PAWNBROKERS AND SECOND-HAND DEALERS AMENDMENT BILL
The Hon. TONY KELLY
(Minister for Rural Affairs, Minister for Local Government, Minister for Emergency Services, Minister for Lands, and Minister Assisting the Minister for Natural Resources) [10.37 a.m.]: I move:
That this bill be now read a second time.
I seek the leave of the House to incorporate the second reading speech in Hansard
The purpose of this bill is to amend the Pawnbrokers and Second-hand Dealers Act 1996
to clarify that all agreements that amount to a pledge and loan are covered by the legislation.
In the decision of the High Court in Palgo Holdings Pty Ltd v Gowans
that was handed down on 25 May 2005, it was held that the agreement in question, despite having the essential characteristics of a pledge and loan agreement, was not covered by the Act because it had been described in the documentation signed by the customer as a "chattel mortgage". This bill seeks to correct that anomaly and make it clear that the Act applies to all agreements that, in substance, amount to a pledge and loan agreement.
The Act has three main objects: to restrict the trade in stolen goods, to provide consumer protection mechanisms for those entering into a pawn agreement and to provide a mechanism for the recovery of stolen goods by their owner quickly and equitably.
Pawnbrokers are required to hold a licence and to keep certain records. Records of transactions are uploaded to the NSW Police within three days of the record being made. These records are then cross-matched with records of stolen goods. Pawnbrokers are also required to obtain evidence of a person's identity when they sell or pawn goods. These provisions assist in restricting the trade in stolen goods.
When consumers enter into a pawn transaction they benefit from the safeguards provided by the consumer protection mechanisms contained in the Act. The Act requires pawnbrokers to disclose all fees and charges, provide pawners with information about their rights and responsibilities and allow pawners to pay their interest charges monthly. It also gives pawners a minimum period of three months to be able to redeem their goods and, if goods are not redeemed and are sold, then the legislation gives the pawner the legal right to claim any surplus monies remaining after all allowable fees and charges have been deducted from the sale proceeds.
The pawnbrokers and second-hand dealers legislation contains other protective measures for consumers and the community at large. It is essential that all consumers have access to the benefits of these provisions and that the objectives of the Act can be met.
Parliament has recognised the importance of this legislation by passing amendments which have strengthened its operation. The Pawnbrokers and Second-hand Dealers Amendment Act 2002
included provisions requiring pawnbrokers to enter into a written agreement when extending existing pawn agreements. These extension agreements contain such important consumer information such as the new terms of the agreement, the date of the new redemption period and what new fees and charges will be payable.
Without the amendment to the Act contained in this bill, unscrupulous persons operating for all intents and purposes as a pawnbroker will be able to require consumers to sign documents that prevent them from accessing rights they would otherwise have under the Act. Consumers who use the services of pawnbrokers are often amongst the most disadvantaged members of our community. It is critical that they can continue to receive the protection provided by the legislation.
In addition, persons wishing to offload stolen goods would be able to do so more readily. The requirements of the Act, including requirements for the lender to obtain evidence of the person's identity and provide details of the pawned goods to the NSW Police, would not apply. This could severely limit the ability of the Police in restricting the trade in stolen goods.
The bill inserts a new definition of pawnbroker into the Act. A pawnbroker means a person who carries on the business of lending money on the security of pawned goods.
For the purposes of the Act, goods are pawned if they are taken into the possession of the lender for the purpose of the lender relying on possession of the goods as security for the loan.
The bill also creates a regulation-making power for use in the event that the credit market develops new products that are not anticipated by the legislation. The regulation-making power allows regulations to be made to exclude products that may not be in the nature of pawn agreements but which may be unwittingly caught by the new definition. Alternatively there may be certain cases or circumstances where the transaction is, in substance, a pawn agreement and the goods are taken into possession by the lender but not used as security. This power also anticipates the need to be able to make regulations to cover certain cases or circumstances where goods may be taken into possession by an associate or person acting on behalf of a lender, where money has been loaned on the security of those goods.
The bill introduces certain interpretive principles to be applied in determining whether goods are pawned and whether money is lent on the security of pawned goods. These are:
(a) that regard is to be had to the substance of the loan transaction (rather than its form or legal technicalities);
(b) that particular regard is to be had to the ordinary understanding of the borrower as to the nature of the transaction;
(c) that a loan can be both on the security of pawned goods and a chattel mortgage; and
(d) it does not matter that the terms of the loan transaction provide that the lender has taken possession of the goods at the request of or on behalf of the borrower or otherwise so as to give the appearance that the lender does not rely on possession of the goods as security of the repayment of the loan.
I commend this bill to the House.
Ms SYLVIA HALE
[10.38 a.m.]: The Greens support the Pawnbrokers and Second-hand Dealers Amendment Bill. The amendments will ensure that financial loans giving rise to chattel mortgages are treated in the same way as loans given on the security of pawned goods. This will ensure that lenders who deal in these types of loans will be required to hold a licence under the Act. This is an improvement, as currently those types of loans are not included under the Act even though they are similar in operation to loans given on the basis of pawned goods. Pawn shops and chattel mortgage lenders both rely on goods as security, and the effect of the bill is that such loans and lenders will be treated in the same way.
Financial hardship and a variety of other personal reasons lead people to pawn goods in exchange for cash. In an ideal world there would be little need for people to borrow money from pawnbrokers and payday lenders. The Greens believe that access to secure and affordable housing, decent wages, and the bare necessities of life are human rights. Nevertheless, short-term loans in exchange for goods are a reality of modern life and they must be regulated adequately.
Stolen goods have been sold to pawnbrokers, sometimes to finance a drug habit—probably more so in the past when there was less regulation. The bill would make it harder for unlicensed lenders to receive stolen goods. I wonder if the proliferation of pawnbrokers and payday lenders is indicative of greater desperation among those on low or minimal incomes. It would be an interesting exercise to analyse the number and location of these lending outlets. Of course, you would find that they are concentrated in areas where people are struggling on low incomes or have less access to cheaper forms of credit.
People can end up paying higher interest to pawnbrokers and payday lenders than they would pay elsewhere. Last week one of my staff members inquired about a payday loan from an office in Newtown, and was told that the fee for a short-term loan of $200 for up to 62 days was about $77.90,plus a membership fee of $15. That is about $95 in fees and interest to borrow $200—an interest-rate of 40 per cent on a two-month loan. The more desperate you are for credit, the more vulnerable you are to exploitation by loan sharks, and I am thinking specifically of payday lenders, who charge anywhere between 500 and 2,500 per cent interest. These lenders and this type of lending should be outlawed. The Greens are worried about people ending up with a mountain of debt. We support the bill because its object is to afford greater protection to the most vulnerable by ensuring that those offering loans based on security of goods are brought under the Act.
The Hon. MELINDA PAVEY
[10.41 a.m.]: I lead for the Opposition on the Pawnbrokers and Second-hand Dealers Amendment Bill, which the Opposition will not oppose. Unlike the previous speaker I will confine my remarks to the intent of the bill. If the Greens are worried about payday lenders I suggest they put some of the incredible resources within their offices to worthwhile use and consider introducing legislation dealing with payday lenders. The bill is yet another in a long stream of legislation the Government is desperate to push through in the final week of this session. I question why the Government is so intent on pushing through as much legislation as possible, regardless of whether proper discussion and consultation has been sought. However, the shadow Minister in the other place, John Turner, in his most thorough and professional manner, has conducted wide-ranging consultation with the industry—unlike the Government—and it appears that the industry supports the bill—indeed, it has been asking for it for some time. But, as usual, the Government has left everything to the last second and we are pushing it through without wider consultation.
I am advised by John Turner, the shadow Minister for Fair Trading, that the bill has the general support of the industry because it is within its interests to have transparency and proper protocols in place with NSW Police to deal with goods in pawnbroking stores. I understand that proprietors of pawnbroking outlets maintain a register of goods, and that within three days of information being recorded in the register it is passed on to NSW Police. The maintenance of a register has reduced the incidence of stolen goods in pawnbroking stores. The tactic of the Government seems to be to stall legislation until the final weeks of the session and then hurriedly push through as much legislation as it can to avoid scrutiny.
The bill will clarify what goods are pawned, and when. The Opposition supports the amendments to the Pawnbrokers and Second-hand Dealers Act 1996, which are in response to the High Court Decision in Palgo Holdings v Gowans,
which was handed down in May of this year. The High Court held that the paperwork indicated that Palgo lent money on security of a chattel mortgage and not on security of the pawned goods. With a pawn title, the title rests in the pawnbroker. The effect of the decision is that dealers may try to avoid the legislation by adopting a similar approach to Palgo. In turn this would reduce the ability of the Act to restrict the trade in stolen goods, and consumers would be denied protection under the Act.
The Pawnbrokers Association of New South Wales has indicated that it is comfortable with the amendments to the Act, despite not being aware at the time of the second reading speech in the lower House that the legislation would be debated. Some time ago the association advised the Minister about the anomaly in the legislation, but it took the High Court decision to stir a response from the Minister. The bill will clarify the Act to determine who may carry on a business by way of pawn pledge or other form of security. The bill will ensure greater protection under the Act by introducing certain principles to be applied in determining whether goods are pawned and whether money is lent on the security of pawned goods. The Opposition supports the amendments, but I restate my frustration about the Government rushing the legislation through with little or no consultation. I question the motives of the Government in doing so.
Reverend the Hon. FRED NILE
[10.46 a.m.]: The Christian Democratic Party supports the Pawnbrokers and Second-hand Dealers Amendment Bill, a simple but practical bill that deals with a problem that occurred in the Local Court at Lismore in 2001 when Palgo Holdings, trading as Cash Counters Byron, was convicted of carrying on a pawnbroking business without holding a license under the Act. Palgo appealed that decision and, after being upheld by the lower courts, the High Court handed down its decision on 25 May 2005 to allow the appeal with costs and quash the conviction.
When I raised this matter in the House some weeks ago the Minister indicated that legislation would be introduced, which we are currently debating, to clarify the meaning of "pawnbroking" and "pawn". The bill will close the loophole. In convicting Palgo, the Local Court held that the transaction where the goods were retained by the lender reflected the fact that the borrower's goods had been pawned or pledged, and that Palgo should have been license under the Act. In contrast, the majority of the High Court took the view that nothing in the text of the Act supported the argument that pawned goods included goods that are the subject of other forms of security transactions, such as chattel mortgage or bill of sale.
The majority view of the High Court was that the paperwork indicated that Palgo lent money on the security of chattel mortgages, not on the security of pawned goods. Palgo was using a loophole in the legislation. If this bill is not passed, other dealers will adopt a similar approach to Palgo to avoid paying a licence fee. It is urgent that this important bill be passed by the House to clarify the application of the Act to persons who carry on business by way of pawn pledge or other form of security.
To determine whether a person is engaged in the business of lending money on the security of pawned goods, the court must have regard to the actual arrangement between the parties, including the borrower's understanding of the arrangement, not just on the legal nature of the arrangement as disclosed in the documentation signed by the parties. We congratulate the Minister for Fair Trading on moving promptly to close the loophole by introducing the bill.
The Hon. TONY KELLY
(Minister for Rural Affairs, Minister for Local Government, Minister for Emergency Services, Minister for Lands, and Minister Assisting the Minister for Natural Resources) [10.49 a.m.], in reply: I thank honourable members for their contributions to the debate and I commend the bill to the House.
Motion agreed to.
Bill read a second time and passed through remaining stages.