BILL ANALYSIS
AB 1357
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 1357 (Coto) - As Introduced: February 27, 2009
SUBJECT : Pawnbrokers.
SUMMARY Provides that a pawn broker may not charge a fee of 2.5%
of the amount per month.
EXISTING LAW
1)Provides that no more than 2.5% of the loan amount per month
may be charged on a pawn loan up to $225. (Financial code,
Section 21200. All further references are to the financial
code).
2)Allows 2% per month on that portion of the unpaid principal
balance of the loan in excess of $225 but not exceeding $900.
(Section 21200).
3)Prohibits a charge in excess of 1.5% per moth on that part of
unpaid principal balance in excess of $900 but not more than
$1,650. (Section 21200).
4)Provides for a charge not to exceed 1% per month on an unpaid
balance in excess of $1,650. (Section 21200).
5)Allows a loan setup fee not to exceed $3 for each loan up to
$50 dollars and a fee of $5 for loans in excess of $50.
(Section 21200.1)
6)Allows a charge not exceeding $3 a month on any loan when the
monthly charge would otherwise be less than $3. (Section
21200(a)(2))
7)Provides for a schedule of charges with ranges based on length
of time of the pawn transaction and requires the schedule to
be posted in a place visible to the general public. (Section
21200.5).
8)Sets maximum charges allowable for storage of property by a
pawnbroker. (Section 21200.6)
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9)Requires pawn transactions to be accompanied by a loan
contract that provides a four-month loan period that sets
forth the loan terms and conditions. Additionally, the pawn
contract shall contain a proscribed notice detailing the way
in which a borrower may redeem their property. Also,
requires the pawnbroker to notify the borrower within 30 days
upon the expiration of the four month loan term. (Section
21201).
10)Allows a charge of $10 for a lost pawn ticket. (Section
21201.1).
11)Provides that a pawnbroker may charge up to $3 to mail a
notice to the borrower who fails to pick up their property.
(Section 21201.2)
12)Requires a pawnbroker, upon redemption of a loan contact,
shall provide the borrower with a receipt that correctly
states in detail all of the fees and charges associated with
the transaction. (Section 21204).
FISCAL EFFECT : Unknown
COMMENTS :
During the last Legislative Session (2007-2008), AB 264
(Mendoza) was approved by the Assembly Banking Committee (9-0)
and subsequently approved by the Assembly on consent. AB 264
was substantially similar to the bill currently under
consideration. In the Senate, the bill was approved in the
Senate Banking, Finance and Insurance Committee on consent.
Subsequently, AB 264 was referred to the Senate Judiciary
Committee and the interest ceiling provision that is currently
in the bill under review, was removed from the bill. Two
components of AB 264, the minimum fee that may be charged per
month and the amount of the loan set up fee, were amended into
SB 580 (Calderon), Chapter 580, Statutes of 2008.
A pawnbroker is an individual or business entity that offers
monetary loans in exchange for an item of value to the given
pawn broker. The pawning process begins when a customer will
bring in an item, whereby the pawnbroker assess the item for its
condition and salability, as well as the amount the customer may
need for the item. If the pawnbroker is interested in the item,
he/she will offer the customer an amount for it. The customer
can either sell the item outright, or offer the item as
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collateral on a loan.
The key change to law that this bill makes involves the
percentage fee that may be charged for a pawn loan. Current law
establishes a scale of fees with the percentage that may be
charged each month based on the loan amount. For example, for
loans between $225 and $900 the fee is 2.5% per month; between
$900 and $1650, the fee is 1.5% per month; for loans that exceed
$1,650, 1% per month. The bill currently under consideration
establishes an across the board fee for the 2.5% of the unpaid
principle balance of any loan per month.
If an item is pawned for a loan, within a certain contractual
period of time the pawner of an item may purchase it back for
the amount of the loan plus some agreed upon amount for
interest. The amount of time, and rate of interest, is governed
by state law and the pawnbroker's policies. If the loan is not
paid (or extended, if applicable) within the time period, the
customer forfeits title of the item to the pawnbroker. Unlike
other lenders, though, the pawnbroker does not report the
defaulted loan on the customer's credit report - since the
pawnbroker has title to (and physical possession of) the item;
the pawnbroker may recoup the loan value through outright sale
of the item at his/her place of business, called a pawnshop. The
pawn shop also sells items that have been sold outright by
customers to the pawnbroker.
Pawnbroker fees and charges are set in statute with last the
change made almost six years ago with the passage of AB 1297
(Papan), Chapter 505, Statutes of 2001. This bill seeks to
impose a modest fee increase on the minimum cost of a pawn
transaction. At this time, fees charged in California make the
pawn industry rank near the bottom among the fifty states in
regard to revenue. With the high cost of doing business in
California many pawn brokers have left the business entirely.
About 13,000 pawnshops exist nationwide. Most are independent,
but earnings have surged 39 percent to 56 percent higher than
2007 for the second quarter at the nation's three publicly
traded pawn companies, Cash America International, EZCORP and
First Cash Financial Services, the companies reported.
According to the National Pawnbrokers Association, the average
pawn loan runs $75, and about 80 percent of customers repay the
loan and reclaim their items.
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With each transaction, under California law, a pawnbroker must
demand a driver's license and fingerprints, file a form with
local police and must keep the items for four months and 10
days.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081