BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1357|
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THIRD READING
Bill No: AB 1357
Author: Coto (D), et al
Amended: As introduced
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 11-0, 6/17/09
AYES: Calderon, Cogdill, Correa, Cox, Harman, Kehoe, Liu,
Lowenthal, Padilla, Runner, Wolk
NO VOTE RECORDED: Florez
SENATE JUDICIARY COMMITTEE : 4-0, 7/14/09
AYES: Harman, Florez, Leno, Walters
NO VOTE RECORDED: Corbett
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 78-0, 5/11/09 (Consent) - See last page
for vote
SUBJECT : Pawnbrokers: fees
SOURCE : Collateral Loan & Secondhand Dealers
Association of
California
DIGEST : This bill changes the maximum allowable rates
that may be charged by pawnbrokers on loans over 90 days to
2.5 percent on the remaining unpaid balance (rather than
the existing stair-step series of percentages that rise
from one percent to 2.5 percent depending upon the size of
CONTINUED
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the unpaid balance).
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 and not the
pawnbroker.
2. Provides for the licensing of pawnbrokers by a chief of
police, sheriff, or police commission.
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.
B. From the 91st day forward, 2.5 percent per month
on the unpaid loan balance up to $225; two percent
per month on the unpaid balance between $225.01 and
$900; 1.5 percent per month on the unpaid balance
between $901 and $1,650; and one percent 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.
C. A loan setup fee not to exceed the greater of $5
or two percent of the loan amount, capped at $10.
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.
E. A processing charge of $4 for each firearm pawned.
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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.
4. Requires all licensed pawnbrokers to post their fees and
charges in a place clearly visible to the general
public.
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.
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. There is no restriction on
the ability of a pawnbroker to make a loan of greater
than $2,500.
This bill changes the maximum allowable rates that may be
charged by pawnbrokers on loans over 90 days to 2.5 percent
on the remaining unpaid balance (rather than the existing
stair-step series of percentages that rise from one percent
to 2.5 percent depending upon the size of the unpaid
balance).
Background
California's pawn lending rates and fees are set by
statute, and have periodically been increased over the
years to keep up with the cost of doing business. In 2007,
the Collateral Loan & 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
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stair-step rate schedule described in #3B above and
replaced it with a flat rate of 2.5 percent on the unpaid
principal balance of loans greater than 90 days in length.
AB 264 passed the Senate Banking, Finance and 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 percent 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/17/09)
Collateral Loan & Secondhand Dealers Association of
California (source)
OPPOSITION : (Verified 8/17/09)
Department of Finance
ARGUMENTS IN SUPPORT : According to the author: "AB 1357
addresses the remaining component of a compromise between
Consumers' Union and the Collateral Loan & Secondhand
Dealers Association-pawnbrokers in 2006. As part of an
overdue compromise, pawnbrokers agreed to leave all loans
under $225 at the level allowed in current law. Consumers'
Union recognizes pawn loans as the consumer's best bargain
in non-conventional lending, and has encouraged the small
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increase to be given at higher loan amounts, to offer an
alternative to the high-cost non-conventional lending
available to the unbanked in California."
ARGUMENTS IN OPPOSITION : The Department of Finance
states that it opposes this bill for the following reason:
"This bill would increase borrowing costs, providing for
interest rates of 30 percent per annum for any
pawn loan, for California's most vulnerable population
during a period of economic uncertainty. We note that
quarterly earnings for the three largest publicly traded
pawn loan companies have increased 39 percent to 56 percent
from 2007 to 2008, and the industry was permitted a minimum
payment and setup fee increase in 2008 (SB 580 - Statutes
of 2008)."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nava, Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Bass
NO VOTE RECORDED: Duvall, Yamada
JJA:mw 8/18/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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