BILL ANALYSIS                                                                                                                                                                                                    






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          |SENATE RULES COMMITTEE            |                        SB 300|
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                                   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  








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            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








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             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







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          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.







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          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.  







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          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  







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          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


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