BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1357 (Coto) Author: Hearing Date: June 17, 2009
As Introduced: February 27, 2009
Fiscal: Yes
Urgency: No
SUMMARY Would increase the limits on the compensation
pawnbrokers are allowed to charge for their services.
DIGEST
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
and not the pawnbroker (Financial Code Sections 21000 and
21002);
2. Provides for the licensing of pawnbrokers by a chief of police,
sheriff, or police commission (Section 21300);
3. Caps the compensation allowed to be charged by pawnbrokers, as
follows:
a. During the first 90 days of the loan, a charge ranging
from $1 to $140, depending on the dollar value of the item
pawned (Sections 21200.5 and 21201.4);
b. From the 91st day forward, 2.5% per month on the unpaid
loan balance up to $225; 2% per month on the unpaid balance
between $225.01 and $900; 1.5% per month on the unpaid
balance between $901 and $1,650; and 1% per month on the
unpaid balance in excess of $1,650; one month's interest may
be charged for any part of the month in which pawned property
is redeemed (Sections 21200 and 21201.4);
c. A loan setup fee not to exceed the greater of $5 or 2%
of the loan amount, capped at $10 (Section 21200.1);
AB 1357 (Coto), Page 2
d. A handling and storage fee for larger items that is
charged upon property redemption, not to exceed $5 for any
article larger than one cubic foot, $10 for any article
larger than three cubic feet, $20 for any article larger than
six cubic feet, and an additional $1 for each cubic foot in
addition to one cubic foot (Section 21200.6);
e. A processing charge of $4 for each firearm pawned
(Section 21200.8);
f. If the borrower fails to redeem a pawned item during the
loan period, a charge of up to $3 for services and costs
relating to providing required notices of loan expiration to
the borrower (Section 21201.2);
4. Requires all licensed pawnbrokers to post their fees and
charges in a place clearly visible to the general public
(Sections 21200.5 and 21200.7);
5. Generally specifies a loan length of four months, but allows
pawnbrokers to extend the length of a loan if such an extension
is agreed to in writing by both the borrower and the pawnbroker
(Section 21201);
6. Provides that the limits on rates and charges listed above do
not apply to any loan of a bona fide principal amount of $2,500
or more (Section 21051); there is no restriction on the ability
of a pawnbroker to make a loan of greater than $2,500.
This bill would change the maximum allowable rates that may be
charged by pawnbrokers on loans over 90 days to 2.5% on the
remaining unpaid balance (rather than the existing stair-step
series of percentages that rise from 1% to 2.5% depending upon
the size of the unpaid balance).
COMMENTS
1. Purpose of the bill To help the pawnbroker industry survive
in California by increasing some of the rates California
pawnbrokers are allowed to charge for their services.
2. Background California's pawn lending rates and fees are set
by statute, and have periodically been increased over the
AB 1357 (Coto), Page 3
years to keep up with the cost of doing business. In 2007,
the Collateral Loan and Secondhand Dealers Association of
California (CLSDA) sponsored AB 264 (Mendoza), to increase
pawnbroker compensation from the levels to which they had
last been raised in 2001. At present, California's
pawnbrokers rank between 47th and 50th nationally in
monetary return, relative to other state's pawnbrokers
(different rankings apply to different loan amounts).
AB 264 contained three provisions - 1) an increase in the
allowable loan set-up fee from $3 to $5; 2) an increase in
the minimum monthly charge from $1 to $3; and 3) a change in
the rate structure that would have collapsed the stair-step
rate schedule described above in Existing Law Number 3b and
replaced it with a flat rate of 2.5% on the unpaid principal
balance of loans greater than 90 days in length.
AB 264 passed the Senate Banking, Finance & Insurance Committee
on consent, but was held by the Senate Judiciary Committee.
The first two provisions of AB 264 were later amended into
SB 580 (Calderon), and signed into law in 2008. CLSDA is
sponsoring AB 1357 in hopes of enacting the third provision
previously contained in AB 264.
CLSDA indicates that approximately 85-88% of pawned property is
redeemed. Thus, most pawn transactions are short-term loans
of 90 days or less. CLSDA cites figures showing that the
average cost of a pawn transaction compares favorably with
other forms of short-term credit, such as payday loans and
credit card advances. Pawn transactions are also less
expensive than merchant bounced check fees, bank
insufficient funds fees, credit card late fees, and utility
reconnection fees. Pawn transactions are somewhat more
expensive than cash advances obtained from depository
institutions.
3. Support . CLSDA is sponsoring the bill, to help ensure the
continued existence of pawnbrokers in California.
4. Opposition None received.
5. Questions Does the lack of any limits on pawnbroker charges
for items whose value exceeds $2,500 pose a consumer
protection concern that warrants legislative action?
AB 1357 (Coto), Page 4
6. Prior Legislation
a. SB 580 (Calderon), Chapter 340, Statutes of
2008: Increased the allowable loan set-up fee from
$3 to $5 and increased the minimum monthly charge from
$1 to $3.
b. AB 1297 (Papan, Chapter 505, Statutes of
2001): Increased the maximum loan setup fee on loans
of up to $50 from $2 to $3; increased allowable
handling and storage fees from $3, $9, and $18, to $5,
$10, and $20, depending on the size of the object; and
increased the maximum allowable fee for costs relating
to sending a loan expiration notice from $2 to $3.
POSITIONS
Support
Collateral Loan and Secondhand Dealers Association of California
(sponsor)
Oppose
None received
Consultant: Eileen Newhall (916) 651-4102