HOUSE BILL REPORT

HB 2615

BYRepresentatives Dellwo, Chandler, Nutley, Zellinsky, Inslee and Anderson

Excluding commercial paper from "personal property" held by a pawnbroker or second-hand dealer.

House Committe on Financial Institutions & Insurance

Majority Report:  Do pass.  (12)

      Signed by Representatives Dellwo, Chair; Zellinsky, Vice-Chair; Chandler, Ranking Republican Member; Anderson, Baugher, Beck, Day, Dorn, Inslee, Nutley, Schmidt and K. Wilson.

House Staff:John Conniff (786-7119)

AS PASSED HOUSE FEBRUARY 12, 1990

BACKGROUND:

In the past five years, a new kind of business has developed in Washington devoted exclusively to the cashing of checks and other commercial paper.  In addition to cashing checks, many of these companies lend money.

Check cashing companies lend money by purchasing post-dated checks for a discount. For example, a customer will write a check for $113 post-dated up to 20 days from the date of cashing and will receive $100 from the check cashing company. On the day noted on the check, the check cashing company will deposit the check and receive the full $113. If these services are considered loans, the amount charged for the services exceed the interest rates permitted under the state usury statute.  However, some check cashing companies argue that the discounting of checks or cashing of post-dated checks are similar to pawnbrokering thereby permitting the fees and interest rates authorized under the pawnbrokering statute.

An informal opinion of the Attorney General's Office noted that despite the characterization of these transactions as check cashing services, the investigated transactions constitute loans that violate federal Truth-in-Lending Act regulations and the state usury statute.  The Attorney General's Office recommended an amendment of the pawnbroker statute to exclude checks from the definition of personal property.

SUMMARY:

The pawnbroker statute is amended to exclude checks, drafts, money orders, or other commercial paper serving the same purpose from the definition of personal property. Pawnbrokers would be precluded from making loans secured by checks and check cashing companies would be precluded from relying upon the pawnbroker to justify loans with rates exceeding the state usury statute limits.

Fiscal Note:      Not Requested.

Effective Date:The bill takes effect on January 1, 1991.

House Committee ‑ Testified For:    Mike Grant, Attorney General's Office.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    Amending the pawnbroker statute by excluding checks from the definition of personal property eligible for pawning will prevent check cashing companies from successfully arguing that the cashing of post-dated checks constitutes pawnbrokering.  The statute was never intended to permit this type of activity.  The amendment will allow the attorney general to enforce the usury statute without costly litigation to determine the validity of the check cashing companies' arguments.

House Committee - Testimony Against:      None.