BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015 - 2016 Regular Session
SB 300 (Mendoza)
Version: March 26, 2015
Hearing Date: April 21, 2015
Fiscal: Yes
Urgency: No
TH
SUBJECT
Pawnbrokers: Regulations
DESCRIPTION
This bill would authorize a pawnbroker to execute a written
contract for a loan for which goods are received in pledge as
security if the contract and transaction comply with the
provisions of the Uniform Electronic Transactions Act. This
bill would also require a pawnbroker who has issued a loan
electronically, instead of obtaining and reporting the
customer's fingerprint, to electronically deposit the loan
proceeds into a deposit account held in the name of the pledgor
at a depository institution located in the United States. This
bill would additionally authorize a pawnbroker to deliver, at
the sole option of the pledgor, specified notices via electronic
mail.
BACKGROUND
Until recently, secondhand goods merchants and pawnbrokers in
the United States have been confined to doing business out of
fixed storefronts with customers who visit their physical retail
locations. This geographical limitation has historically
allowed each state to regulate the activities of secondhand
dealers and pawnbrokers doing business within their state as
they saw fit. For secondhand goods merchants and pawnbrokers
doing business in California, state law governs many aspects of
how these businesses operate. The Legislature, for example, has
enacted various laws to both curtail the dissemination and
facilitate the recovery of stolen property, including property
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acquired by pawnbrokers and secondhand dealers, knowing that
these merchants are often utilized by individuals attempting to
sell or pawn stolen or embezzled property.
Generally, California law requires all secondhand dealers,
including pawnbrokers, and coin dealers to report daily to law
enforcement every piece of tangible personal property that they
purchase, take in trade, take in pawn, accept for sale on
consignment, or accept for auctioning, using an electronic
reporting system maintained by the California Department of
Justice. Property so acquired by secondhand dealers must be
held for at least 30 days and must be produced or surrendered to
law enforcement when it is reasonably thought that the property
was lost, stolen, or embezzled. California law also regulates
the terms by which pawnbrokers may offer loans secured by
tangible property to consumers, including placing caps on loan
setup fees, handling and storage fees, and caps on maximum
compensation.
With the advent of the Internet, however, some out-of-state
pawnbrokers have begun transacting business with California
residents online, using the Internet and express delivery
companies to accomplish what used to be done at retail
storefronts. According to a recent article:
For consumers, it means that instead of plopping a castoff
wedding ring, camera or china platter onto the counter of a
local pawnshop, you do the entire transaction online and by
mail. . . . The appeal: Online pawning is relatively quick,
completely private, and there's no stigma of walking into a
public place with your personal possessions to hock. And if
you default on your loan, nothing gets reported to a credit
bureau. (Claudia Buck, Pawnshop Has Spread to the Internet
(Mar. 19, 2012) The Minneapolis Star Tribune
[as of
April 11, 2015].)
Despite its convenience for consumers, the ability of
out-of-state pawnbrokers and secondhand goods merchants to
remotely offer services to Californians may, in effect, leave
California residents unprotected when these merchants transact
business in violation of California law. According to the same
article, one California pawnshop owner argues that these online
pawn shops are "in direct competition with California
pawnbrokers," adding that "it's an uneven matchup, [since]
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California law requires walk-in pawnshop customers to provide
I.D., fingerprints and a signature. Local shops also must
report each item they receive to law enforcement to thwart
stolen goods. They can't conduct any business online. " (Id.)
Accordingly, this bill would allow pawnbrokers to make pawn
transactions over the Internet by enacting various changes to
California's pawnbroker laws, including authorizing written pawn
contracts to be made electronically, removing the requirement to
provide a thumbprint, requiring pawn loan proceeds to be
deposited in a U.S. depository institution, and allowing certain
notices to be provided electronically.
CHANGES TO EXISTING LAW
1.Existing law includes a statement of legislative intent to
curtail the dissemination of stolen property, to facilitate
the recovery of stolen property and to detect possible sales
tax evasion by means of a uniform, statewide,
state-administered program of regulation of persons whose
principal business is dealing in tangible personal property,
as specified. (Bus. & Prof. Code Sec. 21625.)
Existing law includes a statement of legislative intent that
reports of transactions in pawned and secondhand property
should be correlated with law enforcement reports so as to
trace and recover stolen property. (Bus. & Prof. Code Sec.
21625.)
Existing law defines a "secondhand dealer" to mean any person
or entity whose business includes buying, selling, trading,
taking in pawn, accepting for sale on consignment, accepting
for auctioning, or auctioning secondhand tangible personal
property. Existing law specifies that a "secondhand dealer"
does not include a "coin dealer" or participants at gun shows
or events, persons who perform the services of an auctioneer,
or persons whose business is limited to the reconditioning and
selling of major household appliances, as specified. (Bus. &
Prof. Code Secs. 21626, 21626.5.)
Existing law defines "tangible personal property" to mean: (1)
all secondhand personal property that has a serial number or
personalized markings; (2) all tangible property, new or used,
taken by a pawnbroker as security for a loan; and (3) all
tangible personal property commonly sold by secondhand dealers
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that constitutes a significant class of stolen property.
(Bus. & Prof. Code Sec. 21627(a)-(b).) Existing law provides
that tangible personal property does not include coins,
monetized bullion, or commercial grade ingots of precious
metals. (Bus. & Prof. Code Sec. 21627(d).)
Existing law defines a "pawnbroker" to mean a person engaged
in the business of receiving goods in pledge for security for
a loan." (Fin. Code Sec. 21000.)
Existing law defines a "coin dealer" to mean any person, firm,
partnership, or corporation whose principal business is the
buying, selling, and trading of coins, monetized bullion, or
commercial grade ingots of gold, or silver, or other precious
metals. (Bus. & Prof. Code Sec. 21626(b).)
Existing law requires every loan made by a pawnbroker for
which goods are received in pledge as security to be evidenced
by a written contract, a copy of which shall be furnished to
the borrower. Existing law states that the loan contract
shall provide a four-month loan period, shall set forth the
loan period and the date on which the loan is due and payable,
and shall clearly inform the borrower of his or her right to
redeem the pledge during the loan period. (Fin. Code Sec.
21201.)
This bill would provide that the requirement for a written
contract signed by the pledgor may be met electronically if
the contract and transaction comply with the provisions of the
California Uniform Electronic Transactions Act, and any
required written disclosures to be set forth in a specified
minimum type size are conspicuously presented to the pledgor
prior to his or her execution of the electronic contract.
This bill would also provide that the loan contract shall
provide for at least a four-month loan period.
2.Existing law requires a pawnbroker to notify a pledgor at his
or her last known address of the termination of the loan
period, by a means for which verification of mailing or
delivery of the notification can be provided by the
pawnbroker, and extending the right of redemption, during
posted business hours, for a period of 10 days from the date
of mailing of that notice. (Fin. Code Sec. 21201.)
This bill would provide that a pawnbroker may also notify the
pledgor at his or her last known electronic address of the
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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.
3.Existing law requires every secondhand dealer and coin dealer
to report daily to law enforcement, on forms or through an
electronic reporting system approved by the Department of
Justice, all secondhand tangible personal property, except for
firearms, which he or she has purchased, taken in trade, taken
in pawn, accepted for sale on consignment, or accepted for
auctioning as specified. Existing law specifies that such
reports shall include, among other things, a complete and
reasonably accurate description of the property acquired, 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, and a legible fingerprint
taken from the intended seller or pledger, as specified.
(Bus. & Prof. Code Sec. 21628.)
This bill would require a pawnbroker who has issued a loan
electronically, instead of obtaining and reporting the
customer's fingerprint, to electronically deposit the loan
proceeds into a deposit account held in the name of the
pledgor at a depository institution located in the United
States.
This bill would make other technical and clarifying changes to
existing law pertaining to pawnbroker loans.
COMMENT
1.Stated need for the bill
The author writes:
10-15 [percent] of pawn transactions in California are
conducted via the [I]nternet by out-of-state pawnbrokers.
Unfairly, California law precludes California pawnbrokers from
competing with these out-of-state [I]nternet pawnbrokers
because California based pawnbrokers are required to obtain a
fingerprint in order to provide a loan. Out-of-state
[I]nternet-based pawnbrokers are exempt from the fingerprint
requirement, essentially shutting local California pawnbrokers
out of the [I]nternet pawn business because there is no
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technology available that allows for the electronic
transmission of fingerprints.
California pawnbrokers are highly regulated in order to
protect consumers and to prevent the sale of stolen property.
However, the [I]nternet transactions by out-of-state
pawnbrokers are not subject to California's 30-day hold
requirement and the California Department of Justice does not
receive a report on the items being pawned.
SB 300 removes the thumbprint requirement for secondhand
dealers only when acting as pawnbrokers and only when
conducting electronic transactions over the [I]nternet,
requires that any money issued by the pawnbroker be sent to a
bank account verified to be in the name of the pledger of
property to the pawnbroker, reduces the fees incurred by
pledgers of property by allowing them to renew loans prior to
the expiration date of an existing loan and gives pledgers of
property via the [I]nternet access to the lower interest rates
offered by California pawnbrokers.
2.Consumer Protection
The Legislature has long considered consumer protection to be a
matter of high importance. State law is replete with statutes
aimed at protecting California consumers from unfair, dishonest,
or harmful market practices. For example, the Consumers Legal
Remedies Act was enacted "to protect the statute's beneficiaries
from deceptive and unfair business practices," and to provide
aggrieved consumers with "strong remedial provisions for
violations of the statute." (Am. Online, Inc. v. Superior Court
(2001) 90 Cal.App.4th 1, 11.) Similarly, for over 70 years,
California's Unfair Practices Act (Bus. & Prof. Code Sec. 17000
et seq.) has protected California consumers from "unlawful,
unfair or fraudulent business act[s] or practice[s]." (Bus. &
Prof. Code Sec. 17200.)
Consumer protection in the pawnbroking industry is no less a
matter of fundamental public policy. California law protects
consumers from unscrupulous business practices by, among other
things, limiting the maximum compensation a pawnbroker can
charge for a loan secured by a borrower's tangible property.
Existing law also protects consumers whose tangible property is
stolen by requiring pawnbrokers to retain possession of newly
acquired goods for 30 days and to report such acquisitions to
the California Department of Justice. Together, these two
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requirements enable law enforcement to identify and recover
stolen property that might otherwise rapidly pass from a thief
into private possession. Similarly, the requirement that
pawnbrokers obtain a fingerprint from the seller of goods helps
law enforcement disrupt the market in California for stolen
goods and identify those who attempt to sell stolen goods.
Out-of-state pawnbrokers doing business in California via the
Internet might not comply with California's requirements for
pawnbrokers and secondhand goods dealers. The activities of
these out-of-state Internet pawn operators may divert pawn loans
from California pawnshops to other states, which might not
require that property acquisition reports be sent to law
enforcement, and which might allow pawnbrokers to charge higher
interest rates and fees to consumers. This bill would, among
other things, authorize California pawnbrokers to execute
written pawn loans using electronic contracts consistent with
the California Uniform Electronic Transactions Act. This bill
would also eliminate the requirement that a pawnbroker collect
and report the fingerprint of a pawn pledgor when executing a
pawn loan via the Internet. Instead, it would require the
pawnbroker to electronically deposit the loan proceeds into a
deposit account held in the pledgor's name at a U.S. depository
institution. Together, these changes to California's pawnbroker
and secondhand dealer laws are likely to facilitate the
development of Internet pawn services by California licensed
pawnbrokers. According to the sponsor, the California
Pawnbroker's Association, these changes "will allow California
pawnbrokers to compete on a level playing field with pawnbrokers
in other states."
3.Verification of Identity
Existing law requires every secondhand dealer, including pawn
brokers, to report daily to law enforcement all secondhand
personal property which he or she has purchased, taken in trade,
taken in pawn, accepted for sale on consignment, or accepted for
auctioning. These daily reports must include, among other
things, a complete and reasonably accurate description of the
property acquired, 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, and a
legible fingerprint taken from the intended seller or pledger.
(Bus. & Prof. Code Sec. 21628.) This bill would require a
pawnbroker who has issued a loan electronically, instead of
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obtaining and reporting the customer's fingerprint, to
electronically deposit the loan proceeds into a deposit account
held in the name of the pledgor at a depository institution
located in the United States.
Staff notes that Section 326 of the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (USA PATRIOT Act, Pub. L.
107-56), requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an
account in order to help the government fight money laundering
activities and the funding of terrorism. While this bill would
remove the requirement that a pawnbroker collect the fingerprint
of a pawn pledger who enters into an internet-based pawn loan,
the substitute requirement that loan proceeds be deposited into
a deposit account held in the pledgor's name at a U.S.
depository institution would provide an alternate method of
verifying the identity of individuals who pawn personal property
in California.
It is important to note, however, that two problems may arise
under this substitute identity verification process that are not
present under existing law. First, since a pawnbroker entering
into a pawn loan over the Internet might never personally
interact with a pledgor, it is possible that the pledgor could
conceal his or her true identity from the pawnbroker and from
law enforcement by fraudulently providing the financial and
identity credentials of another person. This sort of fraud
would likely be impossible to conduct under existing law, which
requires the "in-person" collection of a fingerprint from the
pledgor. Second, it is not clear whether this bill would
require a pawnbroker to transmit a record of the financial
information gathered from the pledgor used to facilitate the
depositing of pawn loan proceeds to law enforcement. Without
either the pledgor's fingerprint required under existing law or
a record of the financial information used to facilitate payment
under this bill, law enforcement may lack sufficient information
to effectively combat the trafficking of stolen property.
4.Notification by Electronic Mail
Under existing law, if a pledged article is not redeemed during
the set pawn loan period and the pledgor and pawnbroker do not
mutually agree to extend the loan period, the pawnbroker must
notify the pledgor at his or her last known address of the
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termination of the loan period. The mailing of this notice by
the pawnbroker begins a ten day period within which the pledgor
has the right to redeem his or her pledged property. (See Fin.
Code Sec. 21201.) This bill would authorize a pawnbroker to
instead provide the required notification using either the
pledgor's last known mailing address or, at the pledgor's
option, an electronic address, provided the pawnbroker has a
means for verifying the electronic transmission of the
notification.
Staff notes that the Legislature has previously authorized
consumers to receive certain notices by electronic mail,
including under the Davis-Stirling Common Interest Development
Act, which allows homeowners to receive documents from a
homeowners association by electronic delivery if the recipient
has consented, in writing, to that method of delivery. (See
Civ. Code Sec. 4040.) Like that provision, this bill requires
the express consent of the pledgor before a pawnbroker may
deliver notices by electronic mail. Unlike postal mail,
electronic mail allows a pledgor and pawnbroker to communicate
almost instantaneously about critical issues such as the
redemption of pledged property. By not having to wait for
postal delivery of a notice indicating the termination of a loan
period, this provision arguably helps consumers react to and
address problems with pledged property more quickly than would
be possible using postal mail, and eliminates the possibility
that consumers will be harmed by adverse events that could have
been avoided had the consumer received notice more promptly.
However, unlike postal mail, consumers may not be effectively
alerted to the receipt of electronic notices since they are not
physically delivered to the recipient, but instead require a
recipient to access their electronic mail system. Further, some
consumers may not be aware that they have received a time
sensitive notice from a pawnbroker if the message is
automatically filtered into a less-often accessed part of the
electronic mail system, such as a "spam" folder.
To help ensure that pledgors will receive electronic notices of
termination from pawnbrokers, the author offers the following
amendment:
Author's Amendment :
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On page 4, line 2, following the period, insert: Electronic
notice of the termination of the loan period shall be valid if
the pledgor has previously responded within the last 120 days
to an electronic communication sent by the pawnbroker to the
pledgor's electronic address.
Support : None Known
Opposition : None Known
HISTORY
Source : California Pawnbroker's Association
Related Pending Legislation :
SB 285 (Block, 2015) would consolidate from 21 loan brackets
into 6 the existing schedule of maximum charges a pawnbroker may
charge for the first 3 months of any loan, and would set new
maximum charges within those loan brackets. This bill would
increase the charge limit a pawnbroker may charge for the fourth
and subsequent months of a loan from 2.5% per month on the
unpaid balance to 3% per month, would increase the charge limit
that may be assessed as loan setup fees, and would increase the
amount that may be charged for the handling and storage of
pawned articles. This bill would also authorize pawnbrokers to
provide notice to a borrower of the termination of the loan
period by electronic mailing at the sole option of the borrower.
This bill is pending in the Senate Judiciary Committee.
Prior Legislation :
ACR 101 (Jones-Sawyer, Res. Ch. 154, Stats. 2014) requested the
California Department of Justice to convene meetings with
representatives from law enforcement, prosecutors, and the
secondhand dealer and pawnbroker industries to recommend changes
to existing law pertaining to Internet pawnbroking.
SB 762 (Hill, Ch. 318, Stats. 2013) clarified the rights and
interests of licensed pawnbrokers and secondhand dealers in
property seized from a pawnbroker where a criminal investigation
or case involving the property has been resolved or terminated.
This bill also modified procedures for a law enforcement agency
to seize lost, stolen, or embezzled property from a pawnbroker
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or secondhand dealer, including authorizing a law enforcement
officer to seize property, with or without a warrant, if the
pawnbroker or secondhand dealer in possession of the property
refuses to place a hold on the property.
AB 391 (Pan, Ch. 172, Stats. 2012) requires secondhand dealers
and coin dealers to report specified transactions involving
tangible personal property using an electronic reporting system
administered by the California Department of Justice, and
requires the Department of Justice to charge specified licensure
and renewal fees for the purpose of funding the electronic
reporting system.
AB 1796 (Galgiani, 2012) would have included in the definition
of criminal profiteering activity the unlicensed sale of
tangible personal property or other secondhand goods, including
gold and other precious metals. AB 1796 failed passage in the
Assembly Committee on Public Safety.
AB 704 (Ma, 2011) would have required a person conducting
business as a secondhand dealer to provide a valid secondhand
dealer's license to any peace officer upon demand and would have
authorized a peace officer to impound all tangible personal
property found in the possession or control of the person if a
secondhand dealer's license is not provided, as specified. This
bill also would have authorized the imposition of storage
charges for impounded personal property and would have
authorized a nonprofit association composed of 50 or more
licensed secondhand dealers to bring an action to enjoin a
person from conducting business as a secondhand dealer without
being licensed. This bill died in the Assembly Committee on
Judiciary.
SCR 63 (Yee, Ch. 16, Stats. 2010) urged the Department of
Justice to ensure compliance with a requirement that the
department develop a standard format to be used statewide for
the purpose of reporting secondhand dealer transactions.
SB 1893 (Burton, 2004) would have required all secondhand
tangible personal property acquired by a secondhand dealer, coin
dealer, business machine dealer, and pawnbroker to be reported
electronically in an electronic data reporting system to be
developed by the California Department of Justice, and would
have extended existing licensure requirements to include coin
dealers and business machine dealers. This bill died in the
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Assembly Committee on Business and Professions.
SB 1520 (Schiff, Ch. 994, Stats. 2000) required the California
Department of Justice to develop an electronic reporting system
for reporting all tangible personal property purchased, taken in
trade or pawn, or accepted for sale on consignment or for
auctioning, by secondhand dealers and coin dealers. This bill
exempted from the electronic reporting requirement a coin dealer
who engages in less than 10 transactions each week each
consisting of not more than one item.
Prior Vote : Senate Banking and Financial Institutions Committee
(Ayes 7, Noes 0)
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