BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 300|
|Office of Senate Floor Analyses | |
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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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