BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 300| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 300 Author: Mendoza (D) Amended: 5/5/15 Vote: 21 SENATE BANKING & F.I. COMMITTEE: 7-0, 4/15/15 AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell SENATE JUDICIARY COMMITTEE: 7-0, 4/21/15 AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Pawnbrokers: regulations SOURCE: California Pawnbrokers Association DIGEST: This bill authorizes electronic pawn transactions, clarifies the rules surrounding the issuance of replacement pawn loans, and allows pawnbrokers to substitute electronic notices for mailed notices, as specified. ANALYSIS: Existing law: 1)Defines a pawnbroker as any person engaged in the business of SB 300 Page 2 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 (i.e., borrower) and not the pawnbroker (Financial Code Sections 21000 and 21002). 2)Requires every pawn loan to be evidenced by a written contract, a copy of which must be furnished to the borrower (Financial Code Section 21201). 3)Requires a pawnbroker to notify 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 (Financial Code Section 21201). 4)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 (Financial Code Section 21201.5). This bill: 1)Provides that the requirement for a written pawn contract signed by a 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 SB 300 Page 3 d) The pawnbroker electronically deposits the loan proceeds into a deposit account held in the name of the borrower at a depository institution located in the United States. 2)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 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. 3)Authorizes a pawnbroker to notify a borrower electronically regarding the termination of the borrower's loan period, as specified, if such method of notice is acceptable to the borrower. Background SB 300 Page 4 According to the California Pawnbrokers Association (CAPA), eight states currently offer electronic pawn transactions, including Colorado, Florida, Texas, New York, Georgia, New Hampshire, Hawaii, and Arizona. In these states, a potential borrower 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 borrower 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 borrower to the pawnbroker. Upon receipt of the item(s), the pawnbroker appraises the item(s) and informs the potential borrower of the amount of money the pawnbroker is willing to lend the potential borrower. If this amount is acceptable, the borrower 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 borrower or electronically deposited in an account at a depository institution of the borrower's choosing. The borrower 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. Comments Electronic pawn transactions. 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 borrower to an item of tangible personal property, but one which, according to CAPA, has never been used in a criminal proceeding in California. California's fingerprint requirement is problematic in the context of electronic pawn transactions, due to the challenge of verifying that the fingerprint provided belongs to the 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. SB 300 Page 5 As an alternative to the fingerprint requirement, this bill requires 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. Replacement pawn loans. This bill applies different rules to different types of replacement pawn loans. When a replacement pawn loan is requested in person or electronically, this bill requires the borrower's signature (either wet or electronic) on the replacement loan contract and does not limit the principal amount of the replacement loan. When a replacement pawn loan is requested by mail or through a personal representative, this bill does not require the borrower's signature; 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, this bill caps the principal amount of the replacement loan at an amount equal to or less than the principal amount of the prior loan. These different rules are intended to minimize 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. Thus, when a borrower's signature cannot reasonably be obtained or verified (as is the case if an individual sends a personal representative), it is safest to cap the size of the replacement loan at an amount no greater than the amount of the prior loan. SB 300 Page 6 Related Legislation SB 285 (Block, 2015) increases the maximum rates and fees that may be charged by California pawnbrokers and allows pawnbrokers to substitute electronic notices for mailed notices. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified5/15/15) California Pawnbrokers Association (source) National Federation of Independent Business OPPOSITION: (Verified5/15/15) None received 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 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 [Block] 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 SB 300 Page 7 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. Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102 5/21/15 14:47:26 **** END ****