BILL ANALYSIS �
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Date of Hearing: March 25, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
ACR 101 (Jones-Sawyer) - As Introduced: February 19, 2014
SUBJECT : Pawnbrokers and secondhand dealers: Internet
transactions.
SUMMARY : Requests that the California Department of Justice
(DOJ) convene stakeholder meetings in 2014 with representatives
from law enforcement, prosecutors and the secondhand dealer and
pawnbroker industry to identify changes in current law which
would allow secondhand dealers and pawnbrokers to conduct
Internet-based business. Specifically, this resolution :
1)Makes statements which declare the following:
a) In the past decade, a new business model has emerged
in other states called "Internet pawn" and operators in
less regulated states are aggressively and openly
operating in California over the Internet, but are not in
compliance with California law pertaining to secondhand
dealers and pawnbrokers;
b) Existing law requires California secondhand dealers
and pawnbrokers to report transactions involving tangible
personal property using a statewide, uniform electronic
reporting system developed by DOJ;
c) Although secondhand dealers and pawnbrokers are
required to make these electronic reports, existing law
poses several barriers to electronic pawn loans in
California;
d) Existing law requires the report made by a
secondhand dealer or pawnbroker to include a legible
fingerprint taken from the intended seller or pledger and
retain the reported tangible personal property for 30
days for possible inspection by law enforcement.
Out-of-state pawnbrokers are not required to collect
fingerprints or subject to the 30-day hold policy;
e) As a result, a significant amount of reportable
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merchandise pawned over the Internet that would otherwise
be reported to the DOJ goes unreported and is not held
for law enforcement;
f) This puts California secondhand dealers and
pawnbrokers at a competitive disadvantage, and
merchandise pawned over the Internet escapes detection by
law enforcement and is physically absent from the state
as soon as the transaction is completed;
g) California has been a leader in consumer protection
for decades;
h) California secondhand dealers and pawnbrokers
provide loans at the lowest interest rates in the United
States, and California law caps interest rates and fees
applicable to these transactions at very low levels. In
other states, the interest rates are either capped at
much higher levels or are unregulated;
i) There are impediments to a secondhand dealer or
licensed pawnbroker in California transacting business
solely on the Internet. Unlike any other lending model
in California, the physical presence of the borrower is
required to obtain the legally required fingerprint;
j) The convenience of transacting a pawn loan over the
Internet from one's home is proving to be a powerful lure
to Californians who would ordinarily transact that loan
at a physical pawn shop. As the world becomes more
dependent on the Internet, California's secondhand
dealers and pawnbrokers will lose a greater market share
to out-of-state Internet pawn and Californians who choose
that form of pawn will also be subject to higher interest
rates and fees. In addition, law enforcement will lose a
greater percentage of tangible personal property reports
and will lose the ability to inspect and seize property
needed for criminal investigation and prosecution; and,
aa) Good public policy demands that the Legislature
address this inequity that is so harmful to California
business, consumers and law enforcement.
2)Resolves that the Legislature requests DOJ to convene meetings
in 2014 with representatives from law enforcement,
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prosecutors, and the secondhand dealer and pawnbroker industry
to determine the changes to existing law necessary to do the
following:
a) Allow California secondhand dealers and pawnbrokers
to fairly compete with out-of-state Internet pawnbrokers;
b) Keep available to law enforcement merchandise pawned
over the Internet that would otherwise go out-of-state
and not be reported or held; and
c) Protect California consumers transacting pawn loans
over the Internet from higher interest rates and fees
than those permitted in California.
3)Resolves that DOJ is requested to report its finding and
recommendations for statutory changes to the Legislature by
January 1, 2015.
4)Resolves that the Chief Clerk of the Assembly transmit copies
of this resolution to the DOJ, and to the author for
appropriate distribution.
EXISTING LAW :
1)Requires every secondhand dealer or coin dealer, as specified,
to report daily, or on the first working day after receipt or
purchase of secondhand tangible personal property, on forms or
through an electronic reporting system approved by the DOJ,
all secondhand tangible personal property, except for
firearms, which he or she has taken in trade or pawn, accepted
for sale on consignment, or accepted for auctioning to the
chief of police or the sheriff as specified. (Business and
Professions Code (BPC) Section 21628)
2)Provides that whenever any peace officer has probable cause to
believe that property, except coin, monetized bullion, or
commercial grade ingots, as specified, in the possession of a
pawnbroker, secondhand dealer, or coin dealer is stolen, the
peace officer may place a hold on the property for a period of
time not to exceed 90 days and requires the peace officer to
provide a specified written notice at the time of the hold.
(BPC 21647)
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3)States that whenever a law enforcement agency has knowledge
that property in the possession of a pawnbroker, secondhand
dealer, or coin dealer has been reported as lost or stolen,
the law enforcement agency shall notify the person, who
reported the property lost or stolen in writing, of the
following:
a) The name, address, and telephone number of the
pawnbroker, secondhand dealer, or coin dealer who reported
the acquisition of the property;
b) That the law does not require of prohibit payment of a
fee or any other condition in return for the surrender of
the property, except that when the person who reported the
property lost or stolen does not choose to participate in
the prosecution of an alleged thief, the person shall pay
the pawnbroker, secondhand dealer, or coin dealer the
out-of-pocket expenses paid in the acquisition of the
property in return for the surrender of the property;
c) That if a person who reported the property as lost or
stolen takes no action to recover the property from the
pawnbroker, secondhand dealer, or coin dealer within 60
days of the mailing of the notice, the pawnbroker,
secondhand dealer, or coin dealer may treat the property as
other property received in the ordinary course of business
and during the 60-day notice period may not release the
property to any other person; and
d) That a copy of the notice, with the address of the
person who reported the property as lost stolen, or
embezzled, will be mailed to the pawnbroker, secondhand
dealer, or coin dealer who is in possession of the
property. (BPC 21647)
4)Specifies that when property in the possession of a pawn
broker, secondhand dealer, or coin dealer is subject to a hold
as specified, and the property is no longer required for the
purpose of a criminal investigation, the law enforcement
agency that placed the hold on the property shall release the
hold on the property. (BPC 21647)
FISCAL EFFECT : Unknown
COMMENTS :
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1. Purpose of this resolution . This measure simply calls
upon the California DOJ to convene an unspecified number of
stakeholder meetings in 2014 to address concerns around the
growing Internet pawn and secondhand dealer industry.
According to the author, individuals residing outside of
California are participating in pawnbroker and secondhand
dealer activities online without meeting the same
reporting, holding and interest rate requirements that
California's pawnbrokers and secondhand dealers are
obligated to comply with. These meetings should identify
the means for California's regulated dealers to fairly
compete with out-of-state brokers, keep merchandise
transacted over the Internet available for law enforcement
inspection, and protect consumers in California from higher
fees and interest rates. This resolution is sponsored by
the California Pawn Brokers' Association.
2. Author's statement . According to the author,
"Competition from out-of-state pawnbrokers using the
Internet has become a significant problem for California
pawnbrokers, as they are unable to compete against the
internet-based business model due to the requirement to
obtain a fingerprint from the borrower. The technology to
transmit an electronic fingerprint, and reliably link it to
the borrower does not exist. The purpose of this
resolution is [to] implore the [DOJ] to convene a
stakeholder meeting in 2014-including industry
representatives, law enforcement and prosecutors-to explore
and devise alternatives to the fingerprint requirement for
Internet based transactions only. [A] stakeholder group
already exists, with the exception of the California
District Attorneys Association, to administer the new
statewide electronic database for tangible personal
property."
3. Pawn brokers and secondhand dealers . A secondhand
dealer includes a person, business or corporation whose
main purpose is to buy, sell, trade, take in pawn, accept
for sale on consignment, or accept for auction, secondhand
tangible personal property. Current law specifically
exempts certain individuals from the definition of a
secondhand dealer, including coin dealers, certain
auctioneers and certain appliance repair persons.
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4. Pawn broker and secondhand dealer transactions .
Traditional pawn and secondhand dealer transactions
typically take place through face-to-face encounters where
applicable state and local laws can apply, such as
California's 30-day hold requirement. However, recent
increases in Internet activity means the borrower and
provider often do not conduct business face-to-face, but
rather negotiate the transaction online. Internet-based
pawn loans may be more risky for consumers than traditional
face-to-face pawn transactions, if the consumer is not
familiar with the Internet lender.
The National Pawnbroker Association (NPA) recommends that
"[c]onsumers dealing with online interstate pawn lenders
ask where collateral will be stored, how long it will take
for their loan to be funded after the collateral reaches
the lender, how they can redeem their collateral and how
long it may take to receive the collateral from the lender
after redemption, and whether the consumer protection laws
of the state where the consumer resides will govern the
pawn loan's terms and conditions. The NPA's code of ethics
requires that members, among other things, comply with all
federal, state, and local laws that apply to members'
businesses and their pawn transactions. Compliance
responsibilities include licensure by state or local
governments, as a precondition of offering pawn
transactions to residents of that state."
5. Reporting requirements . When secondhand dealers or
pawnbrokers take in items, whether buying outright or
loaning money and holding for collateral, they are required
to report daily or on the first working day after they have
taken possession of an item on a "JUS 123" standardized
form which must be completed for each item purchased, taken
in trade, taken in pawn or accepted for sale on
consignment. The forms require very specific information
including name and identification of the seller, a
description of the property (such as serial numbers or
other identifying marks), certification of ownership,
certification that the seller's knowledge of the item is
correct, and a fingerprint.
Once completed, a copy is provided to local law enforcement,
and a copy is retained by the dealer. This is to help
ensure that items received by a secondhand dealer or
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pawnbroker are not stolen. Because secondhand dealers and
pawnbrokers in California are required to hold items for a
specified time, report items to law enforcement, obtain
fingerprints and follow other specified procedures, this
resolution requests that DOJ convene stakeholder meetings
to address the Internet-based secondhand dealer and
pawnbroker industry which are not necessarily bound by such
laws or complying with them.
6. Previous legislation . SB 782 (Hill) Chapter 318,
Statutes of 2013, clarifies the interests of licensed
pawnbrokers and secondhand dealers relating to the seizure
and disposition of property during a criminal investigation
or case.
AB 391 (Pan) Chapter 172, Statutes of 2012, requires
secondhand dealers and coin dealers to report certain
information using the electronic reporting system developed
by DOJ on and after the date that the system is
implemented.
AB 1796 (Galgiani) of 2012 would have included in the
definition of criminal profiteering activity the unlicensed
sale of tangible personal property or other secondhand
goods, including gold and other precious metals, without a
license. This bill failed passage in the Assembly Public
Safety Committee.
AB 704 (Ma) of 2011 would have required that a person
conducting business as a secondhand dealer provide
specified information to any peace officer upon demand and
allow for the storage of the item for up to 90 days,
required an impounding agency to satisfy specified
requirements regarding impounded property and further would
have authorized a nonprofit association composed of 50 or
more licensed secondhand dealers to bring an action to
enjoin a person from conducting business as a secondhand
dealer without being licensed. This bill was held in the
Assembly Judiciary Committee.
SB 1520 (Schiff), Chapter 994, Statutes of 2000, makes the
reporting system for pawned and secondhand property more
effective for law enforcement purposes through development
of specified reporting categories and reporting in
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electronic form.
REGISTERED SUPPORT / OPPOSITION :
Support
California Pawnbrokers' Association (sponsor)
Opposition
None on file.
Analysis Prepared by : Elissa Silva / B.,P. & C.P. / (916)
319-3301