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MINUTES - Special - 3/3/2005 1 PUBLIC HEARING COMMONWEALTH OF MASSACHUSETTS DIVISON OF BANKS THURSDAY, MARCH 3, 2005 6:00 P.M. In attendance: Councillor Bencal, Sosnowski, Sargent, Veno O'Keefe, Lovely, Corchado, Sargent and Pelletier. Pawnbroker Mr. Frank DelGaudio Division of Banks: Gregory Short and Rose Egdwey This meeting is to have oral comments regarding regulations for Pawnbrokers. Mr. Short stated—This Hearing is being held by the Division of Banks regarding Chapter 140, Section 78 of the General Laws relative to the regulations of Pawnbrokers for the City of Salem and rates of interest charged. Speakers will be called upon in order of the to sign up sheet for comments. However as a courtesy and recognition of their schedules Government Officials will be taken out of turn. Mr. DelGaudio —stated he is a Licensed Pawnbroker in the City of Salem and has been in business for ten years. He is also the President of the Massachusetts Pawnbrokers Association. He stated that he has followed the meetings across the state. He has just returned from Lowell where they are currently having their City's meeting. Most towns, Lynn, Beverly, Malden, Hudson and Taunton have Ordinances with a 10% interest rate. Basic Loansare less than $100.00 with a turn around on the loan on the average of two (2) months. Fees and overhead for proprietors which includes rent, insurance, protection for the goods,police reporting and employees this is what the 10%was decided upon. There was Legislation in place. Representative Quinn has the Act in reference to Pawnbrokers but the act at this time still has no bill 4 on it. The hearings I've been to with the Banking Commission, the 10% figure is a viable figure due to the overhead. Short-term loans even for banks have to meet costs. There is a percentage of people who don't deal with banks, 25% don't deal with banks. They go from paycheck to paycheck. With rents, Health Insurance and Insurance going up a lot of costs and that's why the 10%, and 90% of other towns I've talked to have agreed. This Law has been on the books since 1911. It's out of date. Whoever issues the license has the right to set the rate. There hasn't been any changes to the law since 1911 that I'm aware of. Commissioner Gregory Short—You referenced a survey, where was this survey done? 2 Mr. DelGaudio —University of Pennsylvania, it was called Fringe Banking it was put in a book regarding check cashing and pawnbrokers. It showed where the banks neglected this percentage of the population aside. Commissioner Short—Do you think this is average amount in local community? Mr. DelGaudio —responded yes. Commissioner Short—Asked is there any other pawnbrokers in Salem? Mr. DelGaudio —stated No. There's only one and this is for most towns. Commissioner Short—Asked Mr. DelGaudio is there any other business in your shop? Mr. DelGaudio —Most pawnbrokers are in the Jewelry business too. Commissioner Short—stated the amendment to the Ordinance originally was 5% for loans up to $25.00 and 3% for loans over $25.00. This Ordinance was amended in May and the rate was changed to 10%. Could you explain what would have resulted in the 10% rate change. Mr. DelGaudio —stated that he gave the facts to the Councillors. Most City and Towns never knew they had to answer to the Banking Commission. It's an awaking and an education to all involved. It was a law that laid dormant for years. Before that I don't believe the banking commission approved any rates. Commissioner Rose Egdewy—Stated that 25% of the population doesn't deal with banks is that a national figure or a state figure Mr. DelGaudio —state Yes. I believe it's at least 15 — 18 % in this state. Councillor O'Keefe—asked why are we here? Commissioner Short—stated to find out how we established the rate of 10%. Councillor O'Keefe—Asked is our Ordinance approved? Commissioner Short—stated not approved or disapproved. Councillor O'Keefe—so you're here to get information on how we arrived at the rate for our ordinance. Commissioner Egdewy stated this is an information on your ordinance. Each community has to set a rate and get approval from the Commission. Councillor O'Keefe so there is no standard set by the state. 3 Commissioner Egdewy stated we want to know how you arrived at this rate for your ordinance. Commissioner Short—called on Councillor Veno from the sign up sheet. Councillor Veno stated he had no comment. Commissioner Short—called on Councillor Sosnowski. Councillor Sosnowski - stated we are still on a learning curve. I want to learn how we arrived at this number. Commissioner Short—asked where you on the Committee when the ordinance was passed? Councillor Sosnowski - replied Yes. Commission Egdewy—asked do you know how you arrived at this rate? Councillor Sosnowski—stated we went on the recommendation of the chair. I have nothing futher Councillor O'Keefe—respectfully requested That the Commission adopt the Ordinance adopted by City Council Commissioner Egdewy—Can you tell me how you arrived at this rate. Councillor O'Keefe—stated on the recommendation of Mr. DelGaudio and the bill that was in the Legislature. With consensus of the Committee and the information that Mr. DelGaudio submitted. Commissioner Edgewy—Did you have a public hearing on this Councillor O'Keefe—stated no, but we had public meetings on this. Mr. DelGaudio —state this is a public hearing that you advertised in the paper. Councillor O'Keefe—stated the ordinance was published in the local paper after I" passage and second passage. Councillor Sosnowski said we had a survey of surrounding communities on what there rate is. Mr. DelGaudio stated we have copies of ordinances for surrounding communities, Lynn, Beverly, Malden. 4 Commissioner Short—asked then the change was done based on information at a later hearing. Councillor O'Keefe—yes looking at other communities ordinances like Beverly. Comm. Short—are you aware prior to 2003 what rate was charged? Councillor O'Keefe - No Councillor Sargent I believe the rate was at 3%but don't know it for a fact. The rate is different for every city or town across the state. Comm. Short—from the statute the licensing and rate goes to local towns it's not set by the State. Comm. Short called on Joan Lovely Councillor Lovely—stated no comment Comm. Short—called on Ward one Councillor Councillor Corchado —stated she is not sure how, other than the information from Mr. DelGaudio. The letter from the Solicitor said basic rate was 10% for surrounding Cities and Towns. There's a letter from the Mr. Anani of the Banking Commission asking us to set the rate. Commission Egdewy—asked what was the rate in 2000? Councillor Corchado —Letter from Solicitor stated the 10% rate was recognized for the past 12 years not for Salem but for most cities and towns. Commissioner Egdewy—looked at this letter. Mr. DelGaudio can you shed some light on this for the last ten years. Mr. DelGaudio —stated Yes, was always at 10%. The letter that was sent by the Banking Commission requested Council to submit their Ordinance and rate fee. And your office put in a suggestion of 3%. Commission Egdewy—Do you have a copy of the letter from the Commissioner of Banks showing the rate for Beverly? Mr. DelGaudio state I don't. I'll get one for you. Commissioner Egdewy there was no mention of three percent in any of the letters sent out. 5 Mr. DelGaudio —I'll try and get a copy for you. Commissioner Short—asked what is the average loan? Was there a presentation of your financial statements Commissioner Egdewy—what percent of your business is pawnbroker Mr. DelGaudio stated 50%. Commissioner Short—Can you state what the average turn around for your loans. And how much? Mr. DelGaudio —my average loan is $79.00 —$82.00 and it is around a 66 day turn around time. Commissioner Egdewy—What is your default rate? Mr. DelGaudio —approximately 22% - 23%, two years ago I was at 19% Commissioner Egdewy—asked what do you do if someone doesn't pay you back? Mr. DelGaudio —By law we send a registered letter after 4 months then give them 10-15 days to respond and then we hold the goods for 3 more months. Commissioner Egdewy - asked and then what? Mr. DelGaudio -We have an auction twice a year. Commissioner Egdewy - Do you have public notice for the Auction? Mr. DelGaudio -It is posted in the store. Commissioner Egdewy -How many people come to the auction? Mr. DelGaudio - I have dealers Commissioner Egdewy - Dealers are not people so it jewelers? Mr. DelGaudio - What's left may be VCR's or TV's, electronics things like that. Commissioner Egdewy asked do you recoup your money? Mr. DelGaudio - $79.00 Commissioner Egdewy asked do you usually make $79.00 or under $79.00 on the jewelry? 6 Mr. DelGaudio responded you kind of break even. Commissioner Short—Can ask a couple of questions, can you give an idea what kind of percentage you are paid within 30 days? Mr. DelGaudio - No I can't Commissioner Short—then you probably can't answer the next question of those that don't pay in 30 days can you tell us how many would go the full term of 4 months Mr. DelGaudio —stated two thirds will pick up within the time. Commissioner Short- Can you give us a% of your income on an annual basis that would be derived from the public sale of the auction. Mr. DelGaudio —stated No. Commissioner Egdewy—asked do you have a percentage of the consumer of the pawned items. Mr. DelGaudio - No I can't most of the things that have defaulted are low end items. Commissioner Egdewy—what is the annual cost of expenses? Mr. DelGaudio —all sorts of costs are involved I can't give a figure. Commissioner Short—The figures are not here tonight, were they available when making the decision for the percentage rate in the ordinance. Mr. DelGaudio —stated no all the costs of doing business I've never broken it down. I have a very small store. Commissioner Egdewy—asked so you can't say 50% of your business for pawnbroker you can't say what the costs is? Mr. DelGaudio - It's all intertwined both businesses. No I don't have that capability to break it down. Commissioner Short called on Councillor Sargent. Councillor Sargent—Asked why they don't have a state wide rate? Seems it would be easier. Commissioner Egdewy—asked how do you license a pawnbroker? 7 Councillor O'Keefe—stated there is a form for applicants to fill out the application would be sent to city council and then it would be referred to the Committee on Ordinances, Licenses and Legal Affairs for review. Then the Committee would recommend to the full council for approval. Commissioner Egdewy—asked what if there were a complaint? Councillor O'Keefe—stated they would have to put the complaint in writing to the City Clerk which would be part of the record for the City Council. The Council would refer it to a committee to take up the complaint. Commissioner Short—describe police involvement. Councillor O'Keefe—stated all licenses are run through the police department with Lt. Andre Ouellette. Commissioner Short asked are you aware of any complaints? Councillor O'Keefe responded No. Councillor Corchado —state about the letter was written by Mr. DelGaudio to the Council. Commissioner Short have you been examined by the police in the last four years? Mr. DelGaudio asked examined in what way? Commissioner Short any of your books or records? Mr. DelGaudio —what basis would they have to examine your books? Commissioner Short—Any complaints Mr. DelGaudio —I've been in business 40 years, No. Commissioner Short opened it up for any further comment. Seeing no further comment I recommend that this hearing be closed. Written comments will be received up until 5:00 PM by Friday, March 181h. Councillor O'Keefe stated the City Clerk will give any copies of documents that you like. Councillor Sosnowski stated the law makes not sense to leave it up to the discretion of the individual cities and towns. 8