BILL ANALYSIS Ó
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