BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 285| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. SB 285 Page 2 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). SB 285 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 SB 285 Page 4 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 | SB 285 Page 5 | | | | ------------------------------------------------- *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 **** END ****