Requires collateral loan brokers, upon the request of the pawnor, to hold the pledged goods for an additional 3 months after the initial 4 months

BILL NUMBER:A9152

Title of bill

An act to amend the general business law, in relation to authorizing collateral loan brokers to extend the holding period for collateral for an additional three months

Purpose

To offer pledgors the option of an.extended holding period subject to the relinquishment of surplus in the event of default.

Summary of provisions

Section 1: Amends §§ 44 of the General Business Law (GBL) which requires Collateral Loan brokers to furnish a notice of election to borrowers detailing the holding period and other terms of the pawn transaction including the return of surplus. The bill adds a new paragraph (t) to the Notice of Election, which affords pledgors notice of an amendment to §§ 48 of the GBL set forth in Section 2 below.

Section 2: GBL Section 48 is amended to permit the option of electing a seven month holding period, in lieu of the current four month holding period, provided that the pledgor permits the Collateral Loanbroker to retain the article at the end of the extended hold period.

Justification

This legislation is intended to afford an optional extended hold period to borrowers utilizing a Collateral Loanbroker while at the same time improving New York's anachronistic regulatory environment. Borrowers in approximately half of all states (including the three most populated states other than NY (pop 19 million) - Cali- fornia. (pop 36 million) Texas (pop 22.5 million) and Florida (pop 17.5 million)) utilizing a Collateral Loanbroker surrender any claim to the collateral in the event of a default. The ability of the Collateral Loanbroker to retain the article in the event of a default has provided an incentive for the growth of the industry in states which permit pawn- brokers to treat defaulted loans as his or her own property.

In the two states with populations most similar to N.Y. (pop. 19 million) the disparity in the number of pawnbrokers is striking. Texas with a population of 22.5 million has 1,300 pawnbrokers. Florida with a population of 17.5 million has 1,200 pawn shops. In contrast, New York has about 320 pawnbrokers. And, while the permissible interest rate in Florida and Texas substantially exceed the rate permitted in New York, the ability of the pawnbroker to retain title to defaulted property makes Texas and Florida much more desirable states to locate a pawnshop.

This legislation does not impact the vast majority of loans. In New York only 10% (approx.) of all loans are not redeemed by the borrower, This legislation will afford those borrowers seeking to extend the holding period a means to do so, while improving the regulatory environment from the perspective of the Collateral Loanbroker. Under this legislation pawn loans in all cases will continue to be non-recourse loans. Unlike other lenders, including banks and finance companies, in the event of a default a pawnbroker cannot pursue the borrower for a deficiency if the sate of the item foreclosed is insufficient to cover the loan balance. To the extent that there are no pawnbrokers located in various communi-

ties people are force to either travel great distances or actually sell an item which may have significant sentimental value. New York's law should strike a fair balance which will encourage the growth and avail- ability of the industry while protecting consumers,

Legislative history

2005-2006 (A.10927/S7451)

Fiscal implications

Undetermined,

Effective date

Section 3: This act shall take effect 30 days after it shall become a law and apply to new loans transacted on and after such date.