BILL ANALYSIS Ó
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Marty Block, Chair
2015 - 2016 Regular
Bill No: SB 300 Hearing Date: April 15,
2015
-----------------------------------------------------------------
|Author: |Mendoza |
|-----------+-----------------------------------------------------|
|Version: |March 26, 2015 |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Urgency: |No |Fiscal: |Yes |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Eileen Newhall |
| | |
-----------------------------------------------------------------
Subject: Pawnbrokers: regulations.
SUMMARY Authorizes electronic pawn transactions, clarifies the
effective date of and rules surrounding the issuance of
replacement pawn loans, and allows pawnbrokers to provide
electronic notifications to pawn borrowers regarding the
expiration of the borrower's pawn loan period, as specified.
DESCRIPTION
1. Provides that the requirement for a written pawn contract
signed by a pledgor (borrower) can be met electronically, if
all of the following conditions are met:
a. The contract and transaction comply with the
provisions of the Uniform Electronic Transactions Act
(Civil Code Section 1633.1 et seq.);
b. Any written disclosures required to be set forth in
a specified minimum type size are conspicuously presented
to the borrower prior to his or her execution of the
electronic contract;
c. The pawnbroker discloses the rates and fees
applicable to the loan before the borrower executes the
electronic contract; and
d. The pawnbroker electronically deposits the loan
proceeds into a deposit account held in the name of the
SB 300 (Mendoza) Page 2
of ?
borrower at a depository institution located in the
United States.
2. Clarifies the effective date of a replacement pawn loan, as
follows:
a. During the contractual loan period of a pawn loan
and any extension of that loan period, and prior to the
start of the ten-day grace period authorized in state
law, a borrower may request, and a pawnbroker may consent
to, a replacement loan, to take effect upon the
expiration of the loan period stated in the active loan
contract.
b. In the alternative, during the ten-day grace period,
a borrower may request, and a pawnbroker may consent to,
a replacement loan, to take effect immediately on the
date it is issued.
3. Applies all of the following apply to a replacement loan
contract:
a. The loan must be processed as and deemed to be a new
loan subject to the fees and charges permitted on new
loans under the pawnbroker law.
b. The unpaid balance of the prior loan must be debited
to the replacement loan when the same article or articles
are pledged.
c. The borrower's consent to the terms of a replacement
loan is deemed given, as follows:
i. When the borrower requests the
replacement loan in person or electronically, his or
her consent to the terms of the replacement loan are
deemed given when he or she signs the written
replacement loan contract in person or
electronically in conformance with the rules for
electronic pawn loans.
ii. When the borrower requests the
replacement loan by mail or through a personal
representative, the borrower's consent to the terms
SB 300 (Mendoza) Page 3
of ?
of the replacement loan are deemed given when all
required charges from the prior loan then due are
paid in a form acceptable to the pawnbroker.
d. The principal amount of a replacement loan is not
constrained, if the replacement loan is requested in
person or electronically. The principal amount of a
replacement loan must be equal to or less than the
principal amount of the prior loan, if the replacement
loan is requested by mail or through a personal
representative.
e. The terms of the replacement loan must be consistent
with the laws governing pawnbrokers as of the date the
replacement loan is issued (thus, if an original loan
contract is consummated prior to a law change, and a
replacement loan contract is consummated after a law
change, the replacement loan contract is governed by the
modified law).
f. The pawnbroker must mail or otherwise transmit a
copy of the written replacement loan contract to the
borrower within five business days of receiving payment
in connection with the prior loan contract, via a means
for which the pawnbroker can document mailing or
transmittal.
EXISTING LAW
PAWNBROKER REQUIREMENTS IN THE FINANCIAL CODE:
4. 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).
5. Requires every pawn loan to be evidenced by a written contract,
a copy of which must be furnished to the borrower (Section
21201).
6. Generally specifies a loan length of four months, and caps the
compensation that may be charged by pawnbrokers on loans of up
SB 300 (Mendoza) Page 4
of ?
to $2,500 (Sections 21200, 21200.1, 21200.5, 21200.8, and
21201.4).
7. 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).
8. 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
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).
9. Does not cap the rates and fees that may be charged on pawn
loans of $2,500 or more (Section 21051).
10. 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).
11. Requires pawnbrokers to comply with the rules applicable to
secondhand dealers, which are found in the Business and
Professions Code Section 21625 et seq.).
PAWNBROKER REQUIREMENTS IN THE BUSINESS AND PROFESSIONS CODE:
12. Pursuant to the rules for secondhand dealers, every pawnbroker
is required to report daily or on the first working day after
receipt or purchase of secondhand tangible personal property, on
forms or through an electronic reporting system approved by the
Department of Justice (DOJ), all tangible personal property,
except for firearms, which he or she has purchased or taken in
pawn, to the chief of police or sheriff in their jurisdiction.
The report must be legible, prepared in English, and must
include the following information: the name and current address
SB 300 (Mendoza) Page 5
of ?
of the seller or pledger of the property, the identification of
the seller or pledger, a complete and reasonably accurate
description of the property (including serial numbers and
identifying marks, if any), a certification by the intended
seller or pledger that he or she is the owner of the property or
has the authority of the owner to sell or pledge the property,
certification by the intended seller or pledger that the
information provided is true and complete, and a legible
fingerprint taken from the intended seller or pledger, as
prescribed by DOJ. Law enforcement agencies that receive these
reports must submit them on a daily basis to DOJ (Business and
Professions Code Section 21628 and 21634).
13. Pursuant to the rules for secondhand dealers, every pawnbroker
is required to retain in his or her possession, for a period of
30 days, all tangible personal property reported to local law
enforcement. The 30-day holding period begins on the date the
report of property acquisition is made to the chief of police or
to the sheriff. During this 30-day holding period, pawnbrokers
are required to produce any tangible personal property reported
to a chief of police or sheriff for inspection by any peace
officer or employee designated by the chief of police or sheriff
or the Department of Justice (Business and Professions Code
Section 21636)
RELEVANT REQUIREMENTS IN THE UNIFORM ELECTRONIC TRANSACTIONS ACT:
14. Pursuant to the Uniform Electronic Transaction Act, an
electronic record or electronic signature is attributable to
a person if it was the act of the person. The act of the
person may be shown in any manner, including a showing of
the validity of any security procedure applied to determine
the person to which the electronic record or electronic
signature was attributable. Attribution must be determined
from the context and surrounding circumstances at the time
of the signature's creation, execution, or adoption (Civil
Code Section 1633.9).
COMMENTS
1. Purpose: This bill is sponsored by the California
Pawnbrokers Association (CAPA) to authorize electronic pawn
transactions in California and, in doing so, allow
SB 300 (Mendoza) Page 6
of ?
California pawnbrokers to compete with out-of-state
pawnbrokers that are currently offering electronic pawn
loans.
2. Background and Discussion: According to this bill's
sponsor, eight states currently offer electronic pawn
transactions, including Colorado, Florida, Texas, New York,
Georgia, New Hampshire, Hawaii, and Arizona. In these
states, a potential pledgor contacts the pawnbroker to
express interest in obtaining a pawn loan and to describe
and/or submit photographs of the item(s) he or she wishes to
pawn. The pawnbroker mails the potential pledgor a mailing
label and/or an envelope, box, or other container in which
the item(s) to be pawned can be sent by the potential
pledgor to the pawnbroker. Upon receipt of the item(s), the
pawnbroker appraises the item(s) and informs the potential
pledgor of the amount of money the pawnbroker is willing to
lend the potential pledgor. If this amount is acceptable,
the pledgor and pawnbroker enter into an agreement that is
signed electronically by both parties, and the agreed-upon
sum of money is either wired to the pledgor or
electronically deposited in an account at a depository
institution of the pledgor's choosing. The pledgor is then
required to pay the pawn loan back according to its terms.
Ten to fifteen percent of pawn transactions conducted by
Californians are currently being conducted electronically,
using out-of-state pawnbrokers that lend over the Internet.
As described above (see Existing Law Number 9), California law
requires pawnbrokers to obtain a borrower's fingerprint at
loan origination. According to CAPA, California is one of
only seven states that still require a fingerprint - a
requirement that was originally intended to link a specific
pledgor to an item of tangible personal property, but one
which, according to CAPA, has never been used in a criminal
proceeding in California. Six other states defer to local
municipalities on whether to require fingerprints, and some
states only require a fingerprint when the pledgor lacks
photo identification.
California's fingerprint requirement is problematic in the
context of electronic pawn transactions, due to the
challenge of verifying that the fingerprint provided belongs
SB 300 (Mendoza) Page 7
of ?
to the pawn borrower. According to CAPA, all of the states
which authorize electronic pawn transactions allow these
transactions to be conducted without requiring a
fingerprint; instead, they require alternate means of
identification, such as digital signatures, photo
identification, and/or proof of residency.
As an alternative to the fingerprint requirement, this bill
would require loan proceeds generated through an electronic
pawn transaction to be deposited into an account at a
depository institution in the United States. The logic:
depository institutions obtain fingerprint data from persons
who seek to open accounts; thus a requirement that the
person pawning an item receive the proceeds of his or her
loan into an account that bears their name will ensure that
a fingerprint of that person exists. Presumably, law
enforcement could subpoena such fingerprint records, if they
were needed as part of a criminal investigation involving a
pawned item.
3. Verifying the Legitimacy of Electronic Signatures This bill
requires electronic pawn transactions to be conducted in
conformance with the Uniform Electronic Transactions Act
(UETA; Civil Code Section 1633.1 et seq.). UETA is intended
to ensure that electronic transactions accompanied by
electronic signatures are as enforceable as transactions
memorialized on paper with wet signatures; the law applies
whenever all parties to a transaction have agreed to conduct
the transaction by electronic means. UETA does not define
what constitutes an acceptable digital signature, nor does
it require a specific type of security procedure to verify
that signature. Instead, it allows the veracity of a
signature to "be shown in any manner, including a showing of
the efficacy of any security procedure applied to determine
the person to which the electronic record or electronic
signature was attributable."
Federal anti-money laundering statutes also require pawnbrokers
to verify the identities of their customers. In a
memorandum prepared for Committee staff regarding this
issue, CAPA explains that pawnbrokers are defined as
financial institutions in federal law (31 USC Section
5312(a)(2)(O)), and, as such, are required by federal
anti-money laundering statutes and regulations to exercise
SB 300 (Mendoza) Page 8
of ?
due diligence in verifying the identities of their
customers. This requirement transcends the form of any
given transaction; it applies regardless of whether the
transaction occurs in person or electronically.
4. Different Rules For Different Types Pawn Loan Extensions:
As described above, this bill applies different rules to
pawn loan extensions requested in different ways. When a
replacement pawn loan is requested in person or
electronically, the borrower's signature (either wet or
electronic) is required on the replacement loan contract,
and the principal amount of the replacement loan is not
limited. When a replacement pawn loan is requested by mail
or through a personal representative, the borrower's
signature is not required; instead, the borrower's consent
to the replacement loan is deemed given when the prior loan
is fully paid off in a manner acceptable to the pawnbroker.
In these cases, the principal amount of the replacement loan
is capped, and cannot exceed the principal amount of the
prior loan.
CAPA is proposing these two different sets of rules as a means
to protect borrowers by minimizing the potential for fraud
involving replacement loan amounts. If a borrower appears
before the pawnbroker in person or requests a replacement
loan electronically, that person's identity can more readily
be verified, and their wishes regarding the amount of their
replacement loan confirmed. In contrast, when a borrower
mails his or her payment in to a pawnbroker or sends a third
party to make payment on their behalf, the wishes of the
original borrower regarding the size of a replacement loan
can be harder to discern. When a borrower's signature
cannot reasonably be obtained or verified (as is the case If
an individual sends a personal representative), CAPA is
proposing to cap the size of the replacement loan at an
amount no greater than the amount of the prior loan.
5. Summary of Arguments in Support: CAPA is sponsoring this
bill to help California pawnbrokers compete with pawnbrokers
in other states that transact pawn loans over the Internet.
If enacted, this bill will not only allow California
pawnbrokers to compete with pawnbrokers in other states, it
may allow California's pawnbrokers to dominate the internet
pawn market. California's pawn loan interest rates and fees
SB 300 (Mendoza) Page 9
of ?
are among the lowest in the United States (currently 48th
out of 51 states and the District of Columbia; 47th out of
51, if SB 285 is enacted). Borrowers seeking to pawn items
are likely to be attracted to these relatively low charges.
CAPA also believes that California law enforcement will benefit,
if this bill is enacted. At present, Californians seeking
to pawn items over the Internet are using pawnbrokers in
other states - thus depriving California law enforcement of
the information it receives and of the 30-day period in
which to inspect pawned property when items are pawned in
California. If this bill is enacted, that trend should
reverse. California law enforcement will not only receive
property reports and be able to inspect items pawned over
the Internet by California residents, but will receive these
reports and be able to inspect items pawned over the
Internet by borrowers located in other states.
6. Summary of Arguments in Opposition: None received.
7. 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.
8. Prior and Related Legislation:
a. ACR 101 (Jones-Sawyer), Resolution Chapter 154,
Statutes of 2011: Requested the California Department of
Justice to convene meetings with representatives from law
enforcement, prosecutors, the secondhand dealer and
pawnbroker industry, and interested members of the public
to determine the changes to existing law that would allow
California pawnbrokers and secondhand dealers to fairly
compete with out-of-state internet pawnbrokers, keep
available to law enforcement merchandise pawned over the
Internet that would otherwise go out-of-state and not be
reported or held for inspection, and protect California
consumers transacting pawn loans over the Internet from
higher interest rates and fees than those permitted in
California.
b. SB 212 (De Leon): Would have authorized replacement
pawn loans to be taken out electronically. Never taken
SB 300 (Mendoza) Page 10
of ?
up in the Senate Banking and Financial Institutions
Committee.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Pawnbrokers Association (sponsor)
Opposition
None received
-- END --