other allowed charges, at the time
property is redeemed a pawnbroker may collect a handling and
storage charge for pawned articles pursuant to a set schedule of
charges based on the volume of the pawned item, including a
charge of $5 for any article that cannot be contained within one
cubic foot. Existing law prohibits the collection of a storage
charge for any article that can be contained within one cubic
foot. (Fin. Code Sec. 21200.6)
FISCAL EFFECT: Unknown
COMMENTS:
The author writes:
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).
SB 285
Page 4
According to [the California Pawnbroker's 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, 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 will not survive.
According to national figures provided by CAPA, about 80
[percent] of pawn customers are repeat customers. Repayment
rates nationally are in the 70 [percent] to 80 [percent] range,
with California trending toward the upper level of that range.
SB 285 is the latest in a series of bills sponsored by CAPA that
seeks to increase the fees and charges associated with pawn
transactions due to rising business costs and other economic
impacts. Even with the increases in SB 285 California pawn
transaction rates would still remain among the cheapest among all
50 states. Unlike other forms of small dollar lending a
pawnbroker must have sufficient liquidity to fund the loan but
also must store the property for the term of the loan.
SB 285 institutes the following key changes:
1)Increases from 2.5 percent to 3 percent the maximum monthly rate
of compensation that may be charged for the fourth and
SB 285
Page 5
subsequent months on the unpaid principal balance of any loan.
Increases from 2 percent to 3 percent the allowable loan setup
fee for each loan, and increase from $10 to $30 the maximum
allowable loan setup fee.
2)Permits the collection of a $1 handling and storage charge for
any article that can be contained within one cubic foot, and
would authorize the collection of handling and storage charges
at the time a loan is issued instead of when the property is
redeemed.
3)Allows a pawnbroker to notify the pledgor at his or her last
known electronic address of the termination of the loan period
at the sole option of the pledgor by a means for which
verification of electronic transmission of the notification can
be provided by the pawnbroker.
Specifically this bill would revise and consolidate the current
loan charges by reducing from 21 brackets to 6 brackets the
schedule of charges a pawnbroker may charge for the first 90 days
of the loan. The new 6-tier rate structure would be the
following:
--------------------------------
|Maximum Charge |Size of Loan |
|for First | |
|Three Months | |
| | |
| | |
|---------------+----------------|
|$3 |<$20 |
| | |
| | |
|---------------+----------------|
|$6 |$20-$49.99 |
SB 285
Page 6
| | |
| | |
|---------------+----------------|
|$9 |$50 to $74.99 |
| | |
| | |
|---------------+----------------|
|$12 |$75 to $99.99 |
| | |
| | |
|---------------+----------------|
|$15 |$100 to $174.99 |
| | |
| | |
|---------------+----------------|
|9% of | |
|principal | |
|amount | |
| | |
| | |
--------------------------------
If SB 285 becomes law the following demonstrates the new loan
charges on a pawn transaction, assuming a $1 storage fee:
-------------------------------------------------
| Amount | Cost to Borrower | Annual |
| Borrowed | at End of |Percentage Rate |
| | Four-Month Loan | |
| | Period* | |
| | | |
| | | |
|-------------+------------------+----------------|
| $100 | $24.00 | 72.00 |
| | | |
| | | |
SB 285
Page 7
|-------------+------------------+----------------|
| $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 Legislation :
AB 424 (Eng, Chapter 318, Statutes of 2011) authorized pawnbrokers
to charge borrowers the greater of three dollars per month or 2.5
percent per month on the unpaid principal balance of loans below
$2,500 that are greater than three months old. This bill also
defined a month for purposes of the laws governing pawnbrokers as
SB 285
Page 8
a period of time consisting of 30 consecutive days.
SB 217 (Vargas, Chapter 444, Statutes of 2011) would have
authorized pawnbrokers to charge borrowers the greater of three
dollars per month or 2.5 percent per month on the unpaid principal
balance of loans below $2,500 that are greater than three months
old. This bill was gutted and amended to address a different
subject.
SB 212 (DeLeon, 2011) would have clarified the circumstances under
which replacement pawn loans could be taken out by individuals who
are unable to undertake these transactions in person. This bill
died in the Senate Banking & Financial Institutions Committee.
AB 1357 (Coto, 2009) would have increased the maximum fee a
pawnbroker may charge or receive on the entire unpaid principal
balance of loans over 90 days to 2.5 percent per month. This bill
was vetoed by Governor Schwarzenegger.
SB 580 (Calderon, Chapter 340, Statutes of 2008), increased the
allowable loan set-up fee from $3 to $5 and increased the minimum
monthly charge from $1 to $3.
AB 264 (Mendoza, 2007), as introduced, would have increased the
maximum rate that may be charged on loans over 90 days by
instituting a flat 2.5 percent a month interest rate, and
increased the loan setup fee to a maximum of $50, as specified.
The bill was gutted and amended after being held in the Senate
Judiciary Committee.
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
SB 285
Page 9
$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
Support
California Pawnbrokers Association (Sponsor)
Opposition
None on file.
Analysis Prepared by:Mark Farouk / B. & F. / (916)
319-3081