BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                        SB 300|
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                                UNFINISHED BUSINESS 


          Bill No:  SB 300
          Author:   Mendoza (D)
          Amended:  9/4/15  
          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

           SENATE FLOOR:  39-0, 5/22/15
           AYES:  Allen, Anderson, Bates, Beall, Berryhill, Block,  
            Cannella, De León, Fuller, Gaines, Galgiani, Hall, Hancock,  
            Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno,  
            Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach,  
            Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Runner, Stone,  
            Vidak, Wieckowski, Wolk

           ASSEMBLY FLOOR:  78-0, 9/8/15 - See last page for vote

           SUBJECT:   Pawnbrokers:  regulations


          SOURCE:    California Pawnbrokers Association

          DIGEST:   This bill authorizes pawnbrokers to extend replacement  
          pawn loans electronically, clarifies that replacement pawn loans  
          may also be taken out via mail or via personal representative of  
          the borrower, clarifies the effective start dates of replacement  
          pawn loans, and allows pawnbrokers to substitute electronic  
          notices for mailed notices, as specified.  








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          Assembly Amendments delete the provision of the bill allowing  
          pawnbrokers to extend new pawn loans electronically.

          ANALYSIS:
               
          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 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 replacement loan  
            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.).








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             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.

             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 rules 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  








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               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.

          Comments
          
          Electronic replacement loans.  Under existing law, all pawn loan  
          contracts, including new loan contracts and replacement loan  
          contracts, must be consummated in person.  This bill retains the  
          requirement that new pawn loans be consummated in person, but  
          authorizes replacement pawn loans to be taken out  
          electronically.  This bill also codifies the longstanding  
          practice of allowing replacement loans to be taken out by mail  
          and via personal representative.  

          In order to minimize the potential for miscommunication between  
          borrowers and pawnbrokers in connection with the dollar amounts  
          of replacement loans, this bill applies different rules to the  
          different ways in which replacement pawn loans may be requested.  
           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.  

          The logic behind these different rules is as follows:  if a  
          borrower appears before the pawnbroker in person or requests a  
          replacement loan electronically, the borrower and the pawnbroker  








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          are communicating with each other directly, and the borrower's  
          wishes regarding the amount of his or her replacement loan can  
          readily be confirmed by the pawnbroker.  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.  

          Replacement loan start dates.  SB 300 also clarifies a provision  
          of existing law that has been interpreted differently by  
          different pawnbrokers.  Some pawnbrokers have interpreted the  
          law as allowing a borrower to request, and a pawnbroker to  
          approve, a replacement loan after the borrower has defaulted on  
          his or her original loan contract, and thus after title to the  
          pawned item has reverted to the pawnbroker.  This bill clarifies  
          that a replacement loan may only be issued prior to a default,  
          and further clarifies when a replacement loan is deemed to  
          begin.  This bill's sponsor asserts that this clarification does  
          not deprive borrowers of their ability to regain their pawned  
          items; it merely requires them to purchase the items from the  
          pawnbroker.  

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified9/4/15)


          California Pawnbrokers Association (source)
          National Federation of Independent Business


          OPPOSITION:   (Verified9/4/15)


          None received









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          ARGUMENTS IN SUPPORT:   The California Pawnbrokers Association  
          observes that, "this bill is necessary, because borrowers may  
          negotiate a pawn loan in person, and then leave the area  
          serviced by the lender.  When the loan becomes due, current law  
          would essentially mandate the borrower physically return to the  
          lender to execute a new loan.  While some lenders have  
          contractually expanded the methods by which a replacement loan  
          might be negotiated, for example, through mail, there is no  
          uniform manner by which the consent of the borrower can be  
          determined.  This bill would codify specific methods by which a  
          replacement loan could be entered into, thus codifying uniformly  
          when the borrower has consented to the terms of a replacement  
          loan.  Further, this bill would lessen the burden on consumers  
          of limited mobility and means by permitting replacement loans to  
          be entered into either electronically, by mail or through a  
          personal representative of the borrower. " 

           ASSEMBLY FLOOR:  78-0, 9/8/15
           AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd,  
            Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia,  
            Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,  
            Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
           NO VOTE RECORDED: Chávez, Grove


           


          Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
          9/8/15 21:47:08


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