BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 300


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          Date of Hearing:  June 22, 2015


                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE


                               Matthew Dababneh, Chair


          SB  
          300 (Mendoza) - As Amended June 11, 2015


          SENATE VOTE:  39-0


          SUBJECT:  Pawnbrokers:  regulations


          SUMMARY:  Authorizes electronic pawn transactions. Specifically,  
          this bill:  


          1)Provides, beginning January 1, 2017 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 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 due  
                 are paid in a form acceptable to the pawnbroker; and,  

             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  








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            regarding the termination of the borrower's loan period, as  
            specified, if such method of notice is acceptable to the  
            borrower.


          4)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.


          5)Removes, in an electronic pawn transaction, the requirement  
            that the pawnbroker collect the fingerprint of the pledger.


          EXISTING LAW:   


          1)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  
            (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  








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            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).

          FISCAL EFFECT:  Unknown


          COMMENTS:  


          Need for the bill as stated by the author:


            Under current California law, a California-based pawnbroker  
            providing a loan must obtain and submit to law enforcement the  
            thumbprint of the person pledging property as collateral for  
            the loan. Out-of-state pawnbrokers conducting business inside  
            of California via the internet are exempt from this, and  
            other, requirements. This places California-based pawnbrokers  
            at a competitive disadvantage and prevents the DOJ from  
            regulating internet-based pawn transactions. Additionally,  
            consumers are subject to higher loan fees and less consumer  
            protections because of the DOJ's lack of jurisdiction over  
            out-of-state, online pawnbrokers.





           Internet Pawn.


           Several states allow electronic pawn transactions including:  
          Colorado, Florida, Texas, New York, Georgia, New Hampshire,  
          Hawaii and Arizona.  Here's how it works: Customers fill out a  
          form describing the item they wish to pawn. The online pawn shop  
          then sends the customer an initial estimate and a pre-paid  
          shipping label to mail in the item, which is insured. Once the  
          item is fully appraised, customers receive a final offer. The  








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          money is either wired to a customer's bank account or in other  
          states is sent to the customer via a pre-paid debit card.


          The significant obstacle to internet pawn activity in California  
          is the requirement that the pawn broker collect the thumbprint  
          of the pledger.  The committee is unaware of any evidence that  
          this requirement has led to any criminal convictions or prevents  
          criminal activity.  Among law enforcement officials it is  
          believed that the requirement to give a thumbprint may act as a  
          deterrent for criminals to pawn stolen goods.  Rather than  
          require a thumbprint for an electronic transaction, which may be  
          practically impossible, SB 300 requires that the loan proceeds  
          must be deposited into a deposit account in the name of the  
          pledger.  


          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  








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            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.  
           Arguments in opposition.


           The California Police Chiefs Association writes in opposition:


            Under existing law, secondhand dealers are required to report  
            all tangible personal property which they have taken in pawn  
            to law enforcement. The reports include a legible thumbprint  
            taken from the intended seller or pledger. 





            Unfortunately, by allowing for electronic transactions, SB 300  
            removes the requirement for individuals to provide a  
            thumbprint in connection with the item they are pawning.  
            Instead, SB 300 would require a pawnbroker who has issued a  
            loan electronically to electronically deposit the loan  
            proceeds into a deposit account held in the name of the  
            pledger. However, SB 300 does not require the pawnbroker to  
            report the pledger's account credentials to law enforcement. 





            Under SB 300, a law enforcement officer or detective  
            investigating potential fraudulent behavior would have to  
            write a search warrant in order to obtain the identity of the  
            person who has ownership of the bank account used in the  








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            transaction.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Pawnbrokers Association (Sponsor)


          National Federation of Independent Business (NFIB)




          Opposition


          California Police Chiefs Association




          Analysis Prepared by:Mark Farouk / B. & F. / (916)  
          319-3081