THIRD READING  

Bill No: AB 1186

Author: Medina (D), et al.

Amended: 3/21/19 in Assembly

Vote: 21

SENATE BANKING & F.I. COMMITTEE: 7-0, 6/5/19

AYES: Bradford, Chang, Caballero, Durazo, Hueso, Morrell, Portantino

SENATE JUDICIARY COMMITTEE: 9-0, 6/25/19

AYES: Jackson, Borgeas, Durazo, Lena Gonzalez, Jones, Monning, Stern, Umberg, Wieckowski

ASSEMBLY FLOOR: 72-0, 4/8/19 - See last page for vote

SUBJECT: Pawnbrokers: fees and charges

SOURCE: California Pawnbrokers Association

DIGEST:

This bill increases the maximum amount of some of the fees that pawnbrokers may charge, as specified.

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 (i.e., the borrower) 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 (Financial Code Section 21300).
3. Specifies, generally, a loan length of four months and caps the compensation that may be charged by pawnbrokers on loans of up to $2,500, as follows:
   1. During the first three months of the loan, pawnbrokers may charge borrowers between $3 and $225, depending on the dollar amount of the loan (Financial Code Sections 21200.5 and 21201.4).

• 1. During the fourth and subsequent months, pawnbrokers may charge a maximum of 3% per month, or $3 per month, whichever is greater (Financial Code Sections 21200 and 21201.4).
  2. Pawnbrokers may charge a loan setup fee not to exceed the greater of $5 or 3% of the loan amount, capped at $30 (Financial Code Section 21200.1).
  3. Pawnbrokers may also charge a handling and storage fee upon property redemption. This storage fee equals $1 for articles that can be contained within one cubic foot, $5 for items greater than one cubic foot and up to three cubic feet, $10 for items greater than three cubic feet and up to six cubic feet, and $20 for items greater than six cubic feet, plus one additional dollar for each additional cubic foot in excess of six cubic feet (Financial Code Section 21200.6).
  4. Pawnbrokers may charge a processing fee of $4 for each firearm pawned (Financial Code Section 21200.8).

1. 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 (Financial Code Section 21051).
2. Requires all licensed pawnbrokers to post their fees and charges in a place clearly visible to the general public (Financial Code Sections 21200.5 and 21200.7).
3. Requires a pawnbroker to notify a borrower in writing, at his or her last known mailing or electronic address, regarding the termination of the borrower’s loan period, as specified. This notification must inform the borrower that they are entitled to an extra 10 days in which to redeem their pawned item, beginning on the date the notice is mailed or electronically transmitted, and must clarify that if the 10th day falls on a day that the pawn shop is closed, the time period is extended to the next day the pawn shop is open (Financial Code Section 21201). Allows a pawnbroker to charge a fee of up to $3 to prepare this notice (Financial Code Section 21201.2).
4. Allows a borrower to request, and a pawnbroker to consent, to a replacement loan to take effect before title to the pawned property passes to the pawnbroker. To obtain a replacement loan, the borrower must pay all charges and interest due under the original loan (Financial Code Section 21201.5).

This bill:

1. Increases the loan setup fee to $7.50 or 3.5% of the loan amount, whichever is greater, not to exceed $90 (up from $5 or 3% of the loan amount, not to exceed $30).
2. Increases maximum allowed handling and storage charges, as follows:
   

1. Increases the firearms processing charge to $20 per firearm (up from $4 per firearm).
2. Increases the charge that may be imposed to prepare a specified loan expiration notice to $5 (up from $3).

Background

California’s pawn lending interest rates and fees on loan amounts of up to $2,500 are set by statute and have periodically been increased over the years to keep up with pawnbrokers’ cost of doing business. The last increase occurred in 2015 (SB 285, Block, Chapter 245, Statutes of 2015). When SB 285 was being debated in the Senate Judiciary Committee, Chairwoman Jackson asked the bill’s author to add a provision to his bill, requiring the pawn industry to poll its members annually regarding the costs of doing business in California. The survey was intended to evaluate the California Pawnbrokers Association’s (CAPA) claims that their proposed fee increases were justified.

Comments

Pursuant to the requirement added to SB 285, CAPA surveyed 144 California pawn shops regarding their expenses across a recent, two-year period. According to that survey, all of the key expenses incurred by California pawn shops increased between 2015 and 2017. Some of the largest increases were seen in the costs of employee parking (73% increase), security (71% increase), employee medical insurance (45% increase), storage (39% increase), payroll (35% increase), lease and rent payments (35% increase), and local business license fees (35% increase). Nearly 90% of the pawn shops surveyed offer their employees health insurance and retirement plans, as well as educational assistance and other benefits.

Although it is unclear if rising costs were the sole reason for their closure, at least 112 California pawn shops closed their doors between 2015 and 2017, based on California Department of Justice data. According to CAPA, approximately 780 pawn shops remain in the state.

CAPA’s survey also helps shine light on the characteristics of pawn transactions in California during the 2015 to 2017 time period. The vast majority of pawn loans are relatively small in size, and the vast majority of pawned items are redeemed. Fully 91% of all pawn transactions were for loan sizes of less than $400. Jewelry is the most common pawned item, representing 77% of the total. Ninety-one percent of pawned items are redeemed.

Related/Prior Legislation

SB 285 (Block, Chapter 245, Statutes of 2015) increased the maximum monthly interest rate to 3%; increased the loan setup fee to $5 or 3%, not to exceed $30; collapsed the prior 21-tier fee schedule to the current six-tier fee schedule; added a new storage charge for small items (those that can be contained within one cubic foot); and required representatives of the pawnbroker industry to poll their members annually to gather data relating to the current financial condition of the California pawn industry.

SB 300 (Mendoza, Chapter 417, Statutes of 2015) allowed pawnbrokers to conduct business transactions electronically, as specified, except when establishing an original loan.

AB 424 (Eng, Chapter 318, Statutes of 2011) defined a month for purposes of the Pawnbroker Law as a period of 30 consecutive days, and replaced a tiered interest rate model that had previously applied to loans older than three months with a uniform charge equal to the greater of $3 per month or 2.5% per month on the unpaid principal balance of the loan.

SB 580 (Calderon, Chapter 340, Statutes of 2008) increased the minimum monthly interest charge from $1 to $3 on loans older than 90 days and changed the cap on loan set-up fees to the greater of $5 or 2%, capped at $10 (up from $3 on loans of $50 and below and $5 on loans above $50).

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.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/27/19)

California Pawnbrokers Association (source)

OPPOSITION: (Verified 6/27/19)

None received

ARGUMENTS IN SUPPORT: CAPA is sponsoring AB 1186 to help ensure the financial viability of the pawn industry in California. CAPA observes that California’s interest rate and fee caps on pawn loans of up to $2,500 continue to be among the lowest in the country. California currently ranks 49th out of 51, when our allowable pawnbroker compensation is compared to the other states and the District of Columbia. Many of California’s pawnbrokers --- particularly our smallest ones – are struggling to remain in business in a state whose cost of living and cost of doing business are among the highest in the country.

ASSEMBLY FLOOR: 72-0, 4/8/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Limón, Low, Maienschein, Mathis, Mayes, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Calderon, Carrillo, Eduardo Garcia, Levine, McCarty, Quirk-Silva, Blanca Rubio

Prepared by: Eileen Newhall / B. & F.I. /

6/28/19 12:06:49

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 1186 (Author:Medina)

Version: March 21, 2019

Hearing Date: June 25, 2019

Fiscal: No

Urgency: No

AMConsultant:

SUBJECT

Pawnbrokers: fees and charges

DIGEST

This bill increases the maximum amount for certain fees that pawnbrokers are authorized to charge, as provided, and makes various nonsubstantive changes.

EXECUTIVE SUMMARY

Current law limits the amount of compensation pawnbrokers may charge or receive for providing their services. These amounts have been increased from time to time by the Legislature. This bill increases the following authorized fees:

The bill is sponsored by the California Pawnbrokers Association (CPA). There is no known opposition. The bill passed the Senate Banking and Financial Institutions Committee on a vote of 7-0.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Defines “pawnbroker” as every person engaged in the business of receiving goods, including motor vehicles, in pledge as security for a loan. (Fin. Code § 21000.)
2. Provides for the licensing of pawnbrokers by a chief of police, sheriff, or, where appropriate, the police commission, as provided. (Fin. Code § 21300.)
3. Generally specifies a loan length of four months and caps the compensation that may be charged by pawnbrokers on loans of up to $2,500, as provided. (Fin. Code §§ 21200 et. seq.)
   1. During the first three months of the loan, pawnbrokers may charge borrowers between $3 and $225, depending on the dollar amount of the loan. (Fin. Code § 21200.5.)
   2. During the fourth and subsequent months, pawnbrokers may charge a maximum of 3 percent per month, or $3 per month, whichever is greater. (Fin. Code §§ 21200 and 21201.4.)
   3. Authorizes a loan setup fee for each loan not to exceed $5 or 3 percent, whichever is greater; however, the maximum loan setup fee cannot exceed $30. (Fin. Code § 21200.1.)
   4. Authorizes a handling and storage fee upon redemption or issuance of a replacement loan as follows:
      1. $1 for any article that can be contained within one cubic foot;
      2. $5 for any article that cannot be contained within one cubic foot but can be contained within three cubic feet;
      3. $10 for any article that cannot be contained within three cubic feet but can be contained within six cubic feet; and
      4. $20 for any article that cannot be contained within six cubic feet and $1 for each additional cubic foot in excess of six cubic feet. (Fin. Code § 21200.6(a)(1)-(4).)
   5. Authorizes a processing charge of $4 for each firearm pawned. (Fin. Code § 21200.8.)
   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. (Fin. Code § 21051.)
   7. Requires all licensed pawnbrokers to post their fees and charges in a place clearly visible to the general public. (Fin. Code §§ 21200.5(h) and 21200.7.)
4. Requires a pawnbroker to notify a borrower in writing, at the borrower’s last known mailing or electronic address, regarding the termination of the borrower’s loan period, as specified. (Fin. Code § 21201.)
   1. This notification must inform the borrower that they are entitled to an extra 10 days in which to redeem their pawned item, beginning on the date the notice is mailed or electronically transmitted, and must clarify that if the 10th day falls on a day that the pawn shop is closed, the time period is extended to the next day the pawn shop is open. (Fin. Code § 21201.)
   2. Authorizes a pawnbroker to charge a fee of up to $3 to prepare this notice (Fin. Code § 21201.2.)
5. Authorizes a borrower to request, and a pawnbroker to consent, to a replacement loan to take effect before title to the pawned property passes to the pawnbroker. To obtain a replacement loan, the borrower must pay all charges and interest due under the original loan. (Fin. Code § 21201.5.)

This bill:

1. Increases the loan setup fee to $7.50 or 3.5 percent, whichever is greater; however, the loan startup fee cannot exceed $90.
2. Increases the maximum allowed handling and storage charges, as follows:
   1. $3 for any article that can be contained within one cubic foot;
   2. $6 for any article that cannot be contained within one cubic foot, but can be contained within three cubic feet;
   3. $11 for any article that cannot be contained within three cubic feet, but can be contained within six cubic feet; and
   4. $24 for any article that cannot be contained within six cubic feet, and $3 for each additional cubic foot in excess of six cubic feet.
3. Increases the firearms processing fee to $20.
4. Authorizes a pawnbroker to charge up to $5 to prepare the required notice regarding the termination of the borrower’s loan period.
5. Makes various other nonsubstantive changes.

COMMENTS

1. Stated need for the bill

The author writes:

California Pawnbrokers come before the Legislature every five years to get legislative approval to adjust their maximum rates and fees to offset the increased costs of operation. Each of the committee offices have been furnished with a report prepared by industry that outlines the operational cost increases since the last adjustment which became effective in 2015 in SB 285 (Block) [Ch. 245, Stats. 2015].

2. Pawnbroker fees

1. Background

Pawnbrokers generally function by offering loans to individuals in exchange for items of value. Those individuals may, within a certain period of time, purchase the items back for the amount of the loan plus interest and certain specified fees. If the time elapses without that payment, the pawnbroker receives title to the item and may then sell it to recoup the amount of the loan, which is usually only a fraction of the item’s market value. Pawnbrokers may also choose to purchase the item outright.

The Legislature has long considered consumer protection to be a matter of high importance, and state law is replete with statutes aimed at protecting California consumers from unfair, dishonest, or harmful market practices.^[1] Consumer protection in the pawnbroker industry is no less a matter of fundamental public policy. California law protects consumers from unscrupulous business practices by, among other things, statutorily limiting the maximum compensation a pawnbroker can charge for a loan secured by a borrower’s tangible property.

Pawnbrokers represent a source of short-term credit to those who may not be able to, or do not desire to, seek a costly credit card advance or payday loan. Though not ideal, pawnshops loans are generally considered less risky than payday, title, or cash advance loans because a pawnbroker cannot institute a collection action for an unpaid loan or fee amounts or report an unpaid loan or fee to an individual’s credit report. Very often, the fee and rates charged for a loan from a pawnbroker are lower than a bounced check or overdraft fee or a fee to reconnect a service, such as a utility.^[2]

Since increases in the rates and fees pawnbrokers may charge will disproportionately fall on California residents who are among the least financially able to absorb them, SB 285 (Block, Ch. 245, Stats. 2015) required representatives of the pawnbroker industry to poll their members annually to gather data relating to the current financial condition of the California pawn industry in order for the Legislature to have data to better assess whether rate or fee increases are warranted.

1. CPA survey results

According to CPA, they surveyed 144 individual California pawn shops regarding their expenses from 2015 to 2017. The survey reported an increases in expenses across the board, with some of the largest increases in expenses being in employee parking (73 percent increase), security (71 percent increase), employee medical insurance (45 percent increase), storage (39 percent increase), payroll (35 percent increase)^[3], lease and rent payments (35 percent increase), and local business license fees (35 percent increase). The survey also noted that the “Department of Justice listing indicates that there are at least 112 fewer pawnshops in California between 2015 and 2017,” though it is unclear if the closure of these shops was due to the increased cost of doing business or other reasons. According to the Senate Banking and Financial Institutions Committee, CPA reports that “approximately 788 pawnshops remain in the state.”^[4]

Of the pawnshops surveyed, the following percentage offered the following benefits to their employees: 88.2 percent offer health insurance coverage, 95 percent offer paid time off, 88.24 percent offer a 401k, 92.24 percent offer profit sharing, and 84.71 percent offer paid parking. A majority of pawnshops employ one to five employees, with the average across survey respondents being 15 employees. The survey also included information regarding the types of transactions that the pawnbroker industry engaged in during 2015 to 2017. Jewelry makes up the bulk of items being pawned, accounting for 77 percent of loans. The majority of loans are relatively small in size: loans made in the main shop in the amount of $100 to $199 accounted for 53.90 percent of all loans made, and 91 percent of all transactions were for loans of less than $400. Respondents also indicated that 91 percent of loans are redeemed.

1. Proposed fee increases

In light of the above survey data and increased cost of doing business in California, this bill seeks to increases certain statutorily authorized fees pawnbrokers can charge. Most of the fee increases are relatively modest consisting of an increase of a few dollars. The largest fee increase is found in the firearms processing fee, which has not increased since it was originally enacted in 1987. (AB 1132 (Johnson, Ch. 576, Stats. 1987.)

See Executive Summary for details of proposed fee increases.

3. Statements in support

The sponsor of the bill, CPA, provided the Legislature with the survey required by SB 285 (Block, Ch. 245, Stats. 2015) that included data showing an increase in expenses across numerous categories and stated:

Pawnshops located throughout California provide a valuable service to the communities hardest hit by the uncertainty of our economy, and as small businesses, have themselves been hit with extreme changes to their abilities to provide services. New forms of competition, rising costs and static revenues have placed the California Pawnbrokers in a perilous position. Unlike other businesses that can adjust their revenue to meet changing markets and competitive commerce, pawnbrokers must rely on the Legislature and Governor to provide sufficient margins to survive.

SUPPORT

California Pawnbrokers Association (sponsor)

OPPOSITION

None known

RELATED LEGISLATION

Pending Legislation: None known

Prior Legislation:

SB 285 (Block, Ch. 245, Stats. 2015) increased the maximum monthly interest rate for a loan to 3 percent; increased the loan setup fee to $5 or 3 percent, not to exceed $30; collapsed the prior 21-tier fee schedule to the current 6-tier fee schedule; added a new storage charge for small items that can be contained within one cubic foot, and required representatives of the pawnbroker industry to poll their members annually to gather data relating to the current financial condition of the California pawn industry.

SB 300 (Mendoza, Ch. 417, Stats. 2015) allowed pawnbrokers to conduct business transactions electronically, as specified, except when establishing an original loan.

AB 424 (Eng, Ch. 318, Stats. 2011) authorized pawnbrokers to charge borrowers the greater of three dollars per month or 2.5 percent per month on the unpaid principal balance of loans below $2,500 that are greater than three months old. This bill also defined a month for purposes of the laws governing pawnbrokers as a period of time consisting of 30 consecutive days.

SB 580 (Calderon, Ch. 340, Stats. 2008), increased the allowable loan set-up fee from $3 to $5 and increased the minimum monthly charge from $1 to $3.

AB 1297 (Papan, Ch. 505, Stats. 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.

AB 1132 (Johnson, Ch. 576, Stats. 1987), among other things, authorized a pawnbroker to collect handling and storage charges for each article pawned in accordance with an enumerated schedule and to collect a $ 4 processing charge for each firearm pawned.

PRIOR VOTES:

Senate Banking and Financial Institutions Committee (Ayes 7, Noes 0)

Assembly Floor (Ayes 72, Noes 0)

Assembly Banking and Finance Committee (Ayes 12, Noes 0)

**************

1. See e.g. the Consumers Legal Remedies Act (Civ. Code §§ 1750 et. seq.), which 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.); see also California’s Unfair Practices Act (Bus. & Prof. Code Sec. 17000 et seq.). ↑

2. Dempsey, Bobbi, Pawnshop 101: What you need to know, Bankrate (Jan. 13, 2016), https://www.bankrate.com/finance/personal-finance/pawnshop-101-what-you-need-to-know-1.aspx (as of Jun. 10, 2019). ↑

3. Much of the payroll increases come from the increase in the minimum wage. ↑

4. Cal. Sen. Com. on Banking and Fin. Institutions, Analysis for AB 1186 (Medina, 2019), at p. 3. ↑

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Steven Bradford, Chair

2019 - 2020 Regular

Bill No: AB 1186 Hearing Date: June 5, 2019

Subject: Pawnbrokers: fees and charges

SUMMARY

This bill increases the maximum amount of some of the fees that pawnbrokers may charge, as specified.

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 (i.e., the borrower) 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 (Financial Code Section 21300).
   
3. Generally specifies a loan length of four months and caps the compensation that may be charged by pawnbrokers on loans of up to $2,500, as follows:
   
   1. During the first three months of the loan, pawnbrokers may charge borrowers between $3 and $225, depending on the dollar amount of the loan (Financial Code Sections 21200.5 and 21201.4).
      

• 1. During the fourth and subsequent months, pawnbrokers may charge a maximum of 3% per month, or $3 per month, whichever is greater (Financial Code Sections 21200 and 21201.4).
     
  2. Pawnbrokers may charge a loan setup fee not to exceed the greater of $5 or 3% of the loan amount, capped at $30 (Financial Code Section 21200.1).
     
  3. Pawnbrokers may also charge a handling and storage fee upon property redemption. This storage fee equals $1 for articles that can be contained within one cubic foot, $5 for items greater than one cubic foot and up to three cubic feet, $10 for items greater than three cubic feet and up to six cubic feet, and $20 for items greater than six cubic feet, plus one additional dollar for each additional cubic foot in excess of 6 cubic feet (Financial Code Section 21200.6)
     
  4. Pawnbrokers may charge a processing fee of $4 for each firearm pawned (Financial Code Section 21200.8).
     

1. 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 (Financial Code Section 21051).
   
2. Requires all licensed pawnbrokers to post their fees and charges in a place clearly visible to the general public (Financial Code Sections 21200.5 and 21200.7).
   
3. Requires a pawnbroker to notify a pledgor (i.e., a borrower) in writing, at his or her last known mailing or electronic address, regarding the termination of the borrower’s loan period, as specified. This notification must inform the borrower that they are entitled to an extra ten days in which to redeem their pawned item, beginning on the date the notice is mailed or electronically transmitted, and must clarify that if the tenth day falls on a day that the pawn shop is closed, the time period is extended to the next day the pawn shop is open (Financial Code Section 21201). Allows a pawnbroker to charge a fee of up to $3 to prepare this notice (Financial Code Section 21201.2)
   
4. Allows a borrower to request, and a pawnbroker to consent, to a replacement loan to take effect before title to the pawned property passes to the pawnbroker. To obtain a replacement loan, the borrower must pay all charges and interest due under the original loan (Financial Code Section 21201.5).

THIS BILL

1. Increases the loan setup fee to $7.50 or 3.5% of the loan amount, whichever is greater, not to exceed $90 (up from $5 or 3% of the loan amount, not to exceed $30).
   
2. Increases maximum allowed handling and storage charges, as follows:
   

1. Increases the firearms processing charge to $20 per firearm (up from $4 per firearm).
   
2. Increases the charge that may be imposed to prepare a specified loan expiration notice to $5 (up from $3).
   

COMMENTS

1. Purpose: This bill is sponsored by the California Pawnbrokers Association (CAPA) to help ensure the financial viability of California’s pawn industry.
   
2. Background: California’s pawn lending interest rates and fees on loan amounts of up to $2,500 are set by statute and have periodically been increased over the years to keep up with pawnbrokers’ cost of doing business. The last increase occurred in 2015 (SB 285, Block, Chapter 245, Statutes of 2015). When SB 285 was being debated in the Senate Judiciary Committee, Chairwoman Jackson asked the bill’s author to add a provision to his bill, requiring the pawn industry to poll its members annually regarding the costs of doing business in California. The survey was intended to evaluate CAPA’s claims that their proposed fee increases were justified.
   
3. Cost of Doing Business: Pursuant to the requirement added to SB 285, CAPA surveyed 144 California pawn shops regarding their expenses across a recent, two-year period. According to that survey, all of the key expenses incurred by California pawn shops increased between 2015 and 2017. Some of the largest increases were seen in the costs of employee parking (73% increase), security (71% increase), employee medical insurance (45% increase), storage (39% increase), payroll (35% increase), lease and rent payments (35% increase), and local business license fees (35% increase). Nearly 90% of the pawn shops surveyed offer their employees health insurance and retirement plans, as well as educational assistance and other benefits.
   
   Although it is unclear if rising costs were the sole reason for their closure, at least 112 California pawn shops closed their doors between 2015 and 2017, based on California Department of Justice data. According to CAPA, approximately 780 pawn shops remain in the state.
   
4. Snapshot of California’s Pawn Industry: CAPA’s survey also helps shine light on the characteristics of pawn transactions in California during the 2015 to 2017 time period. The vast majority of pawn loans are relatively small in size, and the vast majority of pawned items are redeemed. Fully 91% of all pawn transactions were for loan sizes of less than $400. Jewelry is the most common pawned item, representing 77% of the total. Ninety-one percent of pawned items are redeemed.
   
5. Support: The California Pawnbrokers Association is sponsoring AB 1186 to help ensure the financial viability of the pawn industry in California. CAPA observes that California’s interest rate and fee caps on pawn loans of up to $2,500 continue to be among the lowest in the country. California currently ranks 49th out of 51, when our allowable pawnbroker compensation is compared to the other states and the District of Columbia. Many of California’s pawnbrokers --- particularly our smallest ones – are struggling to remain in business in a state whose cost of living and cost of doing business are among the highest in the country.
6. Opposition: None received.
   
7. Prior and Related Legislation:
   
   1. SB 285 (Block), Chapter 245, Statutes of 2015, increased the maximum monthly interest rate to 3%; increased the loan setup fee to $5 or 3%, not to exceed $30; collapsed the prior 21-tier fee schedule to the current 6-tier fee schedule; added a new storage charge for small items (those that can be contained within one cubic foot), and required representatives of the pawnbroker industry to poll their members annually to gather data relating to the current financial condition of the California pawn industry.
      
   2. SB 300 (Mendoza), Chapter 417, Statutes of 2015 allowed pawnbrokers to conduct business transactions electronically, as specified, except when establishing an original loan.
      
   3. AB 424 (Eng), Chapter 318, Statutes of 2011 defined a month for purposes of the Pawnbroker Law as a period of thirty consecutive days, and replaced a tiered interest rate model that had previously applied to loans older than three months with a uniform charge equal to the greater of $3 per month or 2.5% per month on the unpaid principal balance of the loan.
      
   4. SB 580 (Calderon), Chapter 340, Statutes of 2008) increased the minimum monthly interest charge from $1 to $3 on loans older than 90 days and changed the cap on loan set-up fees to the greater of $5 or 2%, capped at $10 (up from $3 on loans of $50 and below and $5 on loans above $50).
      
   5. 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.
      

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

California Pawnbrokers Association (sponsor)

Opposition

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1186

Author:(Medina)

As Amended Ver:March 21, 2019

Majority vote

SUMMARY:

Makes changes to the Financial Code adjusting the fees and charges pawnbrokers may charge.

Major Provisions

1. Adjusts the permitted loan setup fee to the greater of either $7.50 or 3.5% of the loan amount, not to exceed $90. Existing law permits a pawnbroker to charge a loan setup fee of the greater of $5 or 3% of the loan amount, not to exceed $30.
2. Increases the permitted handling and storage charges depending on the size of the pawned articles, as specified. Existing law permits a pawnbroker to collect a handling and storage charge for pawned articles at the time property is redeemed or a replacement loan is issued. Existing law establishes the maximum amount that may be charged based on the size of pawned articles, as specified.
3. Increases the processing charge to $20 for each pawned firearm. Existing law permits a pawnbroker to impose a processing charge in the amount of $4 for each pawned firearm.
4. Increases the maximum noticing fee to up to $5. Existing law permits a pawnbroker to charge a fee in the amount of up to $3 for preparing a 10-day notice when a pledged item is not redeemed during the loan period.

COMMENTS:

Data provided by the California Pawnbrokers Association (sponsor) collected from 144 pawnbrokers comparing cost increases from 2015 to 2017 reveal the following:

Expense Category Reported % Increase

Employee medical insurance 45%

Business insurance (fire, theft, liability, etc.) 16%

Workman's comp 12%

Janitorial service 17%

Payroll 35%

Security 73%

Employee parking 39%

Storage 15%

Phone/internet/cable 10%

Postage 10%

License Fees (Local Business) 35%

Facility Rent/Lease 35%

Not included in this list are costs for continuing education of employees related to the evolution of the items accepted as collateral for pawn loans, ID changes, computer system upgrades and enhancements and general miscellaneous cost increases.

The sponsor also reports that a Department of Justice listing indicates that there are at least 112 fewer pawnshops in California between 2015 and 2017.

The ability for a borrower to secure a small dollar loan through personal property allows the consumer to manage the risk of default and limit the financial damage should a default occur. Unlike most businesses in California, pawnbrokers must come before the Legislature in order to adjust revenue to meet increases in the cost of doing business. The summary section of this analysis provides a side-by-side look at the proposed increases.

According to the Author:

California Pawnbrokers come before the Legislature every five years to get legislative approval to adjust their maximum rates and fees to offset the increased costs of operation. Each of the committee offices have been furnished with a report prepared by industry that outlines the operational cost increases since the last adjustment, which became effective in 2015 in SB 285 (Block).

Arguments in Support:

For Californian's seeking to obtain a relatively small dollar loan, pawnbrokers provide fairly quick and easy access to cash while managing long term financial risk. Other unsecured options, which include payday and small dollar lending under the California Finance Law, come with an increased risk of incurring additional fees and charges, which may put the borrower in a position of still owing the original principle amount despite having paid more than the original loan amount in fees and charges.

Arguments in Opposition:

Raising fees increases the cost to consumers using pawnbrokers.

FISCAL COMMENTS:

This bill is keyed non-fiscal by the Legislative Counsel

VOTES:

ASM BANKING AND FINANCE: 12-0-0

YES: Limón, Chen, Bauer-Kahan, Burke, Cervantes, Choi, Gabriel, Grayson, Melendez, Mark Stone, Weber, Wicks

UPDATED:

VERSION: March 21, 2019

CONSULTANT: William Herms / B. & F. / (916) 319-3081 FN: 0000093

Date of Hearing: April 1, 2019

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Monique Limón, Chair

ABPCA Bill Id:AB 1186 (

Author:Medina) – As Introduced Ver:February 21, 2019

SUBJECT: Pawnbrokers: fees and charges:

SUMMARY: Makes changes to the Financial Code adjusting the fees and charges pawnbrokers may charge. Specifically, this bill:

1. Adjusts the permitted loan setup fee to the greater of either $7.50 or 3.5% of the loan amount, not to exceed $90.
   Existing law permits a pawnbroker to charge a loan setup fee of the greater of $5 or 3% of the loan amount, not to exceed $30.
   
2. Increases the permitted handling and storage charges depending on the size of the pawned articles, as specified.
   Existing law permits a pawnbroker to collect a handling and storage charge for pawned articles at the time property is redeemed or a replacement loan is issued. Existing law establishes the maximum amount that may be charged based on the size of pawned articles, as specified.
   
3. Increases the processing charge to $20 for each pawned firearm.
   Existing law permits a pawnbroker to impose a processing charge in the amount of $4 for each pawned firearm.
   
4. Increases the maximum noticing fee to up to $5.
   Existing law permits a pawnbroker to charge a fee in the amount of up to $3 for preparing a 10-day notice when a pledged item is not redeemed during the loan period.
   

Existing law requires pawnbrokers to provide written notice to a pledgor when a pledged item is not redeemed during the loan period and extends the pledgor’s right of redemption 10 days from the date of the notice. Under existing law, the pawnbroker becomes vested with all right, title, and interest to the pledged article upon the expiration of the 10-day notice period.

This bill would make nonsubstantive changes to those provisions.

FISCAL EFFECT: Unknown

COMMENTS:

Author’s statement:

California Pawnbrokers come before the Legislature every five years to get legislative approval to adjust their maximum rates and fees to offset the increased costs of operation. Each of the committee offices have been furnished with a report prepared by industry that outlines the operational cost increases since the last adjustment which became effective in 2015 in SB 285 (Block).

Data provided by the California Pawnbrokers Association (sponsor) collected from 144 pawnbrokers comparing cost increases from 2015 to 2017 reveal the following:

Expense Category Reported % Increase

Employee medical insurance 45%
Business insurance (fire, theft, liability, ets.) 16%
Workman’s comp 12%
Janitorial service 17%
Payroll 35%
Security 73%
Employee parking 39%
Storage 15%
Phone/internet/cable 10%
Postage 10%
License Fees (Local Business) 35%
Facility Rent/Lease 35%

Not included in this list are costs for continuing education of employees related to the evolution of the items accepted as collateral for pawn loans, ID changes, computer system upgrades and enhancements and general miscelaneous cost increases.

The sponsor also reports that a Department of Justice listing indicates that there are at least 112 fewer pawnshops in California between 2015 and 2017.

For Californian’s seeking to obtain a relatively small dollar loan, pawnbrokers provide fairly quick and easy access to cash while managing long term financial risk. Other unsecured options, which include payday and small dollar lending under the California Finance Law, come with an increased risk of incurring additional fees and charges which may put the borrower in a position of still owing the original principle amount despite having paid more than the orginal loan amount in fees and charges.

The ability for a borrower to secure a small dollar loan through personal property allows the consumer to manage the risk of default and limit the financial damage should a default occur. Unlike most businesses in California, pawnbrokers must come before the Legislature in order to adjust revenue to meet increases in the cost of doing business. The summary section of this analysis provides a side-by-side look at the proposed increases.

REGISTERED SUPPORT / OPPOSITION:

Support

California Pawnbrokers Association (sponsor)

Opposition

None of file

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081