County’s Pawn Shop Reporting Ordinance Conflicts with State Law

Collateral Loan and Secondhand Dealers Association ("CLSDA"), a trade association for licensed pawnbrokers and secondhand dealers, brought a lawsuit against the County of Sacramento to challenge an ordinance creating a countywide reporting system for CLSDA's constituent members.  CLSDA contended that the ordinance duplicated and conflicted with state law regulating pawnbrokers, and sought both preliminary and permanent injunctive relief.  The trial court granted only minor portions of the relief sought by CLSDA's motion for preliminary injunction, and denied the rest, finding that CLSDA has failed to demonstrate that it was likely to prevail on the merits.  CLSDA appealed.

California's Third District Court of Appeal affirmed the trial court's order and expanded it to enjoin the enforcement of several other provisions of the ordinance in Collateral Loan and Secondhand Dealers Association v. County of Sacramento (January 9, 2014) —Cal.App.4th — (modified on February 7, 2014).  In its decision, the Court of Appeal also found that the County could not excuse those subject to the ordinance from filing paper reports in contravention to state law; the County could not authorize CLSDA members to pass-along licensing fees as transaction charges; the County could not expand the scope of information that is collected by reporting parties, beyond that specified by state law; and the County could not expand or contract the definition of pawnbrokers in deviation from state law.

Pawnbrokers are regulated by the State of California.  Business and Professions Code section 21628 provides that pawnbrokers "shall report daily, or on the first working day after receipt or purchase of the property, on form either approved or provided at actual code by the [DOJ], all tangible personal property…[acquired in the course of business], to the chief of police or to the sheriff…."  Between the time of the trial court's ruling in the case, and when the appeal was decided, the legislature amended the statute to state its intent that the statutory scheme act as a "single, statewide, uniform reporting system…" Importantly, the single, statewide, uniform reporting system established in Business and Professions Code section 21628 contemplates the phased implementation of mandatory e-reporting.  However, some of the ordinance's provisions regarding the voluntary submission of paper reports, prematurely allowed pawnbrokers to cease mandatory paper reports and convert to e-filing, before they were allowed to do so under state law.

The Court of Appeal also held that the ordinance impermissibly provided for pawnbrokers to pass along the cost of licensing fees as part of their transaction charges. The court held that allowable charges to customers of pawnbrokers are entirely regulated by  Financial Code section 21000 et seq., which does not contemplate the pass-through of a local licensing fee.  Also, the court held that County could not expand the scope of mandatory reporting, by adding additional categories of information.  Likewise, the County could not change the definition of pawnbrokers, effectively changing the categories of licensees subject to state regulation.

The Court of Appeal refused to opine on whether the impermissible portions of the ordinance were severable from the whole, noting that the relief awarded to CLSDA was preliminary in nature and that it was premature to address such relief before the trial court had made a final judgment in the matter.


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