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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                                UNFINISHED BUSINESS 


          Bill No:  SB 285
          Author:   Block (D), et al.
          Amended:  6/4/15  
          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

           SENATE FLOOR:  39-0, 5/22/15 
           AYES:  Allen, Anderson, Bates, Beall, Berryhill, Block,  
            Cannella, De León, Fuller, Gaines, Galgiani, Hall, Hancock,  
            Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno,  
            Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach,  
            Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Runner, Stone,  
            Vidak, Wieckowski, Wolk

           ASSEMBLY FLOOR:  79-0, 7/16/15 (Consent) - See last page for  
            vote

           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.   









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          Assembly Amendments require representatives of the pawnbroker  
          industry to poll their members annually to gather data relating  
          to the current financial condition of the California pawn  
          industry and make technical and clarifying changes.


          ANALYSIS:   


          Existing law:


          1)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).

          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 pledgor'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).  








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                                                                    Page  3




          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   |
          |--------------------+--------------------|
          |  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 electronically  
            regarding the termination of the pledgor's loan period, if  
            such method of notice delivery is acceptable to the pledgor,  
            and if the pledgor has previously responded to an electronic  
            communication sent by the pawnbroker to the pledgor's last  
            known electronic address.

          6)Requires representatives of the pawnbroker industry to poll  
            their members  annually to gather data relating to the current  
            financial condition of the California pawn industry.

          Background
          
          SB 285 increases the rates and fees that California pawnbrokers  








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          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  |                |
          |             |     Period *     |                |
          |-------------+------------------+----------------|
          |    $100     |      $24.00      |     72.00      |
          |-------------+------------------+----------------|
          |    $250     |      $38.50      |     46.20      |
          |-------------+------------------+----------------|
          |    $500     |      $76.00      |     45.60      |
          |-------------+------------------+----------------|
          |   $1,000    |     $151.00      |     45.30      |
          |-------------+------------------+----------------|
          |   $1,500    |     $226.00      |     45.20      |
          |-------------+------------------+----------------|
          |   $2,000    |     $301.00      |     45.15      |
          |-------------+------------------+----------------|
          |   $2,499    |     $330.88      |39.72           |








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          |             |                  |                |
           ------------------------------------------------- 
          *Assumes a storage fee of $1.  

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          SUPPORT:   (Verified7/21/15)


          California Pawnbrokers Association (source) 


          OPPOSITION:   (Verified7/21/15)


          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.









                                                                     SB 285  
                                                                    Page  6



          ASSEMBLY FLOOR:  79-0, 7/16/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gray,  
            Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Gordon


          Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
          8/13/15 13:38:36


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