BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 300| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. SB 300 Page 2 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.). SB 300 Page 3 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 SB 300 Page 4 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 SB 300 Page 5 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 SB 300 Page 6 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 **** END **** SB 300 Page 7