BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
ACR 101 (Jones-Sawyer)
As Introduced
Hearing Date: June 10, 2014
Fiscal: Yes
Urgency: No
TH
SUBJECT
Pawnbrokers and Secondhand Dealers: Internet Transactions
DESCRIPTION
This resolution would request the California Department of
Justice to convene meetings in 2014 with representatives from
law enforcement, prosecutors, and the secondhand dealer and
pawnbroker industries to recommend changes to existing law
pertaining to Internet pawnbroking.
BACKGROUND
Until recently, secondhand goods merchants and pawnbrokers in
the United States have been confined to doing business out of
fixed storefronts with customers who visit their physical retail
locations. This geographical limitation has historically
allowed each state to regulate the activities of secondhand
dealers and pawnbrokers doing business within their state as
they saw fit. For secondhand goods merchants and pawnbrokers
doing business in California, state law governs many aspects of
how these businesses operate. The Legislature, for example, has
enacted various laws to both curtail the dissemination and
facilitate the recovery of stolen property, including property
acquired by pawnbrokers and secondhand dealers, knowing that
these merchants are often utilized by individuals attempting to
sell or pawn stolen or embezzled property.
Generally, California law requires all secondhand dealers,
including pawnbrokers, and coin dealers to report daily to law
enforcement every piece of tangible personal property that they
purchase, take in trade, take in pawn, accept for sale on
(more)
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consignment, or accept for auctioning, using an electronic
reporting system maintained by the California Department of
Justice. Property so acquired by secondhand dealers must be
held for at least 30 days and must be produced or surrendered to
law enforcement when it is reasonably thought that the property
was lost, stolen, or embezzled. California law also regulates
the terms by which pawnbrokers may offer loans secured by
tangible property to consumers, including placing caps on loan
setup fees, handling and storage fees, and caps on maximum
compensation.
With the advent of the Internet, however, some out-of-state
pawnbrokers have taken to transacting business with California
residents online, using the Internet and express delivery
companies to accomplish what used to be done at retail
storefronts. According to a recent article:
For consumers, it means that instead of plopping a castoff
wedding ring, camera or china platter onto the counter of a
local pawnshop, you do the entire transaction online and by
mail. . . . The appeal: Online pawning is relatively quick,
completely private, and there's no stigma of walking into a
public place with your personal possessions to hock. And if
you default on your loan, nothing gets reported to a credit
bureau. (Buck, Pawnshop has spread to the Internet (Mar. 19,
2012) The Minneapolis Star Tribune
(as of
May 26, 2014).)
Despite its convenience for consumers, the ability of
out-of-state pawnbrokers and secondhand goods merchants to
remotely offer services to Californians may, in effect, leave
California residents unprotected when these merchants transact
business in violation of California law. According to the same
article, one California pawnshop owner argues that these online
pawn shops are "in direct competition with California
pawnbrokers," adding that "it's an uneven matchup, [since]
California law requires walk-in pawnshop customers to provide
I.D., fingerprints and a signature. Local shops also must
report each item they receive to law enforcement to thwart
stolen goods. They can't conduct any business online. (Id.)
This resolution would request that the California Department of
Justice convene a series of stakeholder meetings in 2014 in
order to formulate recommendations for changing California law:
(1) to allow California pawnbrokers and secondhand dealers to
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fairly compete with out-of-state Internet pawnbrokers; (2) to
keep available to law enforcement merchandise pawned over the
Internet that would otherwise go out-of-state and not be
reported or held; and (3) to protect California consumers
transacting pawn loans over the Internet from higher interest
rates and fees than those permitted in California.
CHANGES TO EXISTING LAW
Existing law includes a statement of legislative intent to
curtail the dissemination of stolen property, to facilitate the
recovery of stolen property and to detect possible sales tax
evasion by means of a uniform, statewide, state-administered
program of regulation of persons whose principal business is
dealing in tangible personal property, as specified. (Bus. &
Prof. Code Sec. 21625.)
Existing law includes legislative intent that reports of
transactions in pawned and secondhand property should be
correlated with law enforcement reports so as to trace and
recover stolen property. (Bus. & Prof. Code Sec. 21625.)
Existing law defines a "secondhand dealer" to mean any person or
entity whose business includes buying, selling, trading, taking
in pawn, accepting for sale on consignment, accepting for
auctioning, or auctioning secondhand tangible personal property.
Existing law specifies that a "secondhand dealer" does not
include a "coin dealer" or participants at gun shows or events,
persons who perform the services of an auctioneer, or persons
whose business is limited to the reconditioning and selling of
major household appliances, as specified. (Bus. & Prof. Code
Secs. 21626, 21626.5.)
Existing law defines "tangible personal property" to mean: (1)
all secondhand personal property that has a serial number or
personalized markings; (2) all tangible property, new or used,
taken by a pawnbroker as security for a loan; and (3) all
tangible personal property commonly sold by secondhand dealers
that constitutes a significant class of stolen property. (Bus.
& Prof. Code Sec. 21627(a)-(b).) Existing law provides that
tangible personal property does not include coins, monetized
bullion, or commercial grade ingots of precious metals. (Bus. &
Prof. Code Sec. 21627(d).)
Existing law defines a "pawnbroker" to mean a person engaged in
the business of receiving goods in pledge for security for a
loan." (Fin. Code Sec. 21000.)
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Existing law defines a "coin dealer" to mean any person, firm,
partnership, or corporation whose principal business is the
buying, selling, and trading of coins, monetized bullion, or
commercial grade ingots of gold, or silver, or other precious
metals. (Bus. & Prof. Code Sec. 21626(b).)
Existing law requires every secondhand dealer and coin dealer to
report daily to law enforcement, on forms or through an
electronic reporting system approved by the Department of
Justice, all secondhand tangible personal property, except for
firearms, which he or she has purchased, taken in trade, taken
in pawn, accepted for sale on consignment, or accepted for
auctioning as specified. Existing law specifies that such
reports shall include, among other things, a complete and
reasonably accurate description of the property acquired, a
certification by the intended seller or pledger that he or she
is the owner of the property or has the authority of the owner
to sell or pledge the property, and a legible fingerprint taken
from the intended seller or pledger, as specified. (Bus. &
Prof. Code Sec. 21628.)
Existing law requires every secondhand dealer and coin dealer to
retain in his or her possession for a period of 30 days all
tangible personal property reported under the above provision.
Existing law also requires every secondhand dealer and coin
dealer to produce tangible personal property reported under the
above provision for inspection by law enforcement. (Bus. &
Prof. Code Sec. 21636.)
Existing law provides that it is unlawful for any person to
engage in the business of a secondhand dealer without being
licensed for such activity. (Bus. & Prof. Code Sec. 21640.)
Existing law provides that a district attorney or the Attorney
General may seek an injunction to stop or prevent a violation of
the laws governing transactions in pawned and secondhand goods.
(Bus. & Prof. Code Sec. 21646.)
Existing law provides that when a peace officer has probable
cause to believe that property, other than coins and precious
metal ingots, in the possession of a pawnbroker, secondhand
dealer, or coin dealer is stolen, the officer may place a hold
on the property for up to 90 days. Existing law prohibits the
pawnbroker or dealer from releasing or disposing of the property
without a court order or written receipt from an officer of the
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agency that placed the hold. Existing law also requires the
pawnbroker or dealer to produce and deliver the property to a
peace officer for purposes of a criminal investigation. (Bus. &
Prof. Code Sec. 21647(a), (b).)
Existing law requires, if property reported as lost, stolen, or
embezzled is found in the possession of a pawnbroker, secondhand
dealer, or coin dealer, that the law enforcement agency shall
provide written notice to the person who reported the property
lost or stolen containing the following information or
statements:
the contact information for the pawnbroker, secondhand dealer,
or coin dealer holding the property;
that the law does not prohibit the payment of a fee or any
condition for surrender of the property;
if the reporting person declines to participate in the
prosecution of the alleged thief, that the reporting person
shall pay the broker or dealer's expenses for the acquisition
of the property;
if the reporting person takes no action to recover the
property within 60 days of the mailing of notice, that the
broker or dealer may treat the property as having been
acquired in the regular course of business; and
that a copy of this notice will be mailed to the broker or
dealer in possession of the property. (Bus. & Prof. Code Sec.
21647(c).)
Existing law provides that if a pledgor of property (person
using the property as collateral for a loan) attempts to
retrieve the property during the holding period, the pawnbroker
is required to inform the pledgor of the name of the peace
officer and law enforcement agency that placed the hold. If the
property is no longer needed for an investigation, the hold must
be released. (Bus. & Prof. Code Sec. 21647(e).)
Existing law requires that whenever property alleged to have
been lost, stolen, or embezzled is taken from a pawnbroker, the
peace officer, magistrate, court, clerk, or other person having
custody of the property shall not deliver the property to any
person claiming ownership unless:
the person making a claim of ownership files a written
statement, signed under penalty of perjury, stating the
factual basis upon which they claim ownership or an interest
in the property with the person having custody of the
property;
the person having custody of the property notifies the
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pawnbroker of the claim by providing a true and correct copy
of the claim to the pawnbroker; and
the pawnbroker makes no claim with respect to the property
within 10 days of such notification. (Fin. Code Sec. 21206.8
(a)-(b).)
Existing law requires, except as specified, that if the
ownership of stolen or embezzled property and address of the
owner and security can be ascertained, the peace officer in
custody of the property shall notify by mail the owner and
security holder, as follows:
the owner shall be notified of the location of the property
and the method through which the owner may retrieve the
property;
if the property is not timely claimed, the property may be
sold, and the proceeds deposited in the county treasury, or
retained for the county if needed; and
if the property was taken from a pawnbroker or secondhand
dealer and reasonable efforts to return the property to the
owner have been unsuccessful, the property must be returned to
the pawnbroker or dealer when it is not needed in a criminal
case. (Pen. Code Sec. 1411.)
Existing law requires, if law enforcement identifies serialized
property or other property reported stolen or lost that has been
listed in the electronic reporting system maintained by the
California Department of Justice, the agency shall notify the
owner or person claiming to be entitled to possession of the
property within 15 days. If a pawnbroker or secondhand dealer
reported his or her acquisition of the property to law
enforcement, the owner must be given the contact information of
the pawnbroker or dealer and be informed of the law concerning
retrieval of property from the business. If the property is no
longer needed as evidence, it must be returned to the owner, as
specified. (Pen. Code Sec. 11108.5.)
Existing law permits a pawnbroker to charge fees pursuant to a
set schedule of charges that are based upon the amount of the
loan, including a charge not exceeding one dollar in any loan
for not more than 30 days which does not exceed $14.99. (Fin.
Code Sec. 21200.5.) Existing law provides that charges for the
first 90 days of a loan shall be determined by that schedule of
charges. Charges for any period of time following the first 90
days of the loan shall be determined by application of the
schedule of maximum compensation. (Fin. Code Sec. 21201.4.)
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Existing law limits the maximum compensation a pawnbroker may
receive in connection with a loan secured by pledged property to
a rate not exceeding 2 percent per month on the unpaid
principal balance of a loan after the first 90 days, as
specified. (Fin. Code Sec. 21200.)
Existing law also limits the amounts a pawnbroker may charge as
a loan setup fee and as a handling and storage fee. (Fin. Code
Secs. 21200.1, 21200.6.)
This resolution would make specific findings and declarations
regarding a type of out-of-state pawnbroking business called
"Internet pawn," would state that this type of business fails to
comply with existing California law governing pawnbrokers and
secondhand dealers, and would state that these unlawful
"Internet pawn" businesses place California pawnbrokers and
secondhand dealers at a competitive disadvantage.
This resolution would call upon the California Department of
Justice to convene meetings in 2014 with representatives from
law enforcement, prosecutors, and the secondhand dealer and
pawnbroker industry to determine the changes to existing law
that would: (1) allow California pawnbrokers and secondhand
dealers to fairly compete with out-of-state Internet
pawnbrokers; (2) keep available to law enforcement merchandise
pawned over the Internet that would otherwise go out-of-state
and not be reported or held; and (3) protect California
consumers transacting pawn loans over the Internet from higher
interest rates and fees than those permitted in California.
This resolution would additionally request the Department of
Justice to report its findings and recommendations for statutory
change to the Legislature by January 1, 2015.
COMMENT
1. Stated need for the bill
The author writes:
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. . . . [It is estimated] that approximately 9 percent of
the pawn transactions that originate in California are
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currently being done by out-of-state pawnbrokers. Logic
suggests that this number will exponentially increase each
year as internet use increases. Law enforcement never gets a
report on these items, and out-of-state brokers are NOT
subject to the 30-day hold requirement. Therefore, by
enabling California pawnbrokers to do internet transactions,
law enforcement would be getting daily reports of these items
and would be able to inspect them during the hold period as
they currently do with in-store transactions.
[This resolution] [r]equests 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.
2. Consumer Protection
The Legislature has long considered consumer protection to be a
matter of high importance. State law is replete with statutes
aimed at protecting California consumers from unfair, dishonest,
or harmful market practices. For example, the Consumers Legal
Remedies Act was enacted "to protect the statute's beneficiaries
from deceptive and unfair business practices," and to provide
aggrieved consumers with "strong remedial provisions for
violations of the statute." (Am. Online, Inc. v. Superior Court
(2001) 90 Cal.App.4th 1, 11.) Similarly, for over 70 years,
California's Unfair Practices Act (Bus. & Prof. Code Sec. 17000
et seq.) has protected California consumers from "unlawful,
unfair or fraudulent business act[s] or practice[s]." (Bus. &
Prof. Code Sec. 17200.)
Consumer protection in the secondhand goods and pawnbroking
industries is no less a matter of fundamental public policy.
California law protects consumers from unscrupulous business
practices by, among other things, limiting the maximum
compensation a pawnbroker can charge for a loan secured by a
borrower's tangible property. Existing law also protects
consumers whose tangible property is stolen by requiring
secondhand dealers to retain possession of newly acquired goods
for 30 days and to report such acquisitions to the California
Department of Justice. Together, these two requirements enable
law enforcement to identify and recover stolen property that
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might otherwise rapidly pass from a thief into private
possession. Similarly, the requirement that secondhand dealers
obtain a fingerprint from the seller of goods helps law
enforcement disrupt the market in California for stolen goods
and identify those who attempt to sell stolen goods.
Out-of-state pawnbrokers and secondhand dealers doing business
in California via the Internet often fail to comply with these
requirements in California law. To illustrate, the National
Federation of Independent Business states:
Unfortunately, the ever growing use of the Internet has had
the effect of siphoning off a growing percentage of items that
would ordinarily be pawned in California pawnshops to
out-of-state Internet pawn operators. This not only hurts the
California pawn industry, but it deprives law enforcement of
daily property transaction reports and the ability to inspect
pawned items. It also exposes California consumers to the
much higher interest rates and fees allowed in other states.
If successful, the stakeholder meetings to be convened by the
Department of Justice pursuant to this resolution will help
identify how California law can be modified to address the
problem of out-of-state pawnbrokers and secondhand dealers
illegally transacting business in California.
3. Opposition Concerns
Antiques-by-the-bay and Auctions-by-the-bay, two sister
companies that promote antique shows and provide auction
services, respectively, oppose the inclusion of "secondhand
dealers" in this resolution. They argue that "[e]xisting law
has long and incorrectly confused secondhand dealers with
pawnbrokers," and suggest that since the stakeholder meetings to
be held pursuant to the resolution will chiefly address problems
with Internet pawnbroking, secondhand dealers ought to be
removed from the resolution. Staff notes that while there is
significant overlap between California's laws regulating
secondhand goods merchants and pawnbrokers, each area of law
serves a different purpose and fulfills its own critical role in
protecting California consumers. Existing law regulating
secondhand goods merchants exists primarily to "curtail the
dissemination of stolen property, to facilitate the recovery of
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stolen property[,] and to detect possible sales tax evasion."
(Bus. & Prof. Code Sec. 21625.) California's requirements that
secondhand dealers hold onto newly acquired property for 30 days
and report new acquisitions to law enforcement help prevent the
trafficking of stolen goods in this industry as well as reunite
owners with property that has been stolen from them.
Existing law regulating pawnbrokers - a distinct subset of
secondhand goods merchants - primarily operates to protect
consumers from unscrupulous lending practices. It does so, as
noted above, by capping how much pawnbrokers can charge for
various fees and by specifying the maximum level of compensation
that can be received from loans secured by tangible goods.
However, the law governing pawnbrokers also plays a critical
role in preventing the trafficking of stolen goods. For
example, pawnbrokers, as with other secondhand dealers, are
required to report new acquisitions to law enforcement to aid in
the detection of stolen goods. (See Fin. Code Sec. 21208 ["A
pawnbroker shall comply with the reporting requirements imposed
on secondhand dealers under Article 4 (commencing with Section
21625) of Chapter 9 of Division 8 of the Business and
Professions Code."].) Requirements such as this recognize that
pawnbrokers operate as a unique type of secondhand goods
merchant, and that the requirements applicable to all secondhand
dealers ought to apply with equal force to pawnbrokers. While
Antiques-by-the-bay and Auctions-by-the-bay may be partially
correct in asserting that "the laws governing pawn shops should
not govern secondhand dealers," it is too much to conclude, as
these companies argue, that the laws governing secondhand
dealers ought not also govern pawnbrokers. Antiques-by-the-bay,
Auctions-by-the-bay, and any other entities opposed to the
overlap between California's laws regulating secondhand goods
merchants and pawnbrokers should consider participating in the
stakeholder meetings should this resolution be adopted.
4. Public Participation
An individual in opposition suggests that this resolution should
be amended to explicitly allow interested members of the public
to participate in the meetings to be convened by the California
Department of Justice pertaining to Internet pawnbroking. To
address this suggestion, the author offers the following
amendment:
Author's Amendments :
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On page 3, line 15, strike the second occurrence of "and"
On page 3, line 16, strike "industry" and insert: "industry,
and interested members of the public"
Support : National Federation of Independent Business
Opposition : Antiques-by-the-bay; Auctions-by-the-bay; one
individual
HISTORY
Source : California Pawnbrokers Association
Related Pending Legislation : None Known
Prior Legislation :
SB 762 (Hill, Ch. 318, Stats. 2013) clarified the rights and
interests of licensed pawnbrokers and secondhand dealers in
property seized from a pawnbroker where a criminal investigation
or case involving the property has been resolved or terminated.
This bill also modified procedures for a law enforcement agency
to seize lost, stolen, or embezzled property from a pawnbroker
or secondhand dealer, including authorizing a law enforcement
officer to seize property, with or without a warrant, if the
pawnbroker or secondhand dealer in possession of the property
refuses to place a hold on the property.
AB 391 (Pan, Ch. 172, Stats. 2012) requires secondhand dealers
and coin dealers to report specified transactions involving
tangible personal property using an electronic reporting system
administered by the California Department of Justice, and
requires the Department of Justice to charge specified licensure
and renewal fees for the purpose of funding the electronic
reporting system.
AB 1796 (Galgiani, 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. AB 1796 failed passage in the
Assembly Committee on Public Safety.
AB 704 (Ma, 2011) would have required a person conducting
business as a secondhand dealer to provide a valid secondhand
dealer's license to any peace officer upon demand and would have
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authorized a peace officer to impound all tangible personal
property found in the possession or control of the person if a
secondhand dealer's license is not provided, as specified. This
bill also would have authorized the imposition of storage
charges for impounded personal property and 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 died in the Assembly Committee on
Judiciary.
SCR 63 (Yee, Ch. 16, Stats. 2010) urged the Department of
Justice to ensure compliance with a requirement that the
department develop a standard format to be used statewide for
the purpose of reporting secondhand dealer transactions.
SB 1893 (Burton, 2004) would have required all secondhand
tangible personal property acquired by a secondhand dealer, coin
dealer, business machine dealer, and pawnbroker to be reported
electronically in an electronic data reporting system to be
developed by the California Department of Justice, and would
have extended existing licensure requirements to include coin
dealers and business machine dealers. This bill died in the
Assembly Committee on Business and Professions.
SB 1520 (Schiff, Ch. 994, Stats. 2000) required the California
Department of Justice to develop an electronic reporting system
for reporting all tangible personal property purchased, taken in
trade or pawn, or accepted for sale on consignment or for
auctioning, by secondhand dealers and coin dealers. This bill
exempted from the electronic reporting requirement a coin dealer
who engages in less than 10 transactions each week each
consisting of not more than one item.
Prior Vote :
Assembly Floor (Ayes 72, Noes 0)
Assembly Committee on Appropriations (Ayes 15, Noes 0)
Assembly Committee on Business, Professions and Consumer
Protection (Ayes 14, Noes 0)
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