SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Block, Chair
2015 - 2016 Regular
Bill No:
Author:
Version:
Urgency:
Consultant:
SB 285
Block
February 19, 2015
No
Eileen Newhall
Hearing Date: April 15, 2015
Fiscal:
Yes
Subject: Pawnbrokers: compensation: loans
SUMMARY Increases the maximum rates and fees that may be charged by
California pawnbrokers and allows pawnbrokers to substitute electronic notices for
mailed notices, as specified.
DESCRIPTION
1.
Authorizes pawnbrokers to charge a storage fee when they issue a new loan or a
subsequent loan (at present, the storage fee may only be collected upon
redemption of an item).
2.
Authorizes a storage fee of up to $1 per month on items less than one cubic foot in
size (at present, no storage fee is allowed on these small items).
3.
Increases the maximum allowable loan set-up fee to the greater of $5 or 3% of the
loan principal, not to exceed $30 (up from the greater of $5 or 2% of the loan
principal, not to exceed $10).
4.
Collapses the 21-tier rate schedule that currently applies during the first three
months of a pawn loan into the following 6-tier rate schedule:
Maximum Charge For
First Three Months
$3
$6
$9
$12
$15
9% of principal amount
Size of Pawn Loan
<$20
$20 to $49.99
$50 to $74.99
$75 to $99.99
$100 to $174.99
$175 to $2,499
5.
Increases the maximum allowable interest rate that may be charged during the
fourth month and any subsequent months of a pawn loan to 3% of the loan
principal (up from 2.5%).
6.
Authorizes a pawnbroker to notify a pledgor (i.e., a borrower) electronically
regarding the termination of the pledgor’s loan period, if such method of notice
delivery is acceptable to the pledgor.
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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.
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:
a. During the first three months of the loan, pawnbrokers may charge borrowers
between $1 and $140, depending on the dollar amount of the loan (Sections
21200.5 and 21201.4).
Maximum Charge For
First Three Months
$1
$3
$4
$5
$6
$7
$8.50
$10
$12.50
$13.50
$15
$20
$25
$35
$45
$55
$70
$85
$100
$120
$140
Size of Pawn Loan
<$15
$15 to $19.99
$20 to 24.99
$25 to $39.99
$40 to $49.99
$50 to $64.99
$65 to $74.99
$75 to $99.99
$100 to $124.99
$125 to $149.99
$150 to $224.99
$225 to $324.99
$325 to $449.99
$450 to $599.99
$600 to $799.99
$800 to $999.99
$1,000 to $1,199.99
$1,200 to $1,499.99
$1,500 to $1,799.99
$1,800 to $2.099.99
$2,100 to $2,499.99
b. During the fourth and subsequent months, pawnbrokers may charge a maximum of
2.5% per month, or $3 per month, whichever is greater (Sections 21200 and
21201.4).
c. Pawnbrokers may charge a loan setup fee not to exceed the greater of $5 or 2% of
the loan amount, capped at $10 (Section 21200.1).
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d. Pawnbrokers may also charge a handling and storage fee upon property
redemption. This storage fee equals $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, $20 for items greater than six cubic feet, plus one additional dollar for each
additional cubic foot in excess of 6 cubic feet.
e. Pawnbrokers may charge a processing fee of $4 for each firearm pawned (Section
21200.8).
f. If the borrower fails to redeem a pawned item during the loan period, pawnbrokers
may charge of up to $3 for services and costs relating to providing required notices
of loan expiration to the borrower (Section 21201.2).
4.
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).
5.
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).
6.
Requires a pawnbroker to notify a pledgor (i.e., a borrower) in writing, at his or her last
known address, regarding the termination of the borrower’s loan period, by a means for
which verification of mailing can be provided by the pawnbroker. 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, 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 (Section 21201).
7.
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. The principal amount of the replacement loan may be lower than, the same as, or
higher than the loan being replaced (Section 21201.5).
COMMENTS
1.
Purpose: This bill is sponsored by the California Pawnbroker’s Association
(CAPA) to help ensure the survival of California’s pawn industry.
Background: SB 285 would increase the rates and fees that California
pawnbrokers may charge their customers, helping sustain the long-term viability of
the pawn industry in California. 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. The last increase occurred in 2011 (AB 424, Eng, Chapter
318, Statutes of 2011).
According to CAPA, California’s interest rate and fee caps on pawn loans of up to
$2,500 are among the lowest in the country. California currently ranks 48th 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
SB 285 (Block)
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and cost of doing business is among the highest in the country.
CAPA, sponsor of this bill, counts approximately half of California’s licensed
pawnbrokers among its membership. In 2014 alone, thirteen of CAPA’s members
shut their doors, unable to make ends meet. Without an increase in allowable
compensation, CAPA asserts that California’s pawn industry will not survive.
According to national figures provided by CAPA, about 80% of pawn customers
are repeat customers. Repayment rates nationally are in the 70% to 80% range,
with California trending toward the upper level of that range.
2.
The Cost Of A Pawn Loan, If This Bill Is Enacted: The out-of-pocket cost and
annual percentage rate of various sizes of pawn loans is summarized below.
AMOUNT
BORROWED
COST TO
BORROWER AT END
OF FOUR-MONTH
LOAN PERIOD*
$100
$24.00
$250
$38.50
$500
$76.00
$1000
$151.00
$1500
$226.00
$2000
$301.00
$2499
$330.88
*Assumes a storage fee of $1.
3.
ANNUAL
PERCENTAGE
RATE
72.00
46.20
45.60
45.30
45.20
45.15
39.72
Summary of Arguments in Support: CAPA is sponsoring this bill to help ensure the
survival of California’s pawn industry. CAPA asserts that pawn loans are among
the least expensive, short-term credit options available to individuals who are
having trouble making ends meet, and provide more flexibility to borrowers than
other types of short-term credit options. For example, pawn loans are available in
a variety of different sizes to best meet the needs of the borrower. They are
typically less expensive than payday loans, provide consumers with access to
borrowed money for a longer period of time than payday loans (at least four
months for a pawn loan, versus a maximum of 30 days for a payday loan), and
allow the payment of fees and interest at the end of the loan period, rather than
up-front.
CAPA also believes that consumers are far better pawning an item than falling
behind on one or more of their utility bills, rent, or mortgage payments, or than
allowing a check to bounce. Service restoration charges imposed by utilities,
insufficient funds fees charged by banks, and late payment penalties imposed by
landlords and mortgage lenders exceed the cost of pawning a possession to avoid
these charges.
4.
Summary of Arguments in Opposition: None received.
SB 285 (Block)
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5.
Amendments: Although no amendments are recommended at this time,
amendments will eventually be necessary to avoid chaptering problems, if both SB
285 and SB 300 advance to the Governor.
6.
Prior and Related Legislation:
a.
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.
b.
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).
c.
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
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