Pawnbrokers Sue California Attorney General

SACRAMENTO (CN) - California enforces an unconstitutional licensing program for pawnbrokers funded by an illegal tax on pawnshops, the California Pawnbrokers Association claims in court.

The association filed a writ of mandate against Attorney General Kamala Harris, the state Department of Justice, Sacramento County and its Sheriff Scott Jones on Monday, challenging enforcement of the California Pawn & SecondhandDealer System (CAPSS) program.

"It's an unmitigated disaster," the pawnbrokers' attorney Jon Webster told Courthouse News in an interview.

"The California Pawnbrokers Association fully supported A.B.391 [creating the CAPSS program] and agreed to increase licensing fees by $288 every other year to stop bearing costs of filing paper reports, and because it would be faster for law enforcement to access information on the pledgers and the items pledged," Webster said.

"We put misplaced confidence in the attorney general to create a functional system to protect consumer financial information," but the CAPSS program is a "continuing saga of complete and utter disaster," Webster said.

In other states private companies handle such reports, but the California Pawnbrokers Association did not want to give private companies access to people's private financial information, so it endorsed the government takeover, Webster said.

The program is a statewide electronic reporting system approved by the Legislature in 2012 to make it easier for law enforcement agencies to track stolen items sold to pawnshops.

Previously, pawnshop owners and secondhand store operators were required to report all newly pledged merchandise, the original seller, written permission from the seller to pledge the item, the pawnshop to which it was sold, and an accurate description of all items to police, who then reported to the state.

The CAPSS program eliminates the police middlemen and establishes an electronic database to which pawnbrokers must report all newly pledged items, in a "digital bucket." The state Department of Justice then organizes the items submitted to the bucket to help law enforcement identify and track stolen property.

Section I of the bill indicates that the Legislature intended the program to ease the financial burden of reporting pledged merchandise through mail-in forms, which could number in the thousands.

But the California Pawnbrokers Association says CAPSS did just the opposite, by raising licensing fees from $12 to $300 every other year, and creating a new set of codes "rather than accepting plain-text descriptions utilized by the pawn and secondhand industries" for decades.

The new codes could expose pawnbrokers to criminal liability because, for example, the new codes recognize only 13 descriptions for jewelry, though the old system had around 140 jewelry categories, according to the complaint.

"Back when I was a cop taking a burglary report, I never asked people to use the Department of Justice codes for the items that were stolen," Webster said.

"The real issue is that the DoJ is making pawnbrokers use codes that it recognizes without giving us a decoder ring. We don't know how they want us to classify things. The system is nonfunctional for its intended purpose because it requires us to make a guess, and to tell employees to make a guess," and a wrong guess could leave them criminally liable, he said.

"It puts us between a rock and a hard place," Webster said.

The program allows the attorney general to put licensing holds on businesses that police suspect are not complying with regulations, though the bill did not authorize the Department of Justice to collect money for that purpose, the association says

"License fees were only authorized to be used to electronically report that information ... that had historically been reported by paper format to local law enforcement. Thus, CAPA [California Pawnbrokers Association] contends CAPSS exceeds its statutory authority," the complaint states.

Since the program constitutes a regulation under the Administrative Procedures Act but was not approved through the APA process, it is an unlawful tax and is unenforceable, the association says.

Though the bill required the Department of Justice to publish a list of tangible personal property that constitutes "a significant class of stolen goods" for reporting purposes, it has yet to publish such a list, depriving pawnbrokers of the information they need to properly report newly pledged merchandise, according to the complaint.

Worse still, the association says, Sacramento County Sheriff Scott Jones has indicated he will cite pawn and secondhand businesses that do not follow reporting guidelines, even though they do not know what to report.

"During four years of discussions, the Department of Justice never followed procedure to vet this out and listen to stakeholders, including law enforcement," Webster said. "Essentially, I want them to start over so that the law enforcement officers and pawnbrokers who use the system get what they actually bargained for."

The Attorney General's Office declined to comment, through a spokeswoman.

The association seeks a declaration that CAPSS is a void and unenforceable underground regulation, and that the Department of Justice must stop implementing the electronic reporting system until it complies with the Administrative Procedures Act.

It also wants an injunction preventing Sheriff Jones and Sacramento County from imposing penalties on businesses that do not upload transactions to the CAPSS database until CAPSS is reworked so that it is no longer an unconstitutional tax.

Attorney Webster's law office is in Concord.

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