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Second-hand Dealers and Pawnbrokers Regulations 2008 RIS by website1981

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									  Second-Hand Dealers and
Pawnbrokers Regulations 2008


   Regulatory Impact Statement
Table of Contents
Executive Summary......................................................................................iii
1. Introduction...............................................................................................1
   1.1    Legislative Backing ......................................................................................... 1
   1.2    Amendments to the Act................................................................................... 2
   1.3    Linkage to Consumer Credit Code.................................................................. 3
   1.4    This Regulatory Impact Statement.................................................................. 4
2. Nature and Extent of the Problem ...........................................................5
   2.1 Overview ......................................................................................................... 5
   2.2 The Legislative Requirements ........................................................................ 6
   2.3 Specific Intervention Required ........................................................................ 6
      2.3.1 Consumer Protection........................................................................... 7
      2.3.2 Information Asymmetry........................................................................ 8
      2.3.3 Cost Recovery ..................................................................................... 9
3. The Objectives ........................................................................................11
   3.1 Primary Objectives........................................................................................ 11
   3.2 Secondary Objectives ................................................................................... 11
   3.3 Decision Criteria............................................................................................ 11
4. Proposed Regulations............................................................................12
   4.1  Authorising Provisions .................................................................................. 12
   4.2  Affected Parties............................................................................................. 12
   4.3  Consultation .................................................................................................. 12
   4.4  The Proposed Regulations ........................................................................... 13
   4.5  Fees (Proposed Regulation 6) ...................................................................... 14
       4.5.1 Costs ................................................................................................. 15
       4.5.2 Benefits.............................................................................................. 16
   4.6 Register (Proposed Regulation 7)................................................................. 16
       4.6.1 Costs ................................................................................................. 17
       4.6.2 Benefits.............................................................................................. 18
   4.7 Prescribed Categories of Evidence as to Identity of Persons Selling or
        Pawning Goods (Proposed Regulation 8)..................................................... 18
       4.7.1 Costs ................................................................................................. 19
       4.7.2 Benefits.............................................................................................. 19
   4.8 Recording Transactions (Proposed Regulation 9) ........................................ 20
       4.8.1 Costs ................................................................................................. 23
       4.8.2 Benefits.............................................................................................. 24
   4.9 Identifying Mark or Number (Proposed Regulation 10)................................. 24
       4.9.1 Costs ................................................................................................. 25
       4.9.2 Benefits.............................................................................................. 25
   4.10 Pawn Ticket and Notice (Proposed Regulation 11) ...................................... 25
       4.10.1 Costs ................................................................................................. 26
       4.10.2 Benefits.............................................................................................. 27
   4.11 Lost Pawn Ticket (Proposed Regulation 12)................................................. 28
       4.11.1 Costs ................................................................................................. 28
       4.11.2 Benefits.............................................................................................. 29
   4.12 Period of Loan (Proposed Regulation 13)..................................................... 29
       4.12.1 Costs ................................................................................................. 29
       4.12.2 Benefits.............................................................................................. 29
   4.13 Redemption of Goods (Proposed Regulation 14) ......................................... 29
       4.13.1 Costs ................................................................................................. 30
       4.13.2 Benefits.............................................................................................. 30



                                                          -i-
   4.14 Sale of Unredeemed Goods (Proposed Regulation 15) ............................... 30
       4.14.1 Costs ................................................................................................. 31
       4.14.2 Benefits.............................................................................................. 31
   4.15 Embargo Notice (Proposed Regulation 16) .................................................. 32
       4.15.1 Costs ................................................................................................. 32
       4.15.2 Benefits.............................................................................................. 32
   4.16 Infringement Penalties (Proposed Regulation 17) ........................................ 32
       4.16.1 Costs ................................................................................................. 33
       4.16.2 Benefits.............................................................................................. 33
   4.17 Implementation and Enforcement ................................................................. 34
       4.17.1 Implementation .................................................................................. 34
       4.17.2 Compliance and Enforcement ........................................................... 34
   4.18 Interstate Legislative Arrangements ............................................................. 35
   4.19 Summary of Cost Benefit Analysis................................................................ 36
5. Other Options to Achieve the Objectives .............................................41
   5.1 Introduction ................................................................................................... 41
   5.2 No Regulations – The Base Case................................................................. 41
      5.2.1 Costs ................................................................................................. 41
      5.2.2 Benefits.............................................................................................. 42
   5.3 No Prescribed Particulars for Transaction Records...................................... 42
      5.3.1 Costs ................................................................................................. 42
      5.3.2 Benefits.............................................................................................. 43
   5.4 Mandatory Computerised Record Keeping................................................... 43
      5.4.1 Costs ................................................................................................. 43
      5.4.2 Benefits.............................................................................................. 44
   5.5 Assessment of Options ................................................................................. 45
   5.6 Fees .............................................................................................................. 47
6. Evaluation Strategy ................................................................................49
7. National Competition Policy Assessment ............................................50
   7.1    Introduction ................................................................................................... 50
   7.2    Definition of Market ....................................................................................... 50
   7.3    Test for Restriction on Competition............................................................... 50
   7.4    Assessment .................................................................................................. 51
         7.4.1 Part 1 – Preliminary (proposed regulations 1-5)................................ 51
         7.4.2 Part 2 – Registration (proposed regulations 6-7)............................... 51
         7.4.3 Part 3 – Conduct of Business (proposed regulations 8-15)............... 51
         7.4.4 Part 4 – Enforcement (proposed regulations 16-17) ......................... 51
8. Impact on Small Business .....................................................................52
9. Administrative Burden ...........................................................................54
   9.1 Cost Parameter Assumptions ....................................................................... 56
Appendix 1: Summary of 2007 Research Survey Results........................58
Appendix 2: Comparison of Proposed Regulations with 1997
  Regulations .............................................................................................60
Appendix 3: Analysis of Proposed Fees....................................................62
Appendix 4: Second-Hand Dealers and Pawnbroker Controls in Other
  Australian Jurisdictions .........................................................................79




                                                           - ii -
Executive Summary
The Second-Hand Dealers and Pawnbrokers Regulations 1997 are due to expire under
section 5 of the Subordinate Legislation Act 1994 on 22 December 2008.

In accordance with the requirements of the Subordinate Legislation Act 1994 and the
Victorian Guide to Regulation, a Regulatory Impact Statement is required to assess
the draft Second-Hand Dealers and Pawnbrokers Regulations 2008 (the proposed
Regulations) in terms of their objectives and their effect. Also, an assessment of the
alternative approaches to achieving those objectives is required.

Affected Parties

A second-hand dealer is defined in section 3 of the Second-Hand Dealers and
Pawnbrokers Act 1989 (the Act) as “a person who carries on the business of buying,
selling, exchanging or otherwise dealing in second-hand goods, whether or not he or
she deals in other goods and regardless of where goods are bought”. Second-hand
goods are defined as “any goods which have been worn or otherwise used”. The
definition is broad and therefore the Act and proposed Regulations affect a wide range
of businesses including:
    • second-hand dealers who operate traditional second-hand goods stores;
    • scrap metal dealers;
    • antique dealers; and
    • persons who regularly operate market stalls at which second-hand goods are
        sold (other than for charitable purposes).

It is proposed to continue the current exemption for second-hand dealers carrying on
business exclusively for charitable, benevolent and philanthropic organisations, as
outlined in the draft Second-Hand Dealer and Pawnbroker (Exemption) Regulations
2008.

The proposed Regulations will also affect pawnbrokers. A pawnbroker is defined in
the Act as “a person who carries on the business of advancing money on the security
of pledged goods.”

More broadly, the proposed Regulations will affect:
  • customers of second-hand dealers and pawnbrokers;
  • consumer credit industry;
  • Consumer Affairs Victoria;
  • Victoria Police; and
  • the general public.

The Objectives of the Proposed Regulations

The primary objectives of the proposed Regulations are:



                                        - iii -
   •   to protect consumers and the public generally from stolen goods being
       trafficked through second-hand dealers and pawnbrokers and improve the
       quantity of stolen goods recovered from second-hand dealers and pawnbrokers
       and returned to their rightful owners;
   •   to improve the provision of information to consumers about their rights and
       obligations when dealing with second-hand dealers and pawnbrokers; and
   •   to recover the costs of efficiently administering the Act and proposed
       Regulations through cost-reflective and equitable fees.

The secondary objectives, as provided in the proposed Regulations, are to facilitate
the operation of the Act and provide for—
   (a) fees payable under the Act;
   (b) the particulars to be recorded in the register of second-hand dealers;
   (c) categories of documents as to identity;
   (d) record-keeping requirements;
   (e) forms;
   (f) the manner of disposal by pawnbrokers of unredeemed goods; and
   (g) offences in respect of which an infringement notice may be issued.

The Nature of the Problem Being Addressed

The objectives of the proposed Regulations are designed to address three problems in
the second-hand dealers and pawnbrokers market.

First, the problem of stolen goods being trafficked through second-hand dealers and
pawnbrokers. There is a need to prevent this practice and improve the quantity of
stolen goods recovered from second-hand dealers and pawnbrokers and returned to
their rightful owners.

Second, there is an imbalance of information between pawnbrokers and their
customers. This may result in consumers entering into unfair agreements or
pawnbrokers taking advantage of consumers with limited knowledge of their rights in
regards to these types of transactions.

Third, there is a need to efficiently recover the costs of administering the proposed
regulatory framework through fees that reflect the costs of the relevant administrative
processes involved. Failure to establish a fee structure based on full cost recovery
would mean that the cost of administering the second-hand dealers and pawnbrokers
regulatory scheme would ultimately be borne by taxpayers. By charging fees, it is
expected that there will be an efficient level of use of the registration and other
application processes.




                                         - iv -
The Proposed Regulations

In summary, the proposed Regulations set out:
    • the fees payable under the Act by second-hand dealers and pawnbrokers to be
      registered and endorsed (proposed regulation 6);
    • the information to be contained in the public register (proposed regulation 7);
    • the types of identification that second-hand dealers and pawnbrokers can
      accept from persons selling or pawning goods (proposed regulation 8);
    • the details of transactions required to be recorded by second-hand dealers and
      pawnbrokers (proposed regulation 9);
    • the requirement to ensure an identifying mark or number is affixed to second-
      hand goods received (proposed regulation 10);
    • the details to be contained in a pawn ticket and notice and the form of the
      ticket and notice (proposed regulation 11);
    • the process for issuing a duplicate pawn ticket in the case of a lost pawn ticket
      (proposed regulation 12);
    • the requirement to fix the period of the loan at the time that goods are pawned
      (proposed regulation 13);
    • the process for redeeming pawned goods (proposed regulation 14);
    • the process for selling unredeemed goods (proposed regulation 15);
    • the form of the embargo notice (proposed regulation 16); and
    • the infringement penalties (proposed regulation 17).

Assessment of the Proposed Regulations

The proposed Regulations will produce several benefits. Consumers and the public
will ultimately derive most of the benefits, although some will flow to industry. For
example, prescribing additional categories of evidence as to the identity of persons
selling or pawning goods (proposed regulation 8) provides a benefit to industry as
traders may gain legitimate business from people who may not meet the proof of
identity requirements under the Act.

The main benefits of the proposed Regulations relate to achievement of the primary
objectives of the proposed Regulations. First, the proposed Regulations will increase
the number of stolen goods recovered by improving the ability of Victoria Police to
effectively and efficiently track stolen goods traded through second-hand dealers and
pawnbrokers. This benefit is primarily achieved through requiring second-hand
dealers to record detailed information regarding their transactions (proposed
regulation 10) and by ensuring that the identifying mark or number assigned to goods
remains affixed to the second-hand or pawned good (proposed regulation 11).

Second, the proposed regulations relating to pawn transactions (proposed regulations
12 to 15) provide benefits to consumers by addressing the imbalance of information
between pawnbrokers and their customers by improving the provision of information
to consumers about their rights and obligations when dealing with pawnbrokers.




                                         -v-
The only benefit that could be quantified was the benefit derived from recovering the
full cost of administering the second-hand dealers and pawnbrokers regulatory
scheme. This was estimated to be $247,481 per annum (or $2,130,239 over 10 years
using 3.5% discount rate).

The main costs of the proposed Regulations will be incurred by industry and include:
   • $247,481 per annum for fees payable under the Act to be registered;
   • $4,528.48 per annum to compile the details to be provided on the application
      form for inclusion on the Register;
   • $242,292 per annum to complete the details required on the pawn ticket; and
   • $9,036.30 per annum to produce a duplicate pawn ticket, in the case of a lost
      ticket, and check the customer’s statutory declaration and identification.

The total quantified costs of the proposed Regulations are estimate to be $503,749 per
annum (or $4,336,113 over 10 years using a 3.5% discount rate).

As most of the benefits of the proposed Regulations could not be quantified, a
qualitative assessment (which incorporated the quantified costs and benefits) was used
to assess the proposed Regulations. The assessment demonstrated that the estimated
benefits of each of the proposed regulations outweighs the estimated costs of each of
the proposed regulations. For some of the proposed regulations – for example,
proposed regulation 10 – there were significant benefits for only a minor cost.

Other Means of Achieving the Objectives

In considering the most effective means to achieve the identified objectives,
consideration was given to alternatives to the proposed Regulations. An option to not
prescribe the particulars of transaction records was considered, as was an option to
prescribe mandatory computerised recording of transactions.

The option not to prescribe the particulars of transaction records may reduce the costs
to industry, by allowing the industry flexibility in determining the information it
considers will comply with the Act. Therefore, reducing the time second-hand dealers
and pawnbrokers spend on recordkeeping. However, this option could lead to traders
recording incomplete information, which could significantly hinder Victoria Police’s
ability to effectively and efficiently track stolen goods through second-hand dealers
and pawnbrokers. On this basis, this option was not considered appropriate.

The primary benefit of mandating that second-hand dealers and pawnbrokers use a
computerised record keeping system is that it would facilitate the transfer of up-to-
date and detailed information to Victoria Police on goods traded through second-hand
dealers and pawnbrokers. Thereby improving the ability of Victoria Police to
effectively and efficiently track stolen goods through second-hand dealers and
pawnbrokers and apprehend offenders. It would also facilitate sharing of information
between jurisdictions, in particular New South Wales and Western Australia.
However, there would be significant costs – estimated to be $10,587,600 – to industry
from this proposal. Consequently, the costs were considered to outweigh the benefits
and therefore, this option was not considered appropriate.



                                         - vi -
Comparison of Current and Proposed Regulations

There are three major differences between the Second-Hand Dealers and Pawnbrokers
Regulations 1997 (the current Regulations) and the proposed Regulations.

First, regulation 10 in the current Regulations requires second-hand dealers to display
a sign in a prominent position outside each business premises. The proposed
Regulations do not include this requirement.

Second, regulation 12(4) requires second-hand dealers and pawnbrokers who use a
computerised record-keeping system to produce, on a daily basis, a printed and
sequentially pre-numbered hard copy of all transactions recorded on the computerised
system. The proposed Regulations do not include this requirement.

By no longer having this requirement, Consumer Affairs Victoria estimates that a
material change in the administrative burden will result. Consequently, Consumer
Affairs Victoria intends to undertake a Standard Cost Model (SCM) assessment of the
change within three months of the regulations being implemented. To complete the
SCM assessment Consumer Affairs Victoria needs to understand the time and
financial savings to business resulting from removal of this requirement.
Consequently, Consumer Affairs Victoria is interested in hearing feedback from
second-hand dealers and pawnbrokers, who use a computerised record keeping
system, on the following:
    • How many days per week, on average, do you print out a daily record of
        transactions?
    • On average, how many pages long is your daily record of transactions?
    • How long does it take, on average, to prepare, print, number and file this
        information?
    • What is the hourly wage rate of the person that usually performs this task?

The third change relates to the fees second-hand dealers and pawnbrokers are required
to pay under the Act. The proposed Regulations will prescribe the application to vary
or revoke conditions fee, late payment or lodgement fee, permission application fee
and annual endorsement fee. These fees were previously set out in the Act.

Further, the fee unit levels have been updated to recover the current full costs of
administering the second-hand dealers and pawnbrokers regulatory scheme. The
following table compares the current fee unit levels with the proposed fee unit levels.




                                        - vii -
Comparison of Current and Proposed Fees

                                            Existing Fee       Proposed Fee
               Fee Type
                                            (Fee Units)         (Fee Units)
        Application for registration               11                9
        Application to vary or revoke
                                                   15                3
        conditions
        Permission application                     15               59
        Annual registration                        3                 3
        Late payment or lodgment                   2                 1
        Annual endorsement                         40                0
        Copy of register                           $5               $5


Except for the permission application fee, the fees under the proposed Regulations
will be less than the current fee levels.

There will be a significant increase in the permission application fee (from 15 to 59
fee units). Historically, the permission application fee has been set under the Act.
Since the setting of this fee in the Act, the scrutiny of permission applications has
increased significantly. In particular, a significant Business Licensing Authority time
resource is required to process applications. The current permission application fee is
under-recovering the costs of processing these applications and the other fees are
currently subsidising this service. The proposed permission application fee is
reflective of the increase in resources to process these types of applications.




                                        - viii -
1. Introduction
1.1 Legislative Backing
A second-hand dealer is defined in the Second-Hand Dealers and Pawnbrokers Act 1989
(the Act) as “a person who carries on the business of buying, selling, exchanging or
otherwise dealing in second-hand goods, whether or not he or she deals in other goods
and regardless of where goods are bought”. Second-hand goods are defined in the Act as
“any goods which have been worn or otherwise used.”

Currently, there are over six thousand registered second-hand dealers in Victoria with
two per cent also endorsed as pawnbrokers (i.e. 120). Antique dealers are the most
common type of second-hand dealers, some of which are concentrated in particular areas,
such as Armadale. Second-hand dealers may typically include auto parts sellers, motor
mower and chainsaw dealers, booksellers, music dealers and metal dealers. Most second-
hand dealers are sole operators. However, some are franchises like Cash Converters,
which has 30 stores throughout Victoria.

The Second-Hand Dealers and Pawnbrokers Regulations 2008 (the proposed
Regulations) will apply to registered second-hand dealers only.1

A pawnbroker is defined in the Act as “a person who carries on the business of advancing
money on the security of pledged goods”. Pawnbroking is the practice of a consumer
taking an item they own to a pawnbroker where it is appraised and a loan is drawn for a
percentage of the value of the item being pawned. A date is set by which time the loan
must be repaid along with a fee for service and interest. After this date, the lender may
sell or otherwise dispose of the goods pawned. Unlike other forms of credit, consumers
are not limited to the type of goods that they can offer as security (except under section
23(1A) of the Act, motor cars cannot be received as goods in pawn.).

Pawnbroking in Victoria is regulated by the Act and the Second-Hand Dealers and
Pawnbrokers Regulations 1997 (the 1997 Regulations). The regulation of pawnbrokers
was reviewed in 1995-96 and 2000-01. The 1995-96 Review focused on the impact of
National Competition Policy on pawnbroking, while the 2000-01 Review primarily
examined the regulation of pawnbroking and the handling of goods pawned.

Second-hand dealing and pawnbroking are similar businesses in that they both involve
obtaining pre-owned goods. However, they are distinct, in that pawnbroking involves the
business of lending money on the security of pawned goods. The person pledging the
goods is able to reclaim them if repayment is made in accordance with the pawn
agreement.


1
 Some businesses are exempted from registration. Previously, the exemptions were detailed in the Second-
Hand Dealers and Pawnbrokers Regulations. They are now set out in draft Second-Hand Dealers and
Pawnbrokers (Exemption) Regulations 2008.


                                               -1-
Prior to the 1989 Act second-hand dealers and pawnbrokers were regulated under
different Acts. The Second Reading Speech of the Bill in April 1989 set out the twin
objectives of the 1989 Act as “replacing unnecessary regulatory controls with a more
efficient scheme of licensing and providing effective measures to combat dealings in
stolen goods.” The Act was subsequently amended in 2001 to add the purpose “to
enhance protection of consumers dealing with second-hand dealers and pawnbrokers.”

Under the Act, persons cannot trade as a second-hand dealer, alone or in partnership,
unless they are registered, and cannot trade as a pawnbroker unless their second-hand
dealer registration is endorsed authorising them to do so.

The Act requires second-hand dealers and pawnbrokers to register with the Business
Licensing Authority and to update registration details annually. Part 3 of the Act is
headed “Conduct of Business” and deals with aspects of conducting a second-hand dealer
or pawnbroking business such as identifying persons attempting to sell or pawn goods,
recording transactions and storage location of goods. Under the Act, a person is not
eligible to be registered for an endorsement of the registration in specified circumstances,
such as insolvency or if the person has within the preceding five years been convicted or
found guilty of a disqualifying offence as defined in section 3 of the Act. In addition, the
Victorian Civil and Administrative Tribunal may order disciplinary measures such as a
reprimand, or the suspension or cancellation of the person’s registration or endorsement.

The Act requires a register to be kept of all persons registered as second-hand dealers
containing particulars of endorsements if any, and the prescribed particulars. The 1997
Regulations currently prescribe the following particulars to be contained in the register:
   • the persons registration number in the register;
   • the date of the registration;
   • the person's full name or name of body corporate;
   • if the person is a body corporate, the corporation's ACN or registration number;
   • every address at which the person carries on business; and
   • any business names under which the person carries on business.

The register is available for public inspection.

Persons (including corporations) that trade as a second-hand dealer without being
registered or as a pawnbroker without being registered and endorsed, either alone or in
partnership, are liable to a penalty of up to 100 penalty units2.

1.2 Amendments to the Act
As referred to earlier a review of the Act was undertaken in 2000-01, which resulted in
significant amendments to the Act.



2
    One penalty unit is $113.42.


                                           -2-
First, non-compliance by some elements of the pawnbroking industry had given rise to a
need for better identification of who in the marketplace is conducting the business of a
pawnbroker and for improved enforcement mechanisms to enhance compliance with the
Act. A separate endorsement scheme for pawnbrokers was introduced to distinguish
pawnbrokers from second-hand dealers and the enforcement mechanisms in the Act were
strengthened.

Additional inspection powers involving pawnbrokers were also introduced. These powers
enable Consumer Affairs Victoria inspectors and Victoria Police to monitor compliance
by pawnbrokers with the signage, notification and record-keeping requirements imposed
by the Act. These requirements help in tracing stolen goods and ensure that consumers of
pawnbrokers’ services are informed of their rights and responsibilities. (It should be
noted that enforcement of the second-hand dealer provisions of the Act are the sole
responsibility of Victoria Police).

The amendments improved compliance by increasing certain penalties that apply to
signage and other notice requirements under the Act. The power to issue infringement
notices for some offences was also introduced and the Business Licensing Authority was
given the power to impose conditions on second-hand dealer registrations and
pawnbroker endorsements. Victorian Civil and Administrative Tribunal was given power
to discipline second-hand dealers and pawnbrokers in relation to their conduct and the
conduct of their businesses.

The statutory right for persons who have pawned goods to claim any residual equity in
their goods, which are unredeemed and then sold, was reinstated. Residual equity is the
amount remaining after the reasonable costs of selling the pawned goods and the amount
owing under the loan contract have been deducted from the proceeds of sale. Any
residual equity entitlement can be claimed for a period of 12 months from the date of the
sale of the unredeemed goods. It is an offence for a pawnbroker not to pay the residual
equity to the customer upon request. If the pawnbroker does not pay it, the residual equity
becomes a debt, which may be recovered in a court of competent jurisdiction (generally
the Magistrates’ Court).

The Act was also amended to prohibit the pawning of motor vehicles to stop the practice
identified in the review of pawnbrokers advancing disproportionately small amounts of
money on the pledge of a motor car of potentially much higher value as security. The
review had concluded that it is inappropriate to allow for the pawning of motor cars
because in many cases they are one of a person's most valuable assets, a means of
transport and even a form of accommodation in extreme circumstances.

Finally, as discussed earlier, a new purpose was added to clarify that the Act is intended
to enhance protection of consumers dealing with second-hand dealers and pawnbrokers.

1.3 Linkage to Consumer Credit Code
The Consumer Credit Code does not apply to pawn transactions, except sections 70 to 72,
which allow a Court to reopen unjust transactions. Pawnbroking ‘loans’ are not subject to


                                         -3-
the interest rate cap applicable to credit providers. This was deregulated in 1997
following a National Competition Policy Review of pawnbroking.

1.4 This Regulatory Impact Statement
The 1997 Regulations are due to sunset under section 5 of the Subordinate Legislation
Act 1994 on 22 December 2008.

In accordance with the requirements of that Act and the Victorian Guide to Regulation, a
Regulatory Impact Statement is required to assess the proposed Regulations in terms of
their objectives and their effect, alternative approaches to achieving those objectives, and
an assessment of the costs and benefits of the regulations and the alternatives. An
assessment has also been undertaken of the implications of the proposed Regulations on
competition.

In assessing the most effective option to achieve the identified objectives, the Regulatory
Impact Statement must determine decision criteria to assess each option. These will relate
directly to the objectives of the proposed Regulations and the Act.

By virtue of the framing of the Act, the 1997 Regulations and the proposed Regulations
respond specifically to particular provisions of the Act rather than being self-contained.
Therefore, the assessment of the costs and benefits of the proposed Regulations is only on
the ‘incremental’ costs and benefits arising from the proposed Regulations and not the
impacts that are attributable to the Act’s provisions.




                                          -4-
2. Nature and Extent of the Problem
2.1 Overview
One of the purposes of the Act is to restrict the traffic in stolen goods and to assist the
rightful owners of goods in recovering their lost property. This connection can achieve a
high public profile. For instance, in 1993 and 1994 a police operation in New South
Wales used the operation of pawnbroker’s shops in breaking down housebreaking gangs
throughout Sydney3.

Section 1 of the Act sets out the purposes of the legislation as:
    (a) to provide for the regulation of second-hand dealers and pawnbrokers; and
    (b) to facilitate and expedite the recovery of stolen goods from second-hand dealers
        and pawnbrokers; and
    (c) to enhance protection of consumers dealing with second-hand dealers and
        pawnbrokers.

Based on the second-reading speeches and the specific provisions of the Act, the
following objectives of the legislation were deduced by the Review of Consumer Credit4:
    • to regulate the dealing in certain categories of second-hand goods (high risk of
       theft goods) in order to limit the traffic in stolen goods through pawnbrokers and
       secondhand dealers;
    • the rapid provision to the Police Service of up-to-date information on the
       sale/pawn of second-hand goods to enhance the enforcement capability of the
       Police Service to combat property theft;
    • require pawnbrokers and second-hand dealers to be more vigilant about clients
       who offer goods for sale or pawn in regard to documentation clients are required
       to produce to substantiate their identity and their title to the goods;
    • constrain the exercise of market power in respect of the provision of pawnbroking
       services; and
    • provide a mechanism to facilitate the return of stolen property to rightful owners
       quickly and equitably.

These objectives aim to prevent the socially undesirable activity of property crime within
the pawnbroking and second-hand dealing industries.

It is also an objective of the Act to address an imbalance in information between
pawnbrokers and their customers regarding the rights and obligations under a pawn
agreement. Historically, it has been accepted that market forces do not produce a fair

3
  Review of the Regulation of Pawnbrokers, Discussion Paper, Page 9, Victoria Consumer and Business
Affairs, Department of Justice, 21 November 2000.
4
  Report of the Consumer Credit Review, Consumer Affairs Victoria, Department of Justice, 2006.


                                             -5-
market for people needing to borrow money for personal purposes. An unregulated
pawnbroking market may produce unfair transactions because individual borrowers often
lack the information necessary to challenge those brokers whose practice it is not to
disclose the price (and other potential costs) of an advance in credit in terms they can
readily understand. Therefore, government intervention is considered warranted on this
basis.

2.2 The Legislative Requirements
The regulation of second-hand dealers and pawnbrokers aims to minimise the negative
impact on customers and the public generally from detrimental practices of traders and
the possible sale of stolen goods. The Act sets out a registration system for second-hand
dealers and pawnbrokers and imposes a number of requirements around how traders
conduct their business. The Regulations under the Act respond to the Act’s provisions
that require the prescribing of particulars.

The Act establishes specific rather than broad regulatory controls over second-hand
dealers and pawnbrokers. As a result, the 1997 Regulations only respond to specific
provisions of the Act where detailed prescriptions are required. For example, the 1997
Regulations identify:
   • fees payable, particulars to be included in the Register, categories of evidence of
       identity to be provided by persons selling or pawning goods and requirements to
       display a sign - each as required by the Act;
   • details of the conduct of business transactions; and
   • enforcement actions – details to be provided in an embargo notice and additional
       offences (with penalties) for the purposes of the Act’s infringement notice system.

The Regulations are essentially declaratory or machinery and the primary regulatory
burden attaches to the Act’s provisions. Therefore, it is difficult to discuss problems
which some of the particular regulations address. For example, the particulars contained
in the various forms and notices merely provide detail for the purposes of the Act and do
not impose an appreciable burden on the industry or consumers. The use of prescribed
forms is of benefit to traders and consumers because they contain accurate and concise
information in an accessible form. Some of the major traders have reported that the
availability of prescribed information has had a positive impact on business practices and
has helped educate consumers with respect to their rights and responsibilities.

However, where appropriate this section identifies the specific problems for which
government intervention in Regulations is required.

2.3 Specific Intervention Required
Intervention is required to address the following issues:
    • protecting consumers from the practice of stolen goods being trafficked through
       second-hand dealers and pawnbrokers;
    • the imbalance of information between pawnbrokers and their customers; and


                                         -6-
    •   recovering the cost of administering the regulatory scheme.

2.3.1 Consumer Protection

Nature of the problem

Stolen goods being trafficked through second-hand dealer and pawnbroking businesses.
There is a need to prevent this practice and improve the quantity of stolen goods
recovered from second-hand dealers and pawnbrokers and returned to their rightful
owners.

Extent of the problem

Victoria Police does not keep specific records of stolen goods that pass through second-
hand good and pawnbroker shops. However, Victoria Police has advised that police
involvement and interest with second-hand dealers will always be directed at areas that
have proven useful in solving crime and recovering stolen goods. Victoria Police has
identified home burglaries as such an area because it typically involves the theft of
domestic items such as tools, jewellery, lap top computers and consumer electronics,
which can be readily disposed of through second-hand dealers.

The latest crime statistics indicate that in 2006-07 Victoria Police recorded 50,331
burglaries (aggravated, residential and other) and 124,356 thefts (from motor vehicle,
shopsteal, bicycle and other).5 Where items were stolen and on sold it is likely that some
proportion of them would have been offered to second-hand dealers or pawnbrokers.
There is no specific Victorian data on the proportion of stolen goods that are sold to
second-hand dealers and pawnbrokers. However, a 1998 survey of imprisoned burglars
conducted in New South Wales found that 49.2 per cent of the 250 respondents had sold
stolen goods to pawnbrokers or second-hand dealers, with 12 per cent selling goods to
pawnbrokers or second-hand dealers most of the time and 36.4 per cent some of the
time.6

While there is no Victorian specific data on the value of stolen goods recovered from
second-hand dealers and pawnbrokers, in New South Wales between 1999 and February
2003, an estimated $12,702,143 worth of stolen property was recovered through police
investigations or the outcomes of police investigations where property may have been
directly or indirectly7 recovered from the business premises of pawnbrokers or second-
hand dealers.8 This works out to be more than $3,000,000 worth of stolen property each


5
  Victoria Police 2007, Crime Statistics 2006/2007, pages 26-35.
6
  Stevenson, R. J. and L. M. V. Forsythe, The Stolen Goods Market in New South Wales: An Interview
Study with Imprisoned Burglars, 1998.
7
  An example of an indirect result would be where police go to a pawnshop and as a result of inquiries go to
another private premises and recover property. Even though they did not recover property from the
pawnshop, they did recover property as a result of inquiries made at a pawnshop.
8
  New South Wales Department of Commerce, Office of Fair Trading, Pawnbrokers and Second-Hand
Dealers Regulation 2003: Regulatory Impact Statement, May 2003.


                                                 -7-
year, and illustrates that significant benefits can be realised through the enforcement of
regulation in this sector.

2.3.2 Information Asymmetry

Nature of the Problem

There is an imbalance of information between pawnbrokers and their customers. This
may result in consumers entering into unfair agreements or pawnbrokers taking
advantage of consumers with limited knowledge of their rights in regards to these types
of transactions.

Extent of the Problem

The second-hand dealer and pawnbroking industries have been regulated by
government’s throughout Australia for many decades. The breadth of the regulation of
these industries means it is difficult to provide evidence to illustrate the extent of the
information imbalance and the likely impacts on consumers.

However, there is some similarity between the pawn and payday loans markets and the
Queensland Office of Fair Trading has investigated the regulation of payday loans. Box 1
outlines the findings of the Queensland Office of Fair Trading review. Importantly, the
Queensland Report highlighted the problem of an information imbalance between lenders
and borrowers in the payday loans market.




                                         -8-
                                          Box 1: Payday Loans

Payday lending is the practice of a lender advancing to a borrower a relatively small amount of money until
their next Payday in exchange for a fee. Payday lenders are small-loan, high-interest fringe money lenders.
Payday loans are aimed at consumers who need immediate cash and are generally unable to obtain this
through normal credit lines. Payday loans are not covered by the Consumer Credit Code.

The Queensland Office of Fair Trading investigated the regulation of these loans, and recommended that
they be regulated by the Consumer Credit Code.

Payday lenders require borrower identification, and for borrowers to have a regular source of income, such
as a salary or welfare payments and a bank account. All Payday lenders lend for a fixed fee instead of
charging a specific interest rate. The fee is usually in the range of $20 to $25 per $100 advanced. The
period of loans offered varies between 7 and 62 days. The average amount of a Payday loan is estimated to
be about $250.00.

The most common method of repayment is via a direct debit authority from the borrower usually exercised
on the borrower’s next Payday. Some lenders require security for the loan.

The effective annual percentage rates charged by Payday lenders was found to vary between 235% and
1,300%, depending on the amount of the fee and the length of time over which the advance is repayable.
The Queensland report noted that Payday loans can be up to 70 times more expensive than a credit card
cash advance and noted the following problems with current arrangements:
• lack of disclosure of relevant terms of the contract, including the fees payable;
• lack of disclosure of interest rates to enable comparisons to be made;
• lack of compulsion on the lender to provide copies of the contract to the borrower;
• potential for borrowers to become over-committed to the extent that they are incapable of paying for
    both the loan and the necessities of life;
• relatively high fees charged for a Payday loan which might be considered unjust and unconscionable;
• the ability of borrowers to “roll over” the Payday loan so borrowers are caught in a “debt trap”;
• payday lenders requiring security for small loans over short periods of time and, in particular, requiring
    high valued security (e.g. cars worth $,000s) to secure low value loans (worth $00’s);
• repossession tactics which would be illegal if regulated by the Consumer Credit Code such as
    repossessing items without notice and very soon after a default; and
• potential for lenders to charge borrowers excessive repossession fees after goods are repossessed.

On the other hand, lenders would argue that Payday loans fill the vacuum left by the majority of
mainstream lenders, which no longer make small loans.

Source: Review of the Regulation of Pawnbrokers: Discussion Paper, Department of Justice Victoria
Consumer and Business Affairs Victoria 21 November 2000

2.3.3 Cost Recovery

Nature of the Problem

To efficiently recover the costs of administering the proposed regulatory framework
through fees that reflect the costs of the relevant administrative processes involved.
Failure to establish a fee structure based on full-cost recovery would mean that the cost of
considering applications made under the proposed Regulations would ultimately be borne



                                                 -9-
by taxpayers. By charging fees it is expected that there will be an efficient level of use of
the registration and other application processes.

Extent of the Problem

The total efficient costs (direct and indirect) of administering the proposed Regulations –
$240,161.23 – need to be recovered.




                                          - 10 -
3. The Objectives
3.1 Primary Objectives
Linking with the problems identified in section 2, the primary objectives are:
   • to protect consumers and the public generally from stolen goods being trafficked
       through second-hand dealer and pawn broking businesses and improve the
       quantity of stolen goods recovered from second-hand dealers and pawnbrokers
       and returned to their rightful owners;
   • to improve the provision of information to consumers about their rights and
       obligations when dealing with second-hand dealers and pawnbrokers; and
   • to recover the costs of efficiently administering the Act and proposed Regulations
       through cost-reflective and equitable fees.

3.2 Secondary Objectives
Secondary objectives as provided in the proposed Regulations are to facilitate the
operation of the Act and provide for—
   (a) fees payable under the Act;
   (b) the particulars to be recorded in the register of second-hand dealers;
   (c) categories of documents as to identity;
   (d) record-keeping requirements;
   (e) forms;
   (f) the manner of disposal by pawnbrokers of unredeemed goods; and
   (g) offences in respect of which an infringement notice may be issued.

3.3 Decision Criteria
In assessing the most effective option to achieve the identified objectives, the following
decision criteria will be used to assess the proposed Regulations and each option:
    • the extent to which the option protects consumers and the public generally from
       stolen goods being trafficked through second-hand dealer and pawn broking
       businesses and improves the quantity of stolen goods recovered from second-hand
       dealers and pawnbrokers and returned to their rightful owners;
    • the extent to which the option improves the provision of information to consumers
       about their rights and obligations when dealing with second-hand dealers and
       pawnbrokers;
    • the extent to which the option recovers the costs of efficiently administering the
       Act and proposed Regulations through cost-reflective and equitable fees; and
    • the extent to which the option minimises the costs to industry.


                                         - 11 -
4. Proposed Regulations
4.1 Authorising Provisions
The proposed Regulations are made under section 31 of the Second-Hand Dealers and
Pawnbrokers Act 1989.

4.2 Affected Parties
A second-hand dealer is defined in section 3 of the Act as “a person who carries on the
business of buying, selling, exchanging or otherwise dealing in second-hand goods,
whether or not he or she deals in other goods and regardless of where goods are bought”
with second-hand goods defined as “any goods which have been worn or otherwise
used”. The definition is broad and therefore the Act and proposed regulations affects a
wide range of businesses including:
   • second-hand dealers who operate traditional second-hand goods stores;
   • scrap metal dealers;
   • antique dealers; and
   • persons who regularly operate market stalls at which second-hand goods are sold
       (other than for charitable purposes).

It is proposed to continue the current exemption for second-hand dealers carrying on
business exclusively for charitable, benevolent and philanthropic organisations, as
outlined in the draft Second-Hand Dealer and Pawnbroker (Exemption) Regulations
2008.

The proposed regulations will also affect pawnbrokers. A pawnbroker is defined in the
Act as “a person who carries on the business of advancing money on the security of
pledged goods.”

More broadly, the proposed regulations will affect:
  • customers of second-hand dealers and pawnbrokers;
  • consumer credit industry;
  • Consumer Affairs Victoria;
  • Victoria Police; and
  • the general public.

4.3 Consultation
In March 2007, as part of the review of the 1997 Regulations, a research project was
conducted by Consumer Affairs Victoria. The target audience for the research was all
registered Victorian second-hand dealers including registrants who are also endorsed to
conduct business as pawnbrokers. Initial consultations were held with the Business


                                       - 12 -
Licensing Authority, Victoria Police and industry and consumer representatives in order
to ascertain whether the 1997 Regulations are adequate or in need of change or
modification. As a result, two areas of concern were identified – record keeping
requirements and acceptable forms of identification. These matters are governed by
sections 19 & 20 of the Act and regulations 11 & 12 of the 1997 Regulations
respectively.

The research project consisted of a telephone survey of industry participants using a
questionnaire prepared by Consumer Affairs Victoria. A total of 130 telephone surveys
were completed, 65 in metropolitan Melbourne, 63 in regional/rural Victoria and 2
businesses located in both metropolitan Melbourne and regional Victoria. Of the 130
surveys conducted with second-hand dealers, 39 were with businesses that were also
endorsed to act as pawnbrokers.

Results from this research have provided valuable data for the development of the
proposed Regulations. The results of the research are summarised in Appendix 1.

In addition to the research project, it is proposed that this Regulatory Impact Statement
and the proposed Regulations will be provided to the affected parties as part of the formal
consultation process required for the re-making of sunsetting regulations.

In view of the nature of the proposed Regulations and the level of consultation already
undertaken, a 28-day consultation period has been proposed for the Regulatory Impact
Statement and proposed Regulations as required under the Subordination Legislation Act
1994. Appendix 2 provides a comparison of the 1997 Regulations and the proposed
Regulations.

The consultation on the remake of the 1997 Regulations to date has provided positive
feedback on the current regulatory arrangements and in particular the use of prescribed
forms and notices, which some of the major traders contend has made a significant
contribution to their business practices and the quality of information provided to
consumers.

4.4 The Proposed Regulations
The proposed Regulations are arranged in four Parts:
   • Part 1 – Preliminary (proposed regulations 1-5). These regulations outline the
       objectives, commencement, authorising provision, revocation and definitions.
   • Part 2 – Registration (proposed regulations 6-7). This Part prescribes the fees
       required under the Act and the particulars to be contained in the public register.
   • Part 3 – Conduct of Business (proposed regulations 8-15). These prescribe the
       categories of evidence as to identity for people selling or pawning goods, details
       of transactions required to be recorded, requirements regarding identifying marks
       or numbers, details to be contained in pawn tickets and notices, a process for
       issuing duplicate pawn tickets in the case of lost pawn tickets, period of loans and
       the procedures for redeeming pawned goods and selling unredeemed goods.


                                         - 13 -
   •   Part 4 – Enforcement (proposed regulations 16-17). This Part prescribes the
       details to be included in an embargo notice, lists the offences which can be
       enforced by an infringement notice and details the penalties which apply to these
       offences.

It is proposed to provide details in Schedules to the Regulations as follows:
     • Schedule 1 – Revoked Regulations;
     • Schedule 2 – Pawn Ticket;
     • Schedule 3 – What are my rights when I pawn goods?;
     • Schedule 4 – Notice of sale of pawned goods; and
     • Schedule 5 – Embargo Notice.

Part 1 of the proposed Regulations are largely administrative mechanisms. They do not
have a material impact, in terms of costs and benefits, on the affected businesses, their
customers or the community generally.

However, the other Parts do impact to some extent on businesses and the community.
Therefore, an analysis of the proposed Regulations in Parts 2 to 4 follows.

4.5 Fees (Proposed Regulation 6)
It is proposed to prescribe the following fees in the proposed Regulations:
     (1) For the purposes of section 7(2)(c) of the Act, the fee that must accompany an
         application for registration as a second-hand dealer is 9 fee units.
     (2) For the purposes of section 8B(3) of the Act, the fee for an application by a
         person to vary or revoke any conditions imposed on registration is 3 fee units;
     (3) For the purposes of section 10A(3)(b) of the Act, the fee to accompany a
         permission application is 59 fee units;
     (4) For the purposes of section 11 of the Act, the annual registration fee is 3 fee
         units.
     (5) For the purposes of section 11AA of the Act, the proposed fee for an annual
         endorsement is nil fee units.
     (6) For the purposes of section 11A(4) of the Act, the proposed fee for late payment
         or lodgement is 1 fee unit;
     (7) For the purposes of section 13(3) of the Act, the proposed fee for a copy of the
         register is $5.

The fee to vary or revoke any conditions imposed on registration, the permission
application fee, the annual endorsement fee and the late payment or lodgement fee are
currently set out in the Act. However, there is capacity under the Act to prescribe a
different fee by regulation.

The annual endorsement fee applies to pawnbrokers only. All persons registered under
the Act are second-hand dealers. Second-hand dealers who also wish to conduct a


                                         - 14 -
pawnbroking business must be separately endorsed before they can do so and must pay
an annual endorsement fee.

Table 1 provides a summary of the existing fee unit levels compared with the proposed
fee unit levels, outlining the expected annual revenue for each fee under the proposed
Regulations.

Table 1: Comparison of Current and Proposed Fees

                                   Existing Fee        Proposed Fee       Expected Annual
       Fee Type                                                              Revenue
                                   (Fee Units)          (Fee Units)
Application for registration            11                  9                 $49,193
Application to vary or revoke
                                        15                  3                   $33
conditions
Permission application                  15                  59                $6,501
Annual registration                     3                   3                $185,565
Late payment or lodgment                2                   1                 $6,182
Annual endorsement                      40                  0                   $0
Copy of register                        $5                  $5                  $5
                                                         Total Revenue       $247,481


The proposed fees are based on recovering the current full costs of providing each
service. Except for the permission application fee, the fees under the proposed
Regulations will be less than the current fee levels.

There is a significant increase in the application for permission fee (from 15 to 59 fee
units). Historically, the permission application fee has been set under the Act. Since the
setting of this fee in the Act, the scrutiny of permission applications has increased
significantly. In particular, a significant Business Licensing Authority time resource is
required to process applications. The current permission application fee is under-
recovering the costs of processing these applications and the other fees are currently
subsidising this service. The proposed permission application fee is reflective of the
increase in resources to process these types of applications. Being cost reflective, the
proposed fee is more equitable across the industry.

The proposed annual endorsement fee to become a pawnbroker is nil. Similar to the
permission application fee, the annual endorsement fee has historically been set under the
Act. Since the setting of this fee, the tasks required to process an annual endorsement
have been subsumed in the registration application and annual registration processes.

4.5.1 Costs

The fees under proposed regulation 6 will require the industry to fund the full costs of
administration of the Act and Regulations. This will cost industry $247,481 per annum.


                                        - 15 -
4.5.2 Benefits

Consumer Affairs Victoria’s full costs in administering the Act and proposed Regulations
will be recovered, providing revenue of $247,481 per annum.

Requiring the full costs of administration of the Act and Regulations to be recovered
from the industry ensures tax payers are not subsiding the scheme. The persons who
derive the benefits from the regulatory scheme, or at least those who can pass on the costs
to those who derive benefits from the scheme (i.e. industry can pass on the costs to their
customers), pay for the costs of the scheme.

4.6 Register (Proposed Regulation 7)
Section 7(2) of the Act states:
An application must be—
   (a) in writing in or to the effect of the form approved by the Authority and must be
       verified by statutory declaration; and
   (b) accompanied by evidence as to the identity of—
       (i) the applicant; or
       (ii) if the applicant is a body corporate, the directors of the applicant—
       by means of a birth certificate, passport (if the passport is current or expired for
       not more than 2 years), driver licence or any other document in one of the
       prescribed categories; and
   (c) accompanied by prescribed fee; and
   (d) lodged with the Authority not less than 1 month before the day on which the
       applicant proposes to commence business as a second-hand dealer.

Section 13 of the Act requires a register to be kept of all persons registered under the Act.
Section 13(1) requires prescribed particulars to be contained in the register in respect of
each person registered under Part 2 of the Act.

It is proposed to prescribe the following particulars:
     (a) registration number issued by the Authority;
     (b) name and business name of the person;
     (c) the date of the grant of the registration or the date of any suspension of the
         registration;
     (d) registration conditions;
     (e) address and telephone number of each premises from which the person carries on
         business;
     (f) if the person is a registered corporation—
         (i) the name of each director;
         (ii) the date of appointment of each director; and
         (iii)the date of cessation of appointment of each director.


                                         - 16 -
    (g) an Australian Business Number (if any) held by the person; and
    (h) the address of any internet site maintained by the person for the purposes of
        carrying on a business as second-hand dealer or pawnbroker.

4.6.1 Costs

The requirement to maintain a register is contained in the Act. The identification of
particulars to be included in the Register is a cost attributable to the proposed
Regulations.

There are costs incurred by the applicant (second-hand dealer or pawnbroker) and
Consumer Affairs Victoria.

The costs to the applicant are in compiling the details to be provided on the application
form. The prescribed particulars are anticipated to be readily available to applicants.
Consequently, it is estimated that there is only a minor time cost associated with
compiling the details to be provided on the application form. A second-hand dealer
interviewed for the purposes of determining the time taken to compile this information
estimated that it takes 10 minutes.

The Australian Bureau of Statistic’s most recent wage statistics indicate that average total
weekly earnings for a full time adult in Victoria was $1,086 or $56,472 per annum9.
Including on-costs10 and converting this figure to an hourly rate11, gives an hourly rate of
$54.78. Therefore, the cost to the applicant of compiling the details to be provided on the
application form is $9.13. While there is a time cost to the applicant of photocopying
their identification and posting off the application, these costs attach to the Act, not the
proposed Regulations.

Only a small portion of Consumer Affairs Victoria’s direct costs of processing an
application for registration attach to the proposed Regulations (refer Appendix 3 for the
details of the direct costs). The majority of Consumer Affairs Victoria’s direct costs are
attributable to the Section 7 requirement in the Act.

It is estimated that data entry on initial registration – the only part of the application for
registration that can be attributed to the proposed Regulations – takes a VPS officer two
minutes to complete (see appendix 3 for VPS wage rate calculations). Therefore, the cost
to Consumer Affairs Victoria of entering the prescribed particulars for one application in
the database is $0.83.

9
   The Australia Bureau of Statistics 2007, Average Weekly Earning, Australia November 2006, Catalogue
Number 6302.0.
10
    An on-cost multiple of 1.75 was applied as suggested in Victorian Competition and Efficiency
Commission 2006, Guidance Note: Suggested default methodology and values for staff time in BIA/RIS
analysis.
11
   It was assumed that full-time employees work 44 weeks per year (after annual leave, public holidays and
sick leave entitlements) and the average working week is comprised of 41 hours (in Victorian Competition
and Efficiency Commission 2006, Guidance Note: Suggested default methodology and values for staff time
in BIA/RIS analysis).


                                               - 17 -
With 496 applications for registration expected each year12, the industry costs are
$4,528.48 (496 x $9.13) and Consumer Affairs Victoria’s costs are $411.68 (496 x
$0.83). This amounts to a total cost of $4,940.16 per annum.

4.6.2 Benefits

The benefits of the prescribed particulars to be contained in the register are difficult to
quantify. However, the primary benefit is that the data requirements enable clear
identification of the registered person or company for effective administration and
enforcement of the Act.

Victoria Police regards the regulatory regime for second-hand dealers as a strong and
necessary tool to combat crime. The prescribed particulars to be contained in the register
provide important information that Victoria Police can use for the purposes of tracing and
retrieving stolen goods. In New South Wales, a 1993 and 1994 police operation used
pawnbrokers’ shops to disrupt domestic break and enter gangs operating throughout
Sydney.

Consumer Affairs Victoria also uses the prescribed particulars in monitoring compliance
of second-hand dealers and pawnbrokers.

4.7 Prescribed Categories of Evidence as to Identity of Persons
    Selling or Pawning Goods (Proposed Regulation 8)
Section 19(1) of the Act requires a second-hand dealer or pawnbroker to require every
person attempting to sell or pawn second-hand goods to the second-hand dealer or
pawnbroker to produce evidence as to the person's identity. The section requires evidence
to be provided:
        (a) by means of—
            (i) a passport; or
            (ii) a driver licence; or
            (iii)a document issued by a statutory authority; or
            (iv) any other document in one of the prescribed categories—
            bearing a photograph of the person; or
        (b) by means of 2 documents in the prescribed categories but each in a different
            category.

A penalty of 20 penalty units applies for a breach of this section.

In practice, section 19 means that a person may provide:
    • one form of identification with a photograph from the categories set out in section
        19(1)(a) of the Act (or as prescribed in the regulations); or

12
     This figure is based on the current number of applications received each year.


                                                   - 18 -
   •   two forms of identity without a photo from the categories set out in section
       19(1)(b) of the Act (or as prescribed in the regulations) provided that they are not
       from the same category.

The justification for these requirements is to ensure that the source of the forms of
identification is not the same in both cases, which adds to their authenticity.

It is proposed to prescribe the following additional categories for the purposes of section
19(1) of the Act:
         (a) in the case of a natural person—
             (i) a full birth certificate or an extract of birth;
             (ii) a certificate of Australian citizenship;
             (iii) a marriage certificate;
             (iv) the following cards issued by or on behalf of the Commonwealth
                   Department of Families, Community Services and Indigenous Affairs or
                   the Commonwealth Department of Health and Ageing—
                   (A) Commonwealth seniors health cards;
                   (B) health care cards;
                   (C) pensioner concession cards;
             (v) any other card issued by or on behalf of the Commonwealth Department
                   of Families, Community Services and Indigenous Affairs, the
                   Commonwealth Department of Health and Ageing or the
                   Commonwealth Department of Veterans' Affairs that certifies
                   entitlement to Commonwealth health concessions;
             (vi) an identification card issued by a tertiary education institution;
             (vii) a licence issued under the Firearms Act 1996;
         (b) in the case of a body corporate, a certificate of registration or incorporation.

4.7.1 Costs

There are no material costs associated with proposed regulation 8. Under the Act, it is a
requirement that a second-hand dealer or pawnbroker require every person attempting to
sell or pawn second-hand goods to the second-hand dealer or pawnbroker to produce
evidence as to the person's identity. There is no additional cost to a second-hand dealer or
pawnbroker from a person providing a form of identification that is prescribed rather than
a form of identification detailed in the Act.

4.7.2 Benefits

One of the purposes of the Act is "to facilitate and expedite the recovery of stolen goods
from second-hand dealers and pawnbrokers". The requirement in the Act for customers to
provide evidence of their identity is part of this process. Prescribing a range of
documents, as outlined in the proposed Regulations, is consistent with the Act’s
intentions.


                                         - 19 -
The prescribed categories provide certainty for second-hand dealers and pawnbrokers
when dealing with sellers of goods by clearly setting out what they can accept as proof of
identity and thus, reducing the risk that they will accept stolen goods.

There are also benefits to second-hand dealers and pawnbrokers of expanding the span of
documents that can be accepted as proof of identity. Traders may gain legitimate business
from people who may not meet the proof of identity requirements under the Act but can
meet those prescribed in the proposed Regulations.

Further, there are benefits for persons who would not be able to sell or pawn their goods
if the additional categories of identification were not prescribed because they do not
possess the requisite identification as provided in the Act.

4.8 Recording Transactions (Proposed Regulation 9)
Section 20 of the Act states that:
     A second-hand dealer or pawnbroker must keep, in the form and containing the
     information required by the regulations, accurate and complete records of every
     transaction, whether conducted on the business premises or elsewhere, by which the
     dealer or pawnbroker receives second-hand goods.
     Penalty: 20 penalty units.

The research survey conducted by Consumer Affairs Victoria (refer to section 4.3) sought
responses about the use of recording systems in the industry. The following was found:
    • three-quarters of second-hand dealers and pawnbroker respondents use bound
       books to record their customer transactions;
    • almost 20% of respondents use computerised systems; and
    • 5.4% of respondents stated that they used a combination of manual and
       computerised record keeping systems.

Table 2 provides a break-down of the recording systems of various sized businesses from
the research survey.




                                        - 20 -
Table 2: Record-Keeping Systems Used – Classified by Size of Business


                                                           Computerised     Bound Books at Some
        Size of Business        Bound Books at All         Systems at All       Premises and
                                    Premises                 Premises          Computerised
 (Determined by Number of                                                     Systems at Other
        employees)                                                                Premises

                                Number         %         Number       %     Number          %

1-2 employees                      62        83%           10        13%       3            4%

3-5 employees                      22        77%           5         18%       1            4%

6-10 employees                     10        63%           5         31%       1            6%

11-20 employees                    1         12%           5         63%       2        25%

21-199 employees                   2         100%          0          0%       0            0%

Total                              97        75%           25        19%       7            5%


Following from the results of this research survey it is proposed to prescribe the
following requirements for recording transactions:
        (1) For the purposes of section 20 of the Act, a second-hand dealer or pawnbroker
            must keep records of transactions in—
            (a) a bound record book; or
            (b) a computerised record-keeping system.
        (2) A second-hand dealer must record in the bound record book or computerised
            record-keeping system, during or immediately after every transaction in which
            the second-hand dealer receives second-hand goods, the following
            information—
            (a) an accurate description of the goods received, including a description of
                any identifying mark or label on the goods;
            (b) the identifying mark or number assigned by the second-hand dealer to the
                goods;
            (c) the full name and address of the person from whom the goods were
                received;
            (d) details of identification provided by that person;
            (e) the date and time the goods were received;
            (f) the price, if any, paid for the goods;



                                           - 21 -
   (g) if applicable, the name of the person acting on behalf of the second-hand
       dealer in the transaction.
(3) A pawnbroker must record in the bound record book or the computerised
    record-keeping system, during or immediately after every transaction, the
    following information in respect of each transaction—
   (a) the number of the transaction (corresponding with the number of the pawn
       ticket issued);
   (b) an accurate description of the second-hand goods pawned, including a
       description of any identifying mark or label on the goods;
   (c) the full name and address of the person from whom the goods were
       received;
   (d) details of identification provided by that person;
   (e) the address to which notices to the person from whom the goods are
       received are to be sent;
   (f) if the person from whom the goods are received requests an alternative
       address for the service of notices, that address;
   (g) the date on which the goods are pawned;
   (h) the amount of any money advanced on the security of goods received in
       pawn;
   (i) the charge imposed on the pawn transaction;
   (j) the amount and date of every payment to the pawnbroker as part or full
       payment of a loan;
   (k) the period of any loan made by the pawnbroker;
   (l) if the pawned goods are redeemed, the date of the redemption;
   (m) if the pawned goods are not redeemed—
        (i) the date of any sale of the goods, the price paid and the reasonable
            costs of sale; or
        (ii) if the goods not sold, the manner in which the goods are disposed of.
(4) If a second-hand dealer buys or exchanges second-hand goods—
   (a) in a lot or parcel at the same time; and
   (b) the value of each item in the lot or parcel is less than $50—
   subregulation (2) is satisfied if the lot or parcel is described in one entry in the
   record book or the computerised record-keeping system.
(5) If a second-hand dealer buys or exchanges second-hand goods—
   (a) in a lot or parcel at the same time; and
   (b) the value of an item in the lot or parcel is $50 or more; and



                                  - 22 -
           (c) the item valued at $50 or more has an identifying mark or label—
           the second-hand dealer must enter a record of that item in the record book or
           onto the computerised record-keeping system, in accordance with
           subregulation (2) and the remainder of the lot or parcel may be recorded in
           accordance with subregulation (4).
       (6) If a second-hand dealer buys second-hand goods at auction, subregulation (2)
           is satisfied if the second-hand dealer—
           (a) obtains a receipt signed by the auctioneer containing the following
               information—
                (i) an accurate description of the goods received, including a description
                    of any identifying mark or label on the goods;
               (ii) the identifying mark or number assigned by the second-hand dealer
                    to the goods;
              (iii) the full name and business address of the auctioneer who conducted
                    the auction;
              (iv) the date on which the goods were received from the second-hand
                   dealer;
               (v) the price paid for the goods at auction;
              (vi) the name of the person acting on behalf of the second-hand dealer in
                   the transaction; and
           (b) enters in the record book or computerised record-keeping system a
               reference to identify the receipt.
       (7) If a second-hand dealer imports second-hand goods from outside Australia,
           subregulation (2) is satisfied if the second-hand dealer—
           (a) keeps the documents of consignment and customs documents relating to
               the goods; and
           (b) enters in the record book or computerised record-keeping system a
               reference to identify those documents.
       (8) If a second-hand dealer or pawnbroker receives second-hand goods or pawned
           goods at any premises other than those notified to the Authority, the second-
           hand dealer or pawnbroker must record the transaction in the bound record
           book or computerised record-keeping system as soon as practicable after the
           transaction.

4.8.1 Costs

The requirement to keep records arises from Section 20 of the Act. Therefore, most of the
compliance costs for industry are attributable to the Act. The proposed regulation simply
clarifies the requirement by stipulating the record must be in a bound or computerised
record system and identifies the particulars required to be recorded.



                                        - 23 -
Further, all businesses are required to keep records of their transactions for ultimate tax
reporting purposes and for their own business management purposes, such as for
generating invoices and receipts.

Proposed regulations 9(4)–9(8) provide guidance for a second-hand dealer and
pawnbroker to comply with proposed regulation 9(1)–9(3). This is beneficial for traders
while not imposing compliance costs.

Therefore, this proposed regulation will not impose material compliance costs on second-
hand dealers and pawnbrokers.

4.8.2 Benefits

Second-hand dealing and pawnbroking businesses can be used as a conduit for the
disposal of stolen goods. One of the purposes of the Act is “to facilitate and expedite the
recovery of stolen goods from second-hand dealers and pawnbrokers”. The key element
in ensuring the Act meets this objective is the requirement for second-hand dealers and
pawnbrokers to keep records of transactions, which establishes an audit trail.

The proposed Regulations prescribe the particulars of the transactions records that
second-hand dealers and pawnbrokers must keep. The details prescribed are the minimum
necessary for Victoria Police to effectively and efficiently track stolen goods traded
through second-hand dealers and pawnbrokers.

The keeping of these detailed records assists Victoria Police in tracking and recovering
stolen goods and apprehending offenders, which provides benefits to individuals whose
goods and possessions have been stolen and to the community, more generally.

Proposed regulations 9(4) to 9(6) are required as they set out what constitutes compliance
with the requirement to record transactions for the purposes of section 20 of the Act in
specific circumstances, namely where a second-hand dealer buys or exchanges goods in a
lot or parcel involving multiple items. This will ensure consistency in compliance by
removing the possibility of varying interpretations of what constitutes compliance under
these circumstances.

It is not possible to quantify these benefits as Victoria Police’s data recording system on
offences such as stolen goods does not indicate if the offence involved a second-hand
dealer. Victoria Police also advise that the level and type of enforcement varies across the
State according to local priorities and there is no central coordination or recording of
enforcement action.

4.9    Identifying Mark or Number (Proposed Regulation 10)
This proposed regulation provides that “a second-hand dealer must ensure that the
identifying mark or number assigned to second-hand goods received by the dealer
remains affixed to the goods at all times until the goods are sold or otherwise disposed of
by the second-hand dealer.”


                                         - 24 -
A penalty of 20 penalty units applies for a breach.

4.9.1 Costs

There are no material costs associated with ensuring the identifying mark or number
remains affixed to goods.

The marking of goods with an identifying mark or number is considered good business
practice. It is not a requirement of the Act or the proposed Regulations. The proposed
Regulations only address the permanency of the mark (proposed Regulation 10) and the
recording of that mark (proposed Regulation 9). Therefore, the costs associated with
marking goods cannot be attributed to the Act or proposed Regulations.

4.9.2 Benefits

This proposed regulation supplements proposed regulation 9 and consequently provides
similar benefits to those outlined in section 4.8.2.

Ensuring that the identifying mark or number assigned to second-hand goods received by
the dealer is affixed makes the item more easily identifiable and it is possible for stock to
be traced from the records kept by the registrant. If Victoria Police identifies stolen goods
from the records kept by the second-hand dealer or pawnbroker, ensuring the identifying
mark or number assigned to the goods is affixed facilitates and expedites the recovery of
the stolen goods. This provides benefits to individuals whose goods have been stolen.

Further, enforcement of the Act requires that when an inspection is carried out on a
trader’s premises goods that have been taken in trade or pawn can be readily compared to
the records kept by the second-hand dealer or pawnbroker. For effective enforcement, it
is essential that there is a verifiable way of ensuring that the records correspond to the
goods.

Also, when a consumer has concerns or problems with goods that they have pawned, it is
important that these goods can be immediately located and confirmed as being their
goods.

4.10 Pawn Ticket and Notice (Proposed Regulation 11)
Section 23(3) of the Act, states that:
       A pawnbroker who advances money on the security of goods received in pawn
       must give to the owner of the goods—
           (a) a pawn ticket containing the prescribed particulars; and
           (b) a notice in the prescribed form concerning the rights and responsibilities
               of the parties to the transaction; and
           (c) written notice of the charge that will be imposed on the transaction.



                                         - 25 -
Twenty penalty units apply for a breach.

To facilitate the operation of section 23(3) of the Act, the prescribed particulars to be
contained in a pawn ticket will be set out in Schedule 2 to the proposed Regulations as
follows:
    • Name of pawnbroker
    • Address of pawnbroker
    • Full name and address of person from whom goods are received
    • Date of loan
    • Amount loaned
    • Description of goods pawned
    • Number of transaction
    • Charges
    • Period of loan
    • Amount(s) paid and date(s) of payment (if any)

It is also proposed to prescribe a notice that sets out the rights and responsibilities of the
parties to the transaction. These details are in the form of Schedule 3.

Proposed regulation 11(2) sets out certain requirements with respect to the notice set out
in Schedule 3 as follows:
   (a) the heading to the form and the headings "In brief", "For further information" and
       "In more detail" must be printed in bold type and in a font size not less than 14
       points; and
   (b) the words between "In brief" and "For further information" must be printed in
       bold type and in a font size not less than 12 points; and
   (c) all other headings must be printed in bold type and in a font size not less than 12
       points; and
   (d) the remainder of the form must be printed in a font size not less than 12 points.

Proposed regulation 11(3) prohibits a pawnbroker from charging a fee for the issue of a
pawn ticket. A penalty of 20 penalty units applies for a breach of this regulation. The
customer pays the pawnbroker a charge, which is the total cost to the consumer.

4.10.1 Costs

The Act requires the provision of a pawn ticket and notice. Therefore, the costs
associated with the requirement to provide the pawn ticket and notice (i.e. the costs of
printing the ticket and notice) attach to the Act.




                                           - 26 -
Some of costs incurred by industry in complying with the proposed regulation result from
the time taken for the pawnbroker to complete the pawn ticket as specified in the
regulations. It is estimated that it takes two minutes to complete the pawn ticket13. Using
the costing methodology outlined in section 4.6.1, the cost to the pawnbroker of
completing a pawn ticket is $1.83.

The second-hand dealer and pawnbroking industry comprises a small number of large
and medium sized stores with the majority of businesses being small. Based on results of
the research survey conducted by Consumer Affairs Victoria, it is assumed that 2% of the
120 pawnbroking businesses operating in Victoria are large companies (21-199
employees), 18% are medium sized traders (6-20 employees) and 80% are small
businesses (1-5 employees).

A large company store carries out approximately 70,000 transactions in a year, while a
medium sized trader has advised that annual transactions for last year were approximately
4,800. At the other end of the scale some small traders may only carry out 3-4
transactions in a week or approximately 200 per annum. Therefore, it is estimated that
there are approximately 264,800 pawnbroking transactions annually.

Given the above figures, the costs to the pawnbroking industry of completing a pawn
ticket is $484,584 per annum. However, pawnbrokers need to record this information as
part of their normal business practices, so it seems reasonable that these costs could be
discounted. For the purposes of this Regulatory Impact Statement, the costs have been
discounted by 50 per cent to $242,292 per annum.

4.10.2 Benefits

The primary rationale for consumer protection regulation in the credit area is to address
the problem of information asymmetry. As discussed in section 2.3.2, there is an
imbalance of information between pawnbrokers and their customers, which leads to
inefficient outcomes. Hence, an aim of the regulation of pawnbrokers is to ensure that the
relationship between the person pawning the goods and the pawnbroker is conducted in a
fair and open manner and that there is proper disclosure of price and terms.
Consequently, the legislation requires that there is full disclosure of the terms and
conditions of the pawn agreement. The proposed Regulations ensure full disclosure is
achieved by prescribing the particulars of the pawn ticket and the details to be contained
in the notice concerning the rights and responsibilities of the parties to the transaction.

Prescribing the particulars of the pawn ticket and details to be contained in the notice
ensures both parties have the same information about the transaction, which forms the
basis of finalising the loan. This provides persons pawning goods with the information
they need to be fully aware of the terms and conditions of the agreement and their rights
and responsibilities in relation to their pawn transaction. Requiring this information to be
disclosed is of benefit to customers of pawnbrokers who may otherwise have been

13
  This estimation is based on the time taken for a Consumer Affairs Victoria staff member to complete the
pawn ticket with example details.


                                               - 27 -
unaware of the various procedures involved in pawning and redeeming good. It allows
customers to make an informed choice when deciding to pawn their goods.

The use of prescribed forms and notices is also of benefit to pawnbrokers. They can rely
on the information contained in them and be assured that it satisfies their legislative
obligations. Industry feedback on the use of prescribed forms and notices has been very
positive with a major trader contending that the use of the forms and notices has
positively impacted on their business practices and the quality of information provided to
consumers.

Specifying the headings and font sizes in the proposed Regulations further supports
achievement of the objective to improve the provision of information to pawnbroker
customers. The heading requirements draw consumers’ attention to the key pieces of
information regarding their rights and responsiblities, while the font sizes ensure the
documents are accessible to a wider group of consumers.

4.11 Lost Pawn Ticket (Proposed Regulation 12)
It is proposed to prescribe a process whereby pawnbrokers can issue duplicate pawn
tickets where the original has been lost or stolen. The process is as follows:

       A pawnbroker must issue a duplicate ticket if a person who pawned goods
       produces to the pawnbroker—
           (a) a statutory declaration that the person has lost the pawn ticket or the pawn
               ticket has been stolen; and
           (b) evidence as to the person's identity referred to in section 19(1)of the Act.

Twenty penalty units apply for a breach.

The pawn ticket is the document that provides evidence of the transaction and represents
the contractual arrangement entered into between the parties. It must be presented in
order to finalise the arrangement. Therefore, it is prudent for arrangements to be
established should a pawn ticket be lost or stolen. The proposed regulation provides this
precautionary arrangement.

4.11.1 Costs

Costs are incurred by pawners in the purchase of a statutory declaration and locating a
witness. However, without the proposed regulation the costs to the pawner of trying to
secure ownership of the goods would be much more costly.

There is a small time cost to pawnbrokers in replacing a lost ticket. It requires them to
check the statutory declaration and identification and produce the replacement ticket
(either manually rewriting the ticket or reprinting the ticket from computer records).




                                           - 28 -
While no overall industry data is available on the frequency of pawnbrokers having to
issue replacement tickets, a major trader has estimated that 1.25% of pawn tickets issued
need to be replaced. Given the estimate given in section 4.11.1 of the number of
pawnbroking transactions annually (264,800), the estimated number of pawn tickets
replaced each year is 3,310.

Based on the costing methodology outlined in section 4.6.1, if it takes a pawnbroker three
minutes to check the statutory declaration and identification and produce the replacement
ticket, the cost to the industry is $9,036.30 per annum.

4.11.2 Benefits

The proposed regulation provides benefits to consumers whose pawn ticket is lost or
stolen. It allows these persons to establish that the ticket has been lost and if they can
produce adequate proof of identity, their pawned goods can be secured without requiring
a more costly litigious means to secure ownership of the goods.

4.12 Period of Loan (Proposed Regulation 13)
Under proposed regulation 13, pawnbrokers would be required to fix the period of the
loan on the security of pawned goods at the time the goods are pawned. Twenty penalty
units apply for a breach.

This requirement is consistent with routine and ethical practices.

4.12.1 Costs

There are no costs associated with proposed regulation 13 because the period of the loan
must be fixed anyway as it is central to the loan agreement.

4.12.2 Benefits

The period of the loan determines when the repayment period ends and when the pawned
goods can be resold if not redeemed. Therefore, it is a critical piece of information for
consumers to have when deciding whether to pawn their goods. The period of the loan
also impacts on the consumers entitlement to residual equity.

Requiring the period of the loan to be fixed at the time the goods are pawned, provides
benefits for the pawnbroker customers. It ensures they have full information before
entering in to a contract with a pawnbroker. Further, by being fixed and clear, the
consumer is protected from any arbitrary change by traders.

4.13 Redemption of Goods (Proposed Regulation 14)
It is proposed to set out a procedure for the redemption of pawned goods as follows:




                                         - 29 -
       (1) A person who has pawned goods may redeem the goods by paying the
           outstanding amount of the loan and producing to the pawnbroker—
           (a) the pawn ticket or duplicate pawn ticket; and
           (b) evidence as to the person's identity referred to in section 19(1) of the Act.
       (2) A person who has pawned goods may redeem the goods at any time before the
           pawnbroker sells or disposes of them, despite the expiry of the period of the
           loan.

4.13.1 Costs

There are no costs to the industry as the transaction must occur anyway and redemption is
inherent in the pledge.

4.13.2 Benefits

Having a process for the redemption of pawned goods provides benefits for pawnbrokers
and their customers. It sets out the rights and obligations of both parties, so that there is
certainty and consistency in dealing with the redemption of goods.

4.14 Sale of Unredeemed Goods (Proposed Regulation 15)
Section 23A(2) requires that if a pawnbroker sells unredeemed pawned goods after the
expiry of the loan period, the person who pawned the goods is entitled, for a period of
12 months after the sale, to claim from the pawnbroker the residual equity, if any, in
respect of the goods.

Section 23A(3) requires that if—
       (a) a pawnbroker sells unredeemed pawned goods after the expiry of the loan
           period; and
        (b) the residual equity in respect of the goods is $10, or if another amount is
            prescribed that amount, or more—
the pawnbroker must, within 14 days after the sale, send to the person who pawned the
goods a notice in the prescribed form advising the person that the pawned goods have
been sold and that the person is entitled to claim the residual equity from the pawnbroker
within the period of 12 months after the sale.

A penalty of 20 penalty units applies for a breach.

Proposed regulation 15(1) sets out the procedure for sale of unredeemed goods. By
requiring that where:
       (a) the period of a loan expires and is not extended; and
        (b) the goods pawned as security on the loan are unredeemed—
the pawnbroker must offer the goods for sale as soon as practicable and so as to receive
the best price reasonably obtainable.


                                         - 30 -
A penalty of 20 penalty units applies for a breach.

The prescribed form of the notice referred to in section 23A(3) of the Act is proposed to
be set out in Schedule 4 of the proposed Regulations.

Proposed regulation 15(2) sets out certain requirements about the form of this notice as
follows:
       (a) the heading to the form and the words commencing "Name and address of
           pawnbroker" and ending "Date by which you must claim this money" and the
           words "What you need to do" and "Details of pawned goods and sale" must be
           printed in bold type and in a font size not less than 14 points; and
       (b) the remainder of the form must be printed in font size not less than 12 points.

Proposed regulation 15(3) requires that a pawnbroker must not purchase goods that have
been pawned as security with the pawnbroker and have not been redeemed at or after the
expiration of the period of the loan.

A penalty of 20 penalty units applies for a breach.

4.14.1 Costs

The requirement to offer goods for sale as soon as practicable does not impose any
compliance costs on the pawnbroker.

The requirement to obtain the best price reasonably obtainable may limit a trader’s ability
to sell goods cheaply or clear any long-term stock unless it can be demonstrated that the
price obtained was the best price that could be obtained at the time.

There is a minimal time cost to industry of completing the particulars required in the
prescribed notice to be sent to pawn customers who do not redeem their goods by the
loan expiry date. However, as there is no data on the number of pawn transactions that
are unredeemed it is difficult to estimate this cost. The costs of printing and sending the
notice to the customer attach to the Act.

4.14.2 Benefits

The requirement for a pawnbroker to offer the goods for sale as soon as practicable to
receive the best price reasonably obtainable, provides benefits for consumers. It helps to
avoid pawnbrokers structuring a transaction to recover their costs but no amount of
residual equity for the client. Therefore, the person who pawned the goods is benefited by
preventing, or reducing the likelihood, that they will be defrauded.

The information contained in the notice sets out a clear process for claiming the residual
equity which provides benefits for both pawnbrokers and consumers. The use of a
prescribed notice provides certainty for both pawnbrokers and customers and consistency


                                         - 31 -
and clarity across the industry. Both pawnbrokers and consumers can confidently rely on
a prescribed notice, which contains the relevant information in a clear and accurate form.

Specifying the headings and font sizes in the proposed Regulations further supports
achievement of the objective to improve the provision of information to pawnbroker
customers. The heading requirements draw consumers’ attention to the key pieces of
information regarding their rights and responsiblities, while the font sizes ensure the
documents are accessible to a wider group of consumers.

4.15 Embargo Notice (Proposed Regulation 16)
Section 26P(1) of the Act allows an inspector executing a search warrant who is
authorised by that warrant to seize any thing may, if the thing cannot, or cannot readily,
be physically seized and removed, to issue an embargo notice in the prescribed form.

The embargo notice is issued:
       (a) by causing a copy of the notice to be served on the occupier; or
       (b) if the occupier cannot be located after all reasonable steps have been taken to
           do so, by affixing a copy of the notice to the good in a prominent position.

For the purposes of section 26P(1), it is proposed that an embargo notice must be in the
form as indicated in Schedule 5 of the proposed Regulations, which sets out details that
must be included on the notice. The form, which is completed by the inspector, briefly
describes the embargoed item, identifies the name of the person who the notice is served
on and is affixed to the item.

4.15.1 Costs

There are no costs to pawnbrokers or their customers from this proposed regulation.

4.15.2 Benefits

The embargo form makes it clear which goods are subject to the embargo notice and the
effect the notice has on dealings with those goods. It also sets out the defences available
to a prosecution for an offence against section 26P of the Act and details the item
embargoed, the name of the person on whom the notice was served and the person who
served the notice. The notice prevents the item from inadvertently being removed,
providing benefits to individuals whose stolen goods have been sold to a second-hand
dealer or pawnbroker.

4.16 Infringement Penalties (Proposed Regulation 17)
Division 3 of Part 5 of the Act sets out the provisions that deal with infringement notices.
Section 26ZB of the Act empowers authorised officers (inspectors under the Fair Trading
Act 1999, members of the police force and persons authorised by the Director) to issue
infringement notices for breaches of certain offences and for offences specified in the


                                         - 32 -
regulations. Section 31(2A) of the Act sets a maximum level of penalty for infringement
notices which is no more than a tenth of the penalty to which the person would be liable
under the Act.
It is proposed to prescribe the following offences and penalties for the purposes of
infringement notices:
     •   section 20 offence (recording transaction) – 2 penalty units;
     •   section 21(1) offence (retention of goods for 7 days) – 2 penalty units;
     •   section 21A offence (storage location of goods) – 2 penalty units;
     •   section 23(2) offence (notice showing charge rates by pawnbroker) – 2 penalty
         units;
     •   section 23(3) offence (pawnbroker to provide pawn ticket, information about
         rights and responsibilities and charges) – 2 penalty units;
     •   section 23A(3) offence (pawnbroker to send pawner a notice when good sold) –
         2 penalty units; and
     •   section 24B offence (second-hand dealer and pawnbroker to display sign) – 2
         penalty units.

4.16.1 Costs

Victoria Police incurs a cost in administering the infringement system. These costs are
met by the Government (rather than by a cost recovery fee) as enforcement of the law is
generally an activity funded from general revenues.

The Infringements Act 2006 provides a framework for the issuing and serving of
infringement notices for offences and the enforcement of infringement notices in
Victoria. Therefore, the costs of the infringement system, adopted by the proposed
Regulations are attributable to the Infringements Act 2006 rather than the proposed
Regulations.

4.16.2 Benefits

The use of infringement notices provides benefits for enforcement agencies, as it allows
breaches of the Act to be dealt with administratively rather than through court
proceedings. Access to a cheap and timely enforcement tool by enforcement agencies,
provides flow on benefits to the community.

There is also a benefit to persons who are issued with infringement notices as they have
the option of paying a lesser fine and can avoid going to court and risking a criminal
conviction.

The ability to issue additional infringement notices will assist with enforcement and
compliance with the Act and proposed Regulations.




                                        - 33 -
4.17 Implementation and Enforcement
4.17.1 Implementation

In March 2007, as part of the review of the 1997 Regulations, a research project was
conducted by Consumer Affairs Victoria of a sample of registered Victorian second-hand
dealers including registrants who are also endorsed to conduct business as pawnbrokers.
There were two areas of concern identified from this research. First, the record keeping
requirements and second, the acceptable forms of identification.

Results from this research have provided valuable data for the development of the
proposed Regulations. Consequently, it can be expected that implementation of the
proposed Regulations will be effectively achieved.

4.17.2 Compliance and Enforcement

Consumer Affairs Victoria has no powers to investigate second-hand dealers. This is
done by Victoria Police.

Consumer Affairs Victoria has powers to investigate pawnbrokers. Consumer Affairs
Victoria’s compliance monitoring of pawnbrokers is primarily conducted through its
regional compliance monitoring exercises.

Compliance with the proposed Regulations is expected to be high – 90 per cent. This is
because the second-hand dealers and pawnbrokers regulatory scheme is well established
and businesses are used to operating under the scheme. Further, to facilitate compliance
with the regulatory scheme, Consumer Affairs Victoria produces a trader’s guide to the
Act and regulations, while the Business Licensing Authority also maintains information
on their website regarding the requirements of the scheme.

The majority of the proposed regulations are procedural in nature and consequently, it
should be easy to verify that traders are complying with the regulations during
inspections of businesses.

Some of the proposed regulations deal with conduct, such as proposed regulation 15,
which specifies that unredeemed goods must be sold as soon as practicable and so as to
receive the best price reasonable obtainable. Conduct regulations are a large part of
Consumer Affairs Victoria’s enforcement activity. For example, the core piece of
consumer protection legislation in Victoria, the Fair Trading Act 1999, contains
provisions on misleading and deceptive conduct. These provisions are not conducive to
inspection style compliance regimes.

Nonetheless, compliance activity can still be undertaken on these types of regulations.
For example, information provision is still an effective tool for encouraging compliance
by businesses. Further, a core aspect of compliance in this area is based on complaints by
consumers. Complaints can be investigated where it is considered appropriate according
to the Compliance and Enforcement Policy of Consumer Affairs Victoria. Any


                                        - 34 -
investigation will look at the relevant facts regarding the alleged breach of the regulations
and form an opinion as to compliance with those regulations.

An assessment of compliance with a regulation, such as proposed regulation 15, would be
based on all the relevant facts in a similar way to an assessment of whether someone has
breached misleading and deceptive conduct provisions of the Fair Trading Act 1999 (or
any other conduct provisions in that, or any other, Acts). Whilst a court action can be
undertaken, Consumer Affairs Victoria has a wide range of compliance tools available
under the Fair Trading Act 1999 which are applicable to all consumer acts, including the
Second-hand Dealers and Pawnbrokers Act 1989. For example, warning letters and
enforceable undertakings.

Victoria Police operates a second hand dealer database (the database). It is administered
by police in Dandenong, however, it has application across Victoria. Second-hand dealers
are invited to voluntarily provide their records of transactions for inclusion in the
database on a regular basis. This can be done electronically (the favoured method) or
manually. There are approximately 180 dealers that contribute.

The database operates as a centralised database of property transactions. It can be
searched by police members on the Victoria Police network. The database does not log
the number of searches conducted although Victoria Police have advised that there are
numerous searches performed every day. These searches provide valuable information to
locate and recover stolen property.

There is a broad spectrum and a wide range of businesses that are registered as second-
hand dealers. Victoria Police’s involvement and interest with second-hand dealers is
directed at areas that have proven useful in solving crime and recovering stolen property.
Some types of second-hand goods businesses are subject to minimal police scrutiny. For
other businesses the regime is a strong and necessary tool to combat crime.

No infringements have been issued.

Victoria Police is unable to separate its costs of enforcement relating to the regulations
from their costs relating to enforcement of the Act.

The total cost to Consumer Affairs Victoria of administering the Act and Regulations is
$240,161 per annum (refer to Appendix 3 for details).

4.18 Interstate Legislative Arrangements
Appendix 4 provides a summary of the regulation of second-hand dealers and
pawnbrokers in Australia. The regulation is largely consistent Australia-wide. However,
the application of fees is not consistent and therefore, a direct comparison is not fruitful
(although Appendix 3 does list the fees charged in other Australian jurisdictions).




                                          - 35 -
4.19 Summary of Cost Benefit Analysis
Table 3 summarises the costs and benefits of the proposed Regulations. In this table the
quantified costs appear to outweigh the quantified benefits, but this is because the
majority of the benefits from the proposed regulations were unable to be quantified.

The assessment shows the total quantified costs of the proposed Regulations to be
approximately $500,000 per annum (this includes approximately $250,000 worth of fees
paid by second-hand dealers and pawnbrokers). The total quantified benefits are the fee
revenues that accrue to government of approximately $250,000 per annum.

For the benefits of the proposed regulations to at least equal the costs, benefits equivalent
to $250,000 per annum need to accrue to the industry and consumers from the non-fee
elements of the regulations. Whilst benefits accrue from the various elements of the
regulations, the following example looks at only the record keeping requirements
outlined in the proposed Regulations, to establish whether the benefits of the proposal
could feasibly exceed the costs.

The benefits of the record keeping requirements accrue in two ways. First, by making it
difficult to trade stolen goods for cash and thus deterring this type of activity. Second, by
making it easier for Victoria Police to locate and recover stolen goods that have been sold
to second-hand dealers and pawnbrokers. In terms of the latter, for the benefits of the
proposed Regulations to equal the costs, approximately $21,000 worth of stolen goods
would need to be recovered per month in Victoria.14

By comparison, in New South Wales between 1999 and February 2003, an estimated
$282,270 worth of stolen property was recovered per month through police investigations
where property was directly or indirectly recovered from the business premises of
pawnbrokers or second-hand dealers.15 This result was largely attributed to the
requirement for second-hand dealers and pawnbrokers to keep records of transactions and
transmit these to police so that they can monitor suspicious activity. However, it should
be noted that in New South Wales all licensees are required to electronically transmit this
information to police, whereas in Victoria only the 25% of second-hand dealers and
pawnbrokers with computerized record keeping systems can do this, and approximately
180 regularly do so. Second-hand dealers and pawnbrokers without computerized
systems are able to provide their manual records to Victoria Police for inspection when
required. On the basis of these comparisons it would appear feasible that the benefits of
the proposed regulations outweigh the costs.



14
   Data on the value of stolen goods recovered with the assistance of second-hand dealers and pawnbrokers
is not available for Victoria.
15
   New South Wales Department of Commerce, Office of Fair Trading, Pawnbrokers and Second-Hand
Dealers Regulation 2003: Regulatory Impact Statement, May 2003. This report estimates that $12,702,143
worth of stolen property was recovered between May 1999 and February 2003 - a period of 45 months.



                                               - 36 -
While Table 3 demonstrates that the quantified costs of the proposed regulations
outweigh the quantified benefits, nearly all of the benefits of the proposed Regulations
were not able to be quantified. Consequently, a qualitative analysis was undertaken with
the following rating applied:
      • Nil – no impact
      • Minor – some impact but it is not material
      • Moderate – some material impact
      • Significant – substantial material impact

The qualitative analysis contained in Table 3 demonstrates that the benefits of each of the
proposed regulations outweigh the costs of each proposed regulation, with some of the
proposed regulations providing significant benefits to consumers at a minor cost to
industry (for example, proposed regulation 10 relating to the recording of transactions).




                                        - 37 -
Table 3: Summary of costs and benefits of the proposed Regulations

No.   Regulation      Costs                                                        Rating Benefits                                                                   Rating
6     Fees            Industry funds the full costs of administration and          Moderate   The full costs of administration and enforcement of the Act are        Moderate
                      enforcement of the Act and Regulations - $247,481 per                   recovered from those who derive the benefits of the scheme (or
                      annum.                                                                  those who can pass on the costs to those who benefit) - $247,481
                                                                                              per annum.
                                                                                              The costs are equitably distributed.
7     Register        There is a cost to industry in compiling the details to be   Minor      The data requirements enable clear identification of the registered    Moderate
                      provided on the application form - $4,528.48 per annum.                 person or company for effective administration and enforcement
                      There is a cost to Consumer Affairs Victoria in entering                of the Act, which assists Victoria Police in combating crime.
                      the data provided on the application form - $411.68 per                 It assists Consumer Affairs Victoria in monitoring compliance.
                      annum.
                      Total costs are $4,940.16 per annum.
9     Prescribed      There are no costs.                                          Nil        Prescribing additional categories of evidence as to identity,          Moderate
      categories of                                                                           provides benefits to industry as they may gain legitimate business
      evidence                                                                                from people who would be unable to met the identification
                                                                                              requirements under the Act. Similarly, there are benefits to
                                                                                              persons who do not possess the requisite identification as provided
                                                                                              under the Act from being able to sell or pawn their goods.
10    Recording       There are no material costs.                                 Minor      The prescribed particulars for recording transactions are the          Significant
      transactions                                                                            minimum necessary for Victoria Police to effectively and
                                                                                              efficiently track stolen goods traded through second-hand dealers
                                                                                              and pawnbrokers. Consequently, this proposed regulation will
                                                                                              have a significant impact on the ability to achieve the objective of
                                                                                              the Act “to facilitate and expedite the recovery of stolen goods
                                                                                              from second-hand dealers and pawnbrokers”.
                                                                                              In assisting Victoria Police in tracking and recovering stolen
                                                                                              goods and apprehending offenders, there are benefits to
                                                                                              individuals whose goods have been stolen and the community,
                                                                                              more generally.




                                                                                                                                                                     38
No.   Regulation         Costs                                                         Rating Benefits                                                                     Rating
11    Identifying mark   There are no material costs.                                  Minor      Ensuring that the identifying mark or number assigned to goods is        Moderate
                                                                                                  affixed makes the item more easily identifiable and it is possible
                                                                                                  for stock to be traced from the records kept by the registrant.
                                                                                                  Thereby, assisting Victoria Police in tracking and recovering
                                                                                                  stolen goods which provides benefits to individuals whose goods
                                                                                                  have been stolen.
                                                                                                  Further, a consumer who has concerns with pawned goods can
                                                                                                  readily identify their goods.
12    Pawn ticket and    The costs to the pawnbroking industry of completing pawn      Moderate   Prescribing the details to be included in the pawn ticket and notice     Moderate
      notice             tickets is $484,584 per annum. However, pawnbrokers                      assists in addressing the imbalance of information between
                         need to record this information as part of their normal                  pawnbrokers and their customers. It ensures that both parties have
                         business practices, so it appears reasonable to discount                 the same information about the transaction which forms the basis
                         these costs. For the purposes of this Regulatory Impact                  of finalising the loan. This is of significant benefit to customers of
                         Statement, the costs have been discounted by 50 per cent to              pawnbrokers.
                         $242,292 per annum.                                                      It also provides benefits to pawnbrokers as they can rely on the
                                                                                                  information contained in the forms and notices and be assured that
                                                                                                  it satisfies their legislative obligations.

13    Lost pawn ticket   While there are costs to pawners in obtaining a statutory     Minor      The proposed regulation provides benefits to consumers whose             Moderate
                         declaration and locating a witness, the costs to the pawner              pawn ticket is lost or stolen as it allows these persons to establish
                         of trying to secure ownership of the goods without this                  that the ticket has been lost and if they can produce adequate proof
                         proposed regulation would be much more costly.                           of identity, their pawned goods can be secured without requiring
                         There is a cost to the pawnbrokers in checking the                       more costly litigious means.
                         statutory declaration and identification and producing a
                         replacement ticket - $9,036.30 per annum.
14    Period of loan     There are no costs.                                           Nil        Requiring the period of the loan to be fixed at the time the goods       Moderate
                                                                                                  are pawned, ensures consumers have full information before
                                                                                                  entering in to a contract with a pawnbroker. Further, by being
                                                                                                  fixed and clear, the consumer is protected from any arbitrary
                                                                                                  changes by the pawnbroker.
15    Redemption of      There are no costs.                                           Nil        Having a process for the redemption of pawned goods provides             Moderate
      goods                                                                                       benefits for pawnbrokers and their customers. It sets out the rights
                                                                                                  and obligations of both parties, so there is certainty and
                                                                                                  consistency in dealing with the redemption of goods.




                                                                                                                                                                           39
No.   Regulation         Costs                                                 Rating Benefits                                                               Rating
16    Sale of redeemed   There are no material costs.                          Minor   Requiring goods to be offered for sale as soon as practicable to      Moderate
      goods                                                                            receive the best price reasonably obtainable, provides benefits to
                                                                                       customers by preventing, or reducing the likelihood, that they will
                                                                                       be defrauded by the pawnbroker.
                                                                                       The information requirements of the notice provides benefits for
                                                                                       pawnbrokers and their customers as they can both rely on the
                                                                                       information contained in the notice, which must be provided in a
                                                                                       clear, accurate and accessible form.
17    Embargo notice     There are no costs.                                   Nil     The notice prevents the embargoes item from being removed,            Moderate
                                                                                       providing benefits to individuals whose stolen goods have been
                                                                                       sold to a second-hand dealer or pawnbroker.
18    Infringement       There are no costs.                                   Nil     The use of infringement notices provides benefits for enforcement     Moderate
      penalties                                                                        agencies, as it allows breaches of the Act to be dealt with
                                                                                       administratively rather than through court proceedings. Access to
                                                                                       a cheap and timely enforcement tool by enforcement agencies,
                                                                                       provides flow on benefits to the community.
                                                                                       There is also a benefit to persons who are issued with
                                                                                       infringement notices as they have the option of paying a lesser
                                                                                       fine and go avoid going to court and risking a criminal conviction.
                         Total quantified costs: $503,749 per annum or                 Total quantified benefits: $247,481 per annum or
                         $4,336,113 over 10 years (using 3.5% discount rate)           $2,130,239 over 10 years (using 3.5% discount rate)




                                                                                                                                                             40
5. Other Options to Achieve the Objectives
5.1 Introduction
In section 3.1, the primary objectives were identified as:
    • to protect consumers and the public generally from stolen goods being trafficked
        through second-hand dealer and pawn broking businesses and improve the
        quantity of stolen goods recovered from second-hand dealers and pawnbrokers
        and returned to their rightful owners;
    • to improve the provision of information to consumers about their rights and
        obligations when dealing with second-hand dealers and pawnbrokers; and
    • to recover the costs of efficiently administering the Act and proposed Regulations
        through cost-reflective and equitable fees.

In considering the most effective means to achieve the identified objectives,
consideration was given to alternatives to the proposed regulations. The option to not
prescribe the particulars of transaction records was considered, as was the option to
prescribe mandatory computerised recording of transactions.

Consideration of a number of options for recovering the costs of administering the Act
and proposed Regulations was also undertaken. The analysis of these options was
undertaken as a discrete process separate from the assessment of the proposed
Regulations and the options discussed above. There is a brief summary of the fee options
considered at the end of this section, with the full analysis in Appendix 3.

5.2 No Regulations – The Base Case
To assess the options, the costs and benefits of each of the options must be considered
against the base case, which is to have no regulations.

5.2.1 Costs

If there were no regulations, only the fees specified in the Act would apply16. This would
significantly reduce the revenue levels and require administration of the Act to be
subsidised by taxpayers. Further, some of the fees in the Act under-recover the costs of
processing an application of the type for which a fee is charged, while other fees over-
recover the costs. Therefore, there would be cross-subsidisation within the industry.

Without regulations, the data requirements for the Register would not exist, making
effective administration and enforcement of the Act difficult. Further, members of public


16
   These fees are the vary or revoke conditions fee, the permission application fee, the late payment or
lodgement fee and the annual endorsement fee.


                                                                                                     41
would have difficulty obtaining adequate information about second-hand dealers and
pawnbrokers.

Under the base case, only the categories of documents specified in the Act could be
accepted as proof of identity. This would limit the number of people who could undertake
legitimate business with second-hand dealers and pawnbrokers resulting in a cost to
industry and those consumers who cannot satisfy the identification requirements in the
Act.

If there were no regulations, the ability of Victoria Police to effectively and efficiently
track stolen goods through second-hand dealers and pawnbrokers would be significantly
hindered, resulting in a cost to consumers whose stolen goods are sold to second-hand
dealers and pawnbrokers. Further, there would be a cost to the community, as Victoria
Police would have difficulty apprehending offenders.

There would be a cost to the customers of pawnbrokers with no regulations. Not
prescribing the details to be contained in the pawn ticket, notice of rights and
responsibilities, the notice of the sale of redeemed goods and the requirement to fix the
period of the loan at the time goods are pawned would be of detriment to consumers. It
may result in a significant imbalance of information between pawnbrokers and their
customers and leave customers vulnerable to being defrauded.

Finally, without regulations the effectiveness of the enforcement regime would be
reduced as there would be no prescribed offences and penalties which would limit the use
of infringement notices to the offences set out in the Act. This would result in cost to
consumers and the community generally.

5.2.2 Benefits

The costs of the proposed Regulations of $503,749 per annum would be avoided.

5.3 No Prescribed Particulars for Transaction Records
Under this option, consideration was given to retaining all of the proposed regulations,
except proposed regulation 9 would be amended so that there would be no prescribed
particulars for transaction records. Section 20 of the Act, which puts the onus on the
second-hand dealer and pawnbroker to keep “accurate and complete records of each
transaction” would be relied upon. Different traders could interpret this requirement
differently and consequently, Consumer Affairs Victoria would need to issue guidelines
on the recording of transactions.

5.3.1 Costs

This option has the potential for alternative and inappropriate recordkeeping. For
example, being non-mandatory, the Guidelines may not be followed and individual
second-hand dealers and pawnbrokers may, in good faith, elect to record incomplete
information. This would significantly hinder Victoria Police’s ability to effectively and


                                                                                        42
efficiently track stolen goods through second-hand dealers and pawnbrokers, resulting in
a cost to consumers whose stolen goods are sold to second-hand dealers and
pawnbrokers. Further, there would be a cost to the community, as Victoria Police would
have difficulty apprehending offenders.

Inconsistent recording of information would make enforcement of the proposed
Regulations difficult as each case would have the potential to be subject to objection and
may involve litigation.

5.3.2 Benefits

By not prescribing the information required in recording transactions, there may be a
reduction in costs to the industry. It would allow the industry flexibility in determining
the information it considers will comply with the Act and therefore may reduce the time
second-hand dealers and pawnbrokers spend on recordkeeping.

5.4 Mandatory Computerised Record Keeping
Under this option, consideration was given to retaining all of the proposed regulations,
except proposed regulation 9 would require second-hand dealers and pawnbrokers to
keep records of transactions in a computerised record keeping system. Second-dealers
and pawnbrokers would not be able to keep their records in a bound record book.

In New South Wales, under the Pawnbrokers and Second-hand Dealers Regulations
2003 (NSW), second-hand dealers and pawnbrokers must keep records of transactions in
a computerised record keeping system. There is a similar requirement in Western
Australia.

5.4.1 Costs

Requiring all second-hand dealers and pawnbrokers to keep records of transactions in a
computerised record keeping system would result in a significant cost to the industry. All
traders would be required to establish and maintain a computer system.

From the research conducted by Consumer Affairs Victoria in 2007, 75 per cent of
survey participants used a bound record book to keep records of their transactions. Only
20 per cent of respondents used a computer for record keeping, while 5.4 per cent used
both a bound record book and a computer. Further, almost 40 per cent of participants in
the industry survey reported having no experience in computer record keeping.
Translating this survey data to the wider industry means approximately 4,500 second-
hand dealers and 90 pawnbrokers do not have a computer record keeping system and
approximately 2,400 second-hand dealers and 28 pawnbrokers have no experience with
computer record keeping systems.

The costs of compliance with this option include:
   • purchase of hardware ($3,000) and software ($1,000) for 75 per cent of the
       industry;


                                                                                       43
     •   training in using a computer record keeping system ($2,000) for 40 per cent of the
         industry;
     •   hardware ($3,000) and software ($1,000) upgrades for 75 per cent of the
         industry17 twice over the 10 year life of the regulations; and
     •   ongoing hardware and software maintenance ($500) and operating (electricity and
         other consumables) ($500) costs for 75 per cent of the industry18.

Given these estimates, the cost per annum to the industry of this option is $10,587,600.

5.4.2 Benefits

The primary benefit of mandating computerised record keeping is that it facilitates the
transfer of up-to-date and detailed information to Victoria Police on goods traded through
second-hand dealers and pawnbrokers. It would enable direct transmission of records to
Victoria Police, enabling significant improvements in the data contained in Victoria
Police’s database that was discussed in section 4.17.2. Thus, it provides benefits for
consumers and the community as the ability of Victoria Police to effectively and
efficiently track stolen goods through second-hand dealers and pawnbrokers and
apprehend offenders would be significantly improved.

If the records are required to be kept in a format that is directly compatible with police
records, there is a major saving in police time which would flow on to consumers and the
community.

Improvements in the data contained in the Victoria Police database could enable
arrangements to be made with the New South Wales Police and Western Australian
Police as these jurisdications require second-hand dealers and pawnbrokers (in Western
Australia only pawnbrokers are required) to have computerised record keeping systems
that are directly linked with police systems. Widening the area where goods can be
traced, would provide further benefits to the individuals who have had their stolen goods
sold through second-hand dealers and pawnbrokers and the community more generally.

A National Police Research Unit Report19 concluded that the introduction of computer-
based records which are both easily transmitted to police and comparable with police
records appears to be the most efficient way to track stolen goods as they facilitate easy
matching and following of transaction (audit) trails with police data both within and
across State/Territory borders. In 2002, the New South Wales Police began to bring on
line all licensees who were required to keep computerised records. This meant that by the

17
   The costs of hardware and software upgrades for the 25 per cent of the industry that already have
computerised record keeping systems are assumed to be part of their normal business operations and
therefore, not included in the costs.
18
   The ongoing maintenance and operating costs for the 25 per cent of the industry that already have
computerised record keeping systems are assumed to be part of their normal business operations and
therefore, not included in the costs.
19
   National Police Research Unit, Approaches to Pawnbrokers and Second-hand Dealers Legislation,
Report Series No. 131.1, Australia, page 3, http://www.acpr.gov.au/pdf/ACPR131_1.pdf


                                                                                                 44
end of 2002 the majority of licensees were transmitting their transaction information
directly to the Police within three days of the transaction having taken place.

This option would create benefits to the industry from more efficient record keeping.
Further, it reduces the time taken for industry to reproduce documents, such as is required
when a pawn ticket is lost.

5.5 Assessment of Options
In assessing the most effective option to achieve the identified objectives, the decision
criteria identified in section 3.3 will be used to assess the proposed Regulations and each
option against the base case (no regulations). The decision criteria are as follows:
    • the extent to which the option protects consumers and the public generally from
        stolen goods being trafficked through second-hand dealer and pawn broking
        businesses and improves the quantity of stolen goods recovered from second-hand
        dealers and pawnbrokers and returned to their rightful owners (criteria 1);
    • the extent to which the option improves the provision of information to consumers
        about their rights and obligations when dealing with second-hand dealers and
        pawnbrokers (criteria 2);
    • the extent to which the option recovers the costs of efficiently administering the
        Act and proposed Regulations through cost-reflective and equitable fees (criteria
        3); and
    • the extent to which the option minimises the costs to industry (criteria 4).

In order to assess the proposed Regulations and options discussed above, a balanced
scorecard approach was undertaken. This approach is considered the best method for
assessing the options considered in this Regulatory Impact Statement (as opposed to Net
Present Value, benefit-to-cost ratio or break-even analysis) because of the inability to
quantify and assign monetary values to the costs and benefits of the proposed regulations
and the alternatives. Table 4 outlines the results of the balanced scorecard analysis.

Table 4: Balanced Scorecard Assessment of Proposed Regulations and
Alternatives

                          Proposed   No Prescribed      Mandatory
                         RegulationsParticulars for    Computerised
                                      Transaction     Record Keeping
                                        Records
Criteria Weight Assigned Weighted Assigned Weighted Assigned Weighted
          (%)    score    score    score      score  score     score
   1       30       8      2.4        2        0.6     10        3
   2       30      10       3        10          3     10         3
   3       20      10       2        10          2     10         2
   4       20      -2      -0.4      -1        -0.2   -10        -2
 Total    100               7                  5.4                6



                                                                                        45
The weightings applied to the decision criteria reflect their relative importance. Given the
purposes outlined in the Act, ensuring consumers and the public generally are protected
from goods being trafficked through second-hand dealers and pawnbrokers and that
adequate information is provided to consumers about their rights and obligations when
dealing with second-hand dealers and pawnbrokers are considered to be most important
criteria. Hence, they have been given a weighting of 30 per cent each. The criteria to
recover the costs of administering the Act and proposed Regulations and minimise the
cost to industry are considered of secondary importance, however, not significantly less.
Therefore, they have been given a weighting of 20 per cent each.

The assigned scores range from -10 for negative outcomes to +10 for positive outcomes
resulting from the option.

In comparison with the base case, all of the options would improve protection of
consumers and the public generally from stolen goods being trafficked through second-
hand dealer and pawn broking businesses. However, the option where the particulars of
the transaction records would not be prescribed would only provide a marginal
improvement. Hence, the assigned score of 2. The proposed Regulations option would
significantly improve consumer protection by improving the ability of Victoria Police to
effectively and efficiently track stolen goods through second-hand dealer and pawnbroker
records. Consequently, it has been assigned a score of 8. The option to mandate
computerised record keeping would have the most significant impact as Victoria Police
would have access to second-hand dealer and pawnbrokers more quickly and easily and it
would improve the ability of Victoria Police to work with other jurisdictions in tracking
stolen goods. This option has been assigned a 10.

All of the options would significantly improve the provision of information to consumers
about their rights and obligations when dealing with second-hand dealers and
pawnbrokers in comparison with the base case. However, there is no difference in the
size of the improvements between the options. Hence, they have all been assigned a 10.

Options for recovering the costs of efficiently administering the legislation were
considered as a separate exercise. Therefore, all of the options improve the level of costs
recovered in comparison with the base case by the same amount. They have all been
assigned a 10 as all of the options fully recover the costs of administering the Act.

Finally, all of the options have a negative impact on minimising the costs to industry with
each imposing a financial cost to industry in comparison with the base case. The most
significant cost to industry arises from the option to mandate the use of a computerised
record keeping system. Hence, this option was assigned a score of -10. The proposed
Regulations and the option to not prescribe the particulars for transactions records impose
similar costs on industry with the second option being slightly less. They have been
assigned scores of -2 and -1 respectively.




                                                                                         46
The balance scorecard assessment of the proposed Regulations and the alternatives
demonstrates that the proposed Regulations are the best option to implement.

5.6 Fees
Appendix 3 provides a detailed analysis of the proposed fees. It outlines the methodology
used to determine the costs associated with administering the second-hand dealers and
pawnbrokers registration scheme and discusses five options for recovering these costs.

Option 1 is the base case where no fees would be charged. Under this option, none of the
costs of administering the scheme would be recovered, leaving a shortfall of $240,161
which would need to be funded by Consumer Affairs Victoria out of general taxpaying
revenue. This option is inconsistent with the intentions of the Act and Government cost
recovery policy.

Under Option 2, the current fee levels would be charged. With this option, there would be
cross-subsidisation between the fees types and a total over-recovery of costs of $85,837.
This is inconsistent with the Government’s cost recovery policy.

Under Options 3 and 4 the full costs of administering the second-hand dealers and
pawnbrokers regulatory scheme would be recovered. This aligns with the Government’s
cost recovery policy. Option 3 proposed to allocate the ongoing (fixed direct and indirect)
costs of the scheme (e.g. compliance and enforcement costs, policy costs, etc.) to all the
fees, whereas Option 4 proposed to allocate the ongoing costs of the scheme to the annual
registration fee only. Option 3 provides for full recovery of cost where ongoing costs are
allocated across all fees, and Option 4 provides for full cost recovery where ongoing
costs are allocated only to the annual licence fee.

Option 5 would recover the variable direct costs of processing the different types of
applications. Under this option, there would be an under-recovery of costs of $63,114,
which is inconsistent with the Government’s cost recovery policy.

As one of the primary objectives is “to recover the costs of efficiently administering the
proposed Regulations through cost-reflective and equitable fees”, Option 4 is the
preferred option. Under this option, all of the costs of administering the regulations
would be recovered and in comparison with Option 3 (which also recovers all of the
costs) the fees would be more equitable.

Option 3 would require the ongoing costs of administering the proposed Regulations to
be allocated across all fees. This is not considered reasonable. Primarily, because under
this option an unsuccessful applicant for registration would be required to contribute
towards the ongoing costs of a scheme (as the application fee is non-refundable), which it
would not be a part of. Further, other than the annual registration fee, which all
registrants are required to pay each year, the other fees are applicant-driven.

By allocating all of the ongoing costs to the annual registration fee, it ensures that all
participants in the registration scheme contribute to the ongoing costs of administering


                                                                                             47
the proposed Regulations. Therefore, Option 4 is the preferred option and the proposed
fees are based on this option.




                                                                                         48
6. Evaluation Strategy
Consumer Affairs Victoria does not propose a separate evaluation strategy for the
proposed Regulations. Consumer Affairs Victoria has an ongoing review process for the
extensive list of legislation it administers.

Consumer Affairs Victoria has also established a Performance Measurement Project to
develop and implement a more outcomes-focused performance measurement framework
across all of it regulatory functions. Existing reporting on Consumer Affairs Victoria’s
many regulatory functions provides extensive information on measures of activity and
output, but collectively these reports do not satisfactorily indicate the extent to which
Consumer Affairs Victoria is achieving good outcomes for Victorian consumers.

Consumer Affairs Victoria administers nearly 50 pieces of legislation, including 20
separate schemes of regulation (though some of these have common elements).
Establishing a common performance measurement framework across general consumer
protection regulation and multiple industry-specific consumer protection regulation is a
challenge of substantial complexity.

However, the development of a performance indicator framework is intended to result in
a set of indicators that:
    • reflect the extent to which Consumer Affairs Victoria’s activities are achieving
        their objectives and how these are translating into outcomes;
    • are sourced from stable databases that can be relied upon to provide consistent
        data in forthcoming years, thereby enabling both comparisons and trend analysis;
        and
    • have the capacity to accommodate changes to the delivery of services and
        organisational change.

Ultimately, when completed and operating fully, Consumer Affairs Victoria’s new
performance reporting framework will serve a number of important functions, including:
    • informing the Government through consistent reporting over time about the extent
       to which Consumer Affairs Victoria is meeting its objectives in the medium and
       longer term and the impact its services and initiatives are having in the
       community;
    • providing Consumer Affairs Victoria with a tool for developing strategies and
       programs to deliver optimal outcomes by knowing what is working well and what
       is not working; and
    • enabling Consumer Affairs Victoria to report on outcomes for specific groups
       within the community, such as disadvantaged and vulnerable consumers and
       consumers in particular regions.




                                                                                           49
7. National Competition Policy Assessment
7.1 Introduction
The National Competition Policy Agreement set out specific requirements with regard to
all new legislation adopted by jurisdictions that are party to the agreements. Clause 5(1)
of the Competition Principles Agreement sets out the basic principle that must be applied
to both existing legislation, under the legislative review process, and to proposed
legislation:

        The guiding principle is that legislation (including Acts, enactments, Ordinances
        or Regulations) should not restrict competition unless it can be demonstrated
        that:
         (a) The benefits of the restriction to the community as a whole outweigh the
             costs; and
         (b) The objectives of the regulation can only be achieved by restricting
             competition.

Clause 5(5) provides a specific obligation on parties to the agreement with regard to
newly proposed legislation:
        Each party will require proposals for new legislation that restricts competition to
        be accompanied by evidence that the restriction is consistent with the principle
        set out in sub-clause (1).
Therefore, all Regulatory Impact Statements must provide evidence that the proposed
regulations are consistent with these National Competition Policy obligations.

7.2 Definition of Market
The primary markets affected by the proposed Regulations are the second-hand dealer
sector and the pawnbroker sectors.

7.3 Test for Restriction on Competition
Under the Guidelines for the application of the Competition Test to New Legislative
Proposals, legislative schemes are deemed to contain restrictions on competition if they:
   • allow only one company or person to supply a good or service;
   • require producers to sell to a single company or person;
   • limit the number of industry or individual producers; and
   • limit the number of persons engaged in an occupation.




                                                                                        50
7.4 Assessment
7.4.1 Part 1 – Preliminary (proposed regulations 1-5)

These deal with the objectives of the Regulations, their commencement date, authorising
provisions, which enable the Regulations to be made, the revocation of regulations set out
in Schedule 1 and a definition required for the purposes of the Regulations. These are
administrative and procedural regulations that do not restrict competition.

7.4.2 Part 2 – Registration (proposed regulations 6-7)

These prescribe fees required under the Act and the particulars to be contained in the
public register. The proposed fees are applicable to all regulated parties and are applied
on a full cost recovery basis. Accordingly, there are no restrictions on competition. While
proposed regulation 7 imposes costs of compliance it is applicable to all regulated parties
and therefore does not act to restrict competition.

7.4.3 Part 3 – Conduct of Business (proposed regulations 8-15)

These prescribe categories of evidence for people selling or pawning goods, details of
transactions required to be recorded, requirements regarding identifying marks or
numbers, details to be contained in pawn tickets and notices, a process for issuing
duplicate pawn tickets in the case of lost pawn tickets, period of loans, and procedures
involved for the redemption of pawned goods and the sale of unredeemed goods. While
these regulations impose costs of compliance on regulated parties they are applicable to
all regulated parties and therefore do not act to restrict competition.

7.4.4 Part 4 – Enforcement (proposed regulations 16-17)

These deal with details to be included in embargo notices and a list of offences which can
be enforced by infringement notice and the penalties which apply to these offences.
These are administrative/enforcement regulations that do not restrict competition.

This assessment indicates that the proposed Regulations do not restrict competition.




                                                                                        51
8. Impact on Small Business
For this section of the Regulatory Impact Statement the Australian Bureau of Statistics
definition of a small business is used, namely that a small business is a business
employing less than 20 people. Categories of small businesses include:
    • non-employing businesses – sole proprietorships and partnerships without
        employees;
    • micro businesses – businesses employing less than 5 people, including non-
        employing businesses; and
    • other small businesses – businesses employing 5 or more people, but less than 20
        people.

The 2007 research project conducted by Consumer Affairs Victoria identified that there
are currently over six thousand second-hand dealers registered in Victoria; two per cent
(120) are also endorsed as pawnbrokers. Antique dealers are the most common type of
second-hand dealers, some of which are concentrated in particular areas, such as
Armadale. Other typical second-hand dealers include auto parts sellers, motor mower and
chainsaw dealers, booksellers, music dealers and metal dealers. Most second-hand
dealers are sole operators while others are franchises like Cash Converters, which has 30
stores throughout Victoria.

The research found that the majority of second-hand dealers and pawnbrokers employ
one or two people (57.2%) and have been operating for more than 10 years (68.3%). A
further 21.5% of second-hand dealers and pawnbrokers surveyed employed three to five
people in their business.

The results of the survey conducted by Consumer Affairs Victoria indicated that
approximately 80% of second-hand dealers and pawnbrokers employ less than 20 people.
This suggests that the majority of second-hand dealers and pawnbrokers are small
businesses, and as such it is likely that the impacts of the proposed regulations will be
similar across these businesses.

Less than one per cent of respondents to the survey were franchise businesses. For
example, a respondent from Cash Converters would represent the opinion of all Cash
Converters’ operators. Of the remaining respondents, 40% were companies, 30.8% were
sole traders and 29.2% operated in a partnership structure.

Generally, where regulatory obligations are imposed they are often more difficult to
comply with for small businesses relative to large ones. Consumer Affairs Victoria is
aware of the burden imposed on businesses by the Act and associated regulations, as such
a number of changes have been made to the proposed Regulations to reduce the
compliance burden on businesses (refer to Appendix 2). The proposed Regulations do not
appear to disadvantage small businesses compared with large businesses. The cost benefit




                                                                                      52
assessment shows that costs of compliance are relatively modest for small businesses
whose recording costs are low due to their comparatively few transactions.




                                                                                 53
9. Administrative Burden
Under the Reducing the Regulatory Burden initiative, the Victorian Government made a
commitment to cut the existing administrative burden of regulation by 15 per cent over
three years and 25 per cent over five years.

Progress towards achieving targeted reductions in administrative burdens will be
measured using the Standard Cost Model (SCM). The SCM was developed by the Dutch
Government to provide a consistent method for estimating the administrative costs
imposed on business by government.

The SCM is designed to produce indicative estimates of burdens and to develop a strong
understanding of the drivers of these costs. However, the SCM is not designed to provide
statistically robust data.

The Victorian Guide to Regulation (the Guide) requires that any change in the
administrative burden of any new regulation be identified. Where the changes are
considered material the change must be assessed using the SCM. To assess whether the
SCM should be used a test for prima facie evidence is to be undertaken.

To test whether there is prima facie evidence of a material change, the Guide provides the
following indicators for assessment:
    • Does the regulation introduce or abolish an information obligation requirement
        (e.g. removal of the requirement to obtain a licence)?
    • Are there significant increases or reductions in the frequency of reporting
        obligations (e.g. the registration period is changed from one to five years)?
    • Does the regulation introduce a new area of regulation?
    • Does the regulation affect a large number of businesses? (The larger the number
        of businesses and/or not-for-profit organisations that will be affected, the more
        likely it is that the change will be material.)

The Guide states that “the test for materiality will be primarily based on such qualitative
indicators rather than quantitative estimates. Where it is unclear whether the change is
material, Ministers may ask that indicative data be gathered by seeking the views of some
businesses about whether the change will materially affect the cost to business. In
general, if the data indicate that the change in administrative burden is of the order of
$250,000, then an SCM measurement should be undertaken.”20

The following table (Table 5) analyses each regulation against the prima facie assessment
indicators. (Appendix 2 provides a comparison of the existing Regulations and the
proposed Regulations.)


20
     Victorian Guide to Regulation section 4.4.4


                                                                                        54
Table 5: Analysis of Administrative Burden

Proposed            Does the regulation introduce     Are there significant    Does the      Does the
Regulation          or abolish an information         increases or             regulation    regulation
                    obligation requirement (e.g.      reductions in the        introduce a   affect a large
                    removal of the requirement to     frequency of reporting   new area of   number of
                    obtain a licence)?                obligations?             regulation?   businesses?
1-5                 No                                No                       No            Yes
6 Fees              No                                No                       No            Yes
7 Register          Requires additional information   No                       No            Yes
                    to be included on the register.
8 Prescribed        No                                No                       No            Yes
category of
evidence
9 Recording         Abolishes the obligation for      No                       No            Yes
transactions        traders with a computerised
                    record keeping system to print
                    out a hard copy of every
                    transaction.
10 Identifying      No                                No                       No            Yes
mark
11 Pawn ticket      No                                No                       No            Yes
12 Lost pawn
ticket
13 Period of loan   No                                No                       No            Yes
14 Redemption       No                                No                       No            Yes
of goods
15 Sale of          No                                No                       No            Yes
unredeemed
goods
16-17               No                                No                       No            Yes
Enforcement


The only additional administrative burden arises from the information requirements for
the Register. The proposed Regulations seek to include more detailed information in the
Register. However, this does not result in any significant changes to the amount of
information requested from applicants that would result in applicants spending significant
additional time providing information. This is because the change reflects only a minor
variation in the type of information that is already being requested. Therefore, a SCM
assessment of the proposed Regulations was not required on the basis of this change.

The proposed Regulations also no longer require second-hand dealers and pawnbrokers
with computerised record keeping systems to produce a printed and sequentially pre-
numbered hard copy of all transactions on a daily basis. A preliminary estimate of the
change in the administrative burden arising from no longer having this requirement
indicates that it is likely to be material. In order to measure the administrative cost of
regulation, a number of cost parameters need to be identified.



                                                                                                         55
These cost parameters give the basic SCM Formula:

Administrative Cost = Price x Quantity = (tariff x time) x (population x frequency)

9.1 Cost Parameter Assumptions
The following cost parameter assumptions have been made:
   • Using the costing methodology outlined in section 4.6.1, the tariff with on-costs
       of the trader is $55.
   • It is assumed that it takes five minutes for a trader to print, compile and number
       the daily record of their transactions.
   • It is estimated that a population of 1,530 of the 6,120 second-hand dealers and
       pawnbrokers operating in Victoria use a computerised record keeping system.21
   • It is estimated that the frequency of the administrative activity occurs 300 days
       per year.

These assumptions will be tested in accordance with the interview methodology outlined
in the Victorian Guide to Regulation.

Therefore, the preliminary administrative burden reduction is estimated to be: ($55/hour
x 5 minutes) x (1530 second-hand dealers and pawnbrokers affected22 x 300 business
days23 ) = $2,103,750 in administrative burden reduction.

Price                            x     Quantity                                Administrative
                                                                               Burden Reduction
Internal tariff x time           x     Population x Frequency
$55 x 0.08 hours = $4.40         x     1530 population x 300 reports           = $2,103,750
                                       printed/year = 459 000

Given that the administrative burden reduction from no longer having this requirement is
estimated as being material, Consumer Affairs Victoria intends to undertake a SCM
assessment within three months of the regulations being implemented. To complete the
SCM assessment Consumer Affairs Victoria needs to understand the time and financial
savings to business resulting from removal of this requirement. Consequently, Consumer
Affairs Victoria is interested in hearing feedback from second-hand dealers and
pawnbrokers, who use a computerised record keeping system, on the following:
    • How many days per week, on average, do you print out a daily record of
       transactions?


21
    A recent survey conducted by Consumer Affairs Victoria found that 25 per cent of the survey
participants used a computerised record keeping system or both a computerised record keeping system and
a bound record book.
22
   In the absence of evidence to the contrary, this assumes that there is 100 per cent compliance with this
requirement.
23
   It is assumed that second-hand dealers and pawnbrokers are open six days a week.


                                                                                                        56
•   On average, how many pages long is your daily record of transactions?
•   How long does it take, on average, to prepare, print, number and file this
    information?
•   What is the hourly wage rate of the person that usually performs this task?




                                                                            57
Appendix 1: Summary of 2007 Research
Survey Results
Record Keeping Systems Used
Three-quarters of second-hand dealers and pawnbroker respondents use bound books to
record their customer transactions. Almost 20% of respondents use computerised systems
and a further 5.4% of respondents stated that they used a combination of manual and
computerised record keeping systems.

Almost 40% of second-hand dealers and pawnbrokers said they had no experience of
computerised systems, which is why they maintained bound books of customer
transactions. Other common reasons respondents provided for maintaining manual record
keeping systems included:
    • keeping a bound book was faster/more efficient – 14 respondents;
    • the system they had met their business needs –15 respondents;
    • their business was too small to justify a computerised system or the cost of
        moving to a computerised system was too great – 15 respondents;
    • it was habit, they had always operated this way and did not want to change their
        system – 13 respondents; and
    • they were required by legislation to keep books – 11 respondents.

Only three survey respondents indicated that they intended to computerise in the future.

As expected, the categories of second-hand dealers and pawnbrokers who were more
likely to use electronic or computerised record keeping systems comprised:
    • larger business that employ more than ten people – 62.5% compared with 13.3%
        of small businesses which have one or two employees and 17.9% of those that
        employ up to five people;
    • companies – 28.8% compared with 12.8% of sole traders and 13.2% of businesses
        with a partnership structure; and
    • younger businesses that have been operating for less than ten years – 36.8%
        compared with only 9.4% of businesses that have been operating for ten to twenty
        years and 14.7% of those operating more than twenty years.

It appears any proposal to mandate electronic record keeping would impact significantly
on the vast majority of second-hand dealers and pawnbrokers. In particular, smaller
businesses who are the mainstay of this industry.




                                                                                       58
Information Provided to Victoria Police
Of the 25% of second-hand dealers and pawnbrokers who currently use computerised
systems to record customer transactions, only around a third said they always (30.3%) or
sometimes (6.1%) provided the Victoria Police with information electronically.24

Again, companies and businesses that have been operating for less than five years were
more likely to provide this information electronically to Victoria Police.

Internet Access
The majority of respondents (87.5%) that use computerised record keeping systems
reported that they had access to the internet and email.




24
     Subsequent to decentralisation of Victoria Police, there is no longer a dedicated taskforce to monitor
     compliance with the Act. Contact between second-hand dealers, in particular pawnbrokers and the
     Victoria Police generally occurs via local police stations. Anecdotal evidence suggests that information
     provided in relation to stolen goods is more likely to occur via an email to their local police inspector
     rather than uploading information directly onto a database.


                                                                                                          59
Appendix 2: Comparison of Proposed Regulations with 1997
Regulations
          1997 REGULATIONS        PROPOSED REGULATIONS                                       COMMENTS
PART 1 – PRELIMINARY         PART 1 – PRELIMINARY
1. Objectives                1. Objective                One change - The objective to provide for the exemption of certain persons and goods
                                                         from the application of the Act has been removed. The exemptions have been relocated
                                                         in separate draft Second-Hand Dealers and Pawnbrokers (Exemption) Regulations
                                                         2008.
2. Commencement              2. Commencement             Change of commencement date.
3. Authorising Provision     3. Authorising Provision    Proposed Regulations are made under section 31 of the Act only.
4. Revocation                4. Revocation               No Change.
5. Definition                5. Definition               No Change.
PART 2 – EXEMPTIONS
6. Exemptions                                            There are no exemptions in the proposed Regulations. The exemptions have been
                                                         relocated in separate draft Second-Hand Dealers and Pawnbrokers (Exemption)
                                                         Regulations 2008.
PART 3 – REGISTRATION        PART 2 – REGISTRATION
7. Fees                      6. Fees                     The proposed Regulations prescribe the following fees which were previously set out in
                                                         the Act:
                                                              •   application to vary or revoke conditions fee;
                                                              •   late payment or lodgement fee;
                                                              •   permission application fee; and
                                                              •   annual endorsement fee.
                                                         The fee levels in the proposed Regulations have been updated to reflect costs. Only the
                                                         permission application fee has increased, the other six fees have decreased.
8. Register                  7. Register                 The proposed Regulations include the following additional requirements:
                                                             •    registration conditions:
                                                             •    address and telephone number of each premises from which the person carries
                                                                  on business;
                                                             •    if the person is a registered business:




                                                                                                                                              60
        1997 REGULATIONS                         PROPOSED REGULATIONS                                                         COMMENTS
                                                                                                   − the name of each director;
                                                                                                   − the date of appointment of each director;
                                                                                                   − the date of cessation of appointment of each director.
                                                                                              •    the address of an internet site maintained by the person for the purposes of
                                                                                                   carrying on a business as a second-hand dealer.
9. Prescribed categories of evidence as                                                   The proposed Regulations do not include additional categories of evidence as to the
to identity – applicants for registration                                                 identity for applicants of registration.
10. Display of sign                                                                       The proposed Regulations do not require second-hand dealers and pawnbrokers to
                                                                                          display a sign.
PART 4 – CONDUCT OF BUSINESS                PART 3 – CONDUCT OF BUSINESS
11. Prescribed categories of evidence as    8. Prescribed categories of evidence as to    No change.
to identity – persons selling or pawning    identity – persons selling or pawning goods
goods
12. Recording transactions                  9. Recording transactions                     The proposed Regulations do not include a requirement for a second-hand dealer or
                                                                                          pawnbroker who uses a computerised record-keeping system to produce, on a daily
                                                                                          basis, a printed and sequentially pre-numbered hard copy of all transactions.
13. Identifying mark or number              10. Identifying mark or number                No change to the requirement, however, a penalty for breach of the requirement has
                                                                                          been introduced under the proposed Regulations (20 penalty units).
14. Pawn ticket                             11. Pawn ticket and notice                    No change.
15. Lost pawn ticket                        12. Lost pawn ticket                          No change.
16. Period of the loan                      13. Period of the loan                        No change.
17. Redemption of goods                     14. Redemption of goods                       No change.
18. Sale of unredeemed goods                15. Sale of unredeemed goods                  No change.
PART 5 – ENFORCEMENT                        PART 4 - ENFORCEMENT
20. Embargo notice                          16. Embargo notice                            No change.
21. Infringement penalties                  17. Infringement penalties                    No change.




                                                                                                                                                                                61
Appendix 3: Analysis of Proposed Fees
The Problem
The Act requires fees to be determined and applied for application and other processes
required by the Act.

If fees are not prescribed for the processes the following problems arise:
     • it is likely to distort the process of applications for a second-hand dealer and
        pawnbroker registration and other processes in an inefficient way;
     • Consumer Affairs Victoria will not receive any fees to cover the costs in carrying
        out the processes and the provisions of the Act provide that fees should be
        prescribed; and
     • if Consumer Affairs Victoria carries out the application and other processes
        without charging fees, additional costs will fall on the public generally,
        principally taxpayers.

Objectives
The desired outcome is to facilitate efficient administration of the Act by providing for a
significant user contribution to the cost of administration. In accordance with the Act,
charges are to be applied by prescribing fees.

The objectives of prescribing fees are to:
   • recover the costs of administering the Act and provide Consumer Affairs Victoria
       with sufficient resources to administer the Act; and
   • equitably distribute the costs incurred by Consumer Affairs Victoria in carrying
       out the administrative procedures of the Act.

Policy Considerations
The Victorian Guide to Regulation and the Department of Treasury and Finance’s Cost
Recovery Guidelines (the Guidelines) outline the primary policy instruments for the
setting of fees and charges. The latter document identifies regulatory fees and user-
charges as different approaches to fee setting.

Regulatory Fees

Typically, regulatory fees involve the granting of an access right to engage in a desired
activity. Access is usually in the form of a permit or registration (such as for second-hand
dealers and pawnbrokers) enabling Government to regulate activity as an instrument of



                                                                                         62
government policy. Government agencies are required to index regulatory fees payable to
the public account unless the Treasurer has approved an exemption.

User-Charges

User-charges are a separate category of fees. All user-pay type fees should be set to
recover the full cost of the service provided, unless there are explicit policy reasons for
not doing so or reasons for the public good (i.e. where the agency providing the service
has a monopoly over the market or where there are consumption externalities associated
with the provision).

Charges should be considered for application to all products and services provided by
budget-dependent agencies such as Consumer Affairs Victoria, except where government
policy dictates otherwise, or where such charges are impractical or inefficient. No such
policy exists for administration of the Act.

Government Cost Recovery Policy

As stated in the Victorian Guide to Regulation and reiterated in the Guidelines, general
government policy is that regulatory fees and user charges should be set on a full cost
recovery basis because it ensures that both efficiency and equity objectives are met. Full
cost represents the value of the resources used or consumed in the provision of an output
or activity.

Proposed Fee Types

There are seven fee types. Currently, three are prescribed in the 1997 Regulations:
   • the fee to accompany an application for registration (11 fee units);
   • the fee to accompany a statement (3 fee units); and
   • the fee for a copy of, or an extract from the register ($5).

The other four fees are detailed in the Act:
   • the fee to vary or revoke any condition (15 fee units);
   • the fee for a permission application (15 fee units);
   • the fee for late payment or lodgement that requires annual registration (2 fee
       units); and
   • the fee for annual endorsement (40 fee units).

It is proposed to include the fees detailed in the Act in the proposed Regulations in order
to have a complete set of fees in the proposed Regulations.

The legislative backing for the proposed fee types follows.




                                                                                         63
Application for Registration Fee

Section 7(2) of the Act provides that an application for registration as a second-hand
dealer must be:
   (a) in writing in or to the effect of the form approved by the Authority and must be
         verified by statutory declaration; and
   (b) accompanied by evidence as to the identity of–
           (i) the applicant; or
           (ii) if the applicant is a body corporate, the directors of the applicant–
         by means of a birth certificate, passport (if the passport is current or expired for
         not more than 2 years), driver licence or any other document in one of the
         prescribed categories; and
   (c) accompanied by the prescribed fee.

Application to Vary or Revoke Conditions Fee

Section 8B of the Act provides that the Business Licensing Authority may impose
conditions that must be complied with before it registers, or endorses the registration of,
an applicant. At any time on the application of any person or of its own motion, the
Business Licensing Authority may vary or revoke any conditions previously imposed.
Section 8B(3) provides that an application to vary or revoke, other than an application by
the Director or the Chief Commissioner of Police, must be accompanied by the
prescribed fee or, if no fee is prescribed, 15 fee units. Currently, the fee is not prescribed.

Permission Application Fee

Section 10A of the Act provides that a person who would otherwise be ineligible to be
registered because of section 6(2) may apply to the Authority for permission to be
registered; and whose registration would otherwise be cancelled by section 10(2) may
apply to the Authority for permission to continue to be registered.

Section 10A(3) of the Act requires that an application for permission must be:
   (a) in a form approved by the Authority; and
   (b) accompanied by the prescribed fee or, if no fee is prescribed, 15 fee units.

Currently, the fee is not prescribed.

Annual Registration Fee

Section 11 of the Act requires:
       (1) A person registered under this Part must pay to the Authority the prescribed
             annual registration fee on the anniversary of the date that person was first
             registered under this Part.




                                                                                            64
       (2)   An annual registration fee may be paid at any time in the 6 weeks before it
             falls due.
       (3)   The payment must be accompanied by a statement in respect of the year up
             to the date the payment is made that is in a form approved by the Authority
             and that is signed by the person registered under this Part.
       (4)   The statement must contain any information and be accompanied by any
             documents required by the Authority.

Late Payment or Lodgement Fee

Section 11A of the Act provides that if a person fails to comply with section 11 or 11AA,
the Authority must give the person a written notice stating that unless the person
complies with that section and also pays to the Authority the late payment or lodgment
fee by the date specified in the notice, the person's registration or endorsement, as the
case may be, will be cancelled.

The date specified in the notice must be at least 14 days after the date on which the notice
is given to the person. If the person has not complied with section 11 or 11AA and paid
the late payment or lodgment fee by the date specified in the notice, the registration or
endorsement, as the case may be, is automatically cancelled. The fee for late payment or
lodgment is the prescribed fee or, if no fee is prescribed, 2 fee units. Currently, the fee is
not prescribed.

Annual Endorsement Fee

Section 9 provides for registration as a second-hand dealer. Where a second-hand dealer
also trades as a pawnbroker the person must be endorsed under section 9AA.

Section 11AA of the Act provides that a person whose registration is endorsed must pay
to the Authority the prescribed annual endorsement fee or, if no fee is prescribed, an
annual endorsement fee of 40 fee units. Currently, the fee is not prescribed.

The annual endorsement fee must be paid on the same date as the annual registration fee
payable under section 11(1). An annual endorsement fee may be paid at any time in the 6
weeks before it falls due.

Endorsement is provided by the authority under section 9AA where the authority is
satisfied that an applicant to carry on business as a pawnbroker—
       (a) is not ineligible under section 6 for an endorsement of the registration; and
       (b) has complied with any conditions imposed under section 8B(1)(a); and
       (c) has paid the initial endorsement fee to the Authority.




                                                                                           65
Copy of Register Fee

Section 13 of the Act requires the Registrar to maintain a register to be kept of all persons
registered under the Act containing particulars of endorsements, if any, under this Part
and the prescribed particulars. The register may be inspected at the office of the Authority
by any person during ordinary office hours without charge. A person may obtain: a copy
of the register; a copy of an entry in the register; or a copy of a page in the register; on
payment of the fee prescribed for that type of copy.

Costing Methodology
The Guidelines outline two broad methodologies for determining the appropriate cost
base - the ‘fully distributed cost’ method and ‘incremental cost’ method.

The fully distributed cost method is described as “the most comprehensive costing
approach, and allocates all costs (including direct, indirect and capital cost components)
to the output, and is typically used where cost-recovered activities account for a large
proportion of an agency’s activities”. The incremental cost method recognises that it may
be inappropriate to attempt to recover overhead and capital costs if these would be
incurred anyway, even if a particular activity were not undertaken.

The fully distributed cost method was adopted for determining the fee levels outlined in
this Regulatory Impact Statement. The Guidelines outline that this methodology should
be used where cost-recovery activities account for a large proportion of an agency’s
activities. Operating business licensing schemes is not incidental to Consumer Affairs
Victoria’s activities but is in fact a core consumer protection function. On this basis, the
fully distributed cost method was adopted.

Cost Types

According to the Guidelines, direct costs are those “that can be readily and unequivocally
traced to a product or activity because they are incurred exclusively for that particular
product/service”. On the other hand, indirect costs are not incurred exclusively for a
particular product or activity. Fixed costs are unaffected by product or service delivery
levels. Variable costs are directly related to the levels of production and service delivery.

For the purpose of determining the full costs incurred by Consumer Affairs Victoria in
administering the second-hand dealers and pawnbrokers regulatory scheme, Consumer
Affairs Victoria’s costs have been categorised as follows:
   • Variable Direct Costs – These costs represent the salary costs (including on-
        costs25) associated with processing a particular type of application.


25
  The 20 per cent on-costs figure was provided by Finance, Department of Justice. This amount was used
because it is the figure used by the Department of Justice for official budget costings and all other funding
proposals.


                                                                                                         66
     •   Fixed Direct Costs (Salary & Operating) – These costs represent the ongoing
         costs of the different branches of Consumer Affairs Victoria in administering the
         second-hand dealers and pawnbrokers regulatory scheme, such as compliance and
         enforcement costs and policy costs. These costs are considered fixed.26 The costs
         have been split into salary and operating costs. The fixed direct salary costs come
         from costing the time staff in a particular branch work on issues to do with
         regulation of second-hand dealers and pawnbrokers. Given the proportion of a
         branch’s total FTE that works on second-hand dealers and pawnbrokers, the fixed
         direct operating costs reflect the proportion of the branch’s total operating costs
         that can be attributed to the regulation of second-hand dealers and pawnbrokers.
     •   Indirect Costs – These costs represent the corporate services costs, such as salary
         of the Director of Consumer Affairs Victoria, financial services and human
         resources.

The following hourly rates were used for the salary costs:
   • VPS Grade 2 - $25.00;
   • VPS Grade 4 - $37.95; and
   • BLA Member (VPS Executive Officer Level 3)- $87.11.

The hourly rates were calculated by using the midpoint of the VPS salary grade range in
2006-07 plus 20 per cent on-costs27, divided by the number of weeks in the year (52) and
the number of working hours in a week (38).

Variable Direct Costs

To determine the variable direct costs for each fee, a step-by-step identification of the
tasks undertaken by Consumer Affairs Victoria to process an application for which a fee
is proposed to be set is required. Each task is assigned a time in minutes, a VPS salary
grade of the person(s) undertaking the task and the resulting cost of each task. These
costs are totaled giving an overall variable direct cost of processing one application.

Application for Registration

The variable direct cost of processing an application for registration is $103.75. An
application for registration, on average, takes 134 minutes to consider and provide a
response. The process involves:
    • receiving the application, entering the information into a database and sending an
       acknowledgement letter (43 minutes);

26
   Compliance and enforcement costs could be considered variable costs, as an increase in the number of
participants in the industry would increase the level of compliance and enforcement activity required.
However, the size of the industry has remained stable over past years. Although there are new entrants (as
indicated by the number of applications for registration), these new entrants are offset by businesses exiting
the industry. On this basis, compliance and enforcement costs have been assumed to be fixed.
27
   The 20 per cent on-costs figure was provided by Finance, Department of Justice. It is the recommended
figure for use in official budget costings and all other funding proposals by the Department of Justice.


                                                                                                          67
     •   conducting the eligibility checks (15 minutes);
     •   conducting external checks with CrimTrac and Dun and Bradstreet to check for
         any disqualifying offences (14 minutes and $48.20 external charges28);
     •   conducting a number of internal checks (10 minutes);
     •   assessing the application and following up with applicant where further
         information is required (31 minutes);
     •   making a decision on the eligibility of the applicant (5 minutes); and
     •   recording the decision and informing the applicant of decision (16 minutes).

The process involves the time of officers at the VPS Grade 2 and 4 level with a small
amount of a Business Licensing Authority Member’s time.

Application to Vary or Revoke Conditions

The variable direct cost of processing an application to vary or revoke conditions is
$28.82. On average, an application to vary or revoke any conditions takes 64 minutes to
consider and provide a response. The process involves:
   • receiving the application, entering the information into a database and sending an
       acknowledgement letter (23 minutes);
   • checking the evidence (15 minutes);
   • assessing the application (5 minutes);
   • making a decision on the eligibility of the applicant (5 minutes); and
   • recording the decision and informing the applicant of decision (16 minutes).

The process involves the time of officers at the VPS Grade 2 and 4 levels.

Permission Application

The variable direct cost of processing a permission application is $652.47. By its nature,
the tasks involved in processing a permission application require a high level of scrutiny.
Therefore, it is a time and resource intensive process that takes, on average, 821 minutes.
The process involves:
    • receiving the application, entering the information into a database and sending an
        acknowledgement letter (45 minutes);
    • conducting the eligibility checks (15 minutes);
    • conducting external checks with CrimTrac, Dun and Bradstreet and Court records
        to check for any disqualifying offences (43 minutes and $48.20 external
        charges29);
    • conducting a number of internal checks (46 minutes);


28
   The external charges have been included in the variable direct costs of processing an application for
registration.
29
   The external charges have been included in the variable direct costs of processing a permission
application.


                                                                                                     68
       •   assessing the application and following up with the applicant where further
           information is required (342 minutes);
       •   making a decision on the eligibility of the applicant (225 minutes); and
       •   recording the decision and informing the applicant of decision (105 minutes).

The process involves the time of officers at the VPS Grade 2, 3 and 4 levels with a
significant time resource required from a Business Licensing Authority Member (180
minutes at a cost of $261.34).

Annual Registration

The variable direct cost of processing an annual registration is $20.16. It is a
straightforward and simple administrative process that takes, on average, 40 minutes to
consider and provide a response. The process involves:
    • receiving the annual statement, entering the information into a database and
        sending an acknowledgement letter (10 minutes);
    • checking the statement (10 minutes);
    • conducting one external check with Dun and Bradstreet (5 minutes and $3.50
        external charges30);
    • conducting a number of internal checks (10 minutes); and
    • approving the annual statement and sending an acknowledgement letter (5
        minutes).

The process involves the time of officers at the VPS Grade 2 level.

Late Payment or Lodgement

The variable direct cost of processing a late payment or lodgement is $10.42. On average,
a late payment or lodgement takes 25 minutes to process. It involves:
    • checking records for failure to lodge (5 minutes);
    • generating a failure to lodge letter (10 minutes); and
    • checking compliance with final date (10 minute).

The process involves the time of officers at the VPS Grade 2 level.

Annual Endorsement

There is no variable direct cost in processing an annual endorsement. Following a review
of the tasks required to process an annual endorsement and the normal registration
processes (application for registration and annual registration) it is considered that the
tasks involved in the endorsement function have been subsumed by those required as part
of the normal registration process for second-hand dealers.

30
     The external charges have been included in the variable direct costs of processing an annual registration.


                                                                                                             69
Copy of the Register

The variable direct cost of processing a request to receive a copy of the register is $5.68.
On average, it takes 12 minutes to process this kind of request. It involves time of officers
at the VPS Grade 2 and 5 levels to undertake the following tasks:
    • receiving application (5 minutes)
    • determination by the Registrar (2 minutes);
    • generate copy of the register (2 minutes); and
    • generate cover letter and send out (3 minutes).

Summary of Variable Direct Costs

The individual variable direct costs involved in processing each of the proposed fee types
are summarised in the Table 6. The Table outlines the expected number of applications31,
the variable direct cost per application, the total variable direct cost for each fee type32
and the proportion of total variable direct costs each fee type accounts for.

Table 6: Variable Direct Costs (Consumer Affairs Victoria)

                                                                           Total
                                                         Variable                      Proportion
                                        Expected                          Variable
                                                        Direct Cost                     of Total
              Fee type                  Number of                       Direct Cost
                                                            per                         Variable
                                       Applications                    for Each Fee
                                                        Application                    Direct Cost
                                                                            Type
 Application for Registration               496           $103.75        $51,462.01      29.07%
 Application to Vary or Revoke               1            $28.82           $28.82        0.02%
 Permission Application                     10            $652.47        $6,524.72        3.69%
 Annual Registration                       5613           $20.16        $113,182.62      63.93%
 Late Payment or Lodgement                  561           $10.42         $5,842.95        3.30%
 Annual Endorsement                         150            $0.00           $0.00         0.00%
 Copy of Register                            1             $5.68           $5.68          0.00%
 Total Variable Direct Costs for All Fee Types                           $177,046.80

Based on the expected number of applications, the variable direct costs of Consumer
Affairs Victoria in processing the different applications for which a fee is proposed to be
charged is $177,046 per annum.

Fixed Direct Costs

Consumer Affairs Victoria incurs a number of ongoing costs in administering the second-
hand dealers and pawnbrokers regulatory scheme. This includes:
   • compliance and enforcement costs;
   • dispute resolution costs;
31
  This is an annual estimate based on the existing numbers of applications.
32
  This equals the variable direct cost per application multiplied by the total number of applications
expected annually.


                                                                                                  70
   •   enquiries costs (call centre and shop front costs); and
   •   policy costs.

Guidance on what costs should be accounted for and recovered are set out in the
Department of Treasury and Finance’s Cost Recovery Guidelines (the Guidelines). As
identified in the Purpose and Structure section of the Guidelines, they do not provide
definitive advice on what should and should not be included. Rather, they establish a
central framework and guidance on how to undertake sound analysis on what should and
should not be included.

The Guidelines identify that costs that are not integral to the regulatory scheme should
not be recovered. However, the Guidelines are not at all definitive on what type of costs
should be excluded. The Guidelines identify that certain costs may be more appropriately
funded from general taxation. For example, the review of regulatory functions, advising
Parliament and financial reporting.

The Consumer Policy Branch of Consumer Affairs Victoria undertakes a range of day-to-
day activities in relation to second-hand dealers and pawnbrokers. For example,
providing advice to other parts of Consumer Affairs Victoria, such as the Compliance and
Enforcement Branch, reviewing education and information material and drafting
correspondence about the regulatory regime.

As with many of the other business licensing regimes, the second-hand dealers and
pawnbrokers regulatory scheme is based around a particular business model. An integral
part of Consumer Policy Branch’s role is to ensure that the regulatory scheme is up-to-
date with current business practices and is as effective and efficient as possible. The
Guidelines are not definitive on what policy costs should be recovered. Having
undertaken several fees Regulatory Impact Statement’s in recent years, Consumer Affairs
Victoria has reviewed this issue a number of times and has arrived at the position that
substantive and comprehensive policy reviews considering new areas of regulation are of
a more general public benefit and should therefore be funded from general taxation.

However, more limited and focused policy work on existing regulatory schemes, such as
development of these proposed Regulations, should be recovered. This work is more of
the nature of maintenance of the current regulatory scheme. It involves ensuring it is up
to date with the current business practices and is still effective and efficient (both for
consumers and for businesses). The benefits of this activity specifically relate to the
regulated entity and its consumers. Therefore, these costs should be recovered through
the fees and consequently Consumer Affairs Victoria’s activity in this area has been
included in this Regulatory Impact Statement.

The fixed direct costs are summarised in Table 7. The Table identifies the costs of the
different branches of Consumer Affairs Victoria in administering the second-hand dealers
and pawnbrokers regulatory scheme. The costs have been split into salary and operating
costs. The fixed direct salary costs come from costing the time staff in a particular branch
work on issues to do with regulation of second-hand dealers and pawnbrokers. Given the


                                                                                         71
proportion of a branch’s total FTE that works on second-hand dealers and pawnbrokers,
the fixed direct operating costs reflect the proportion of the branch’s total operating costs
that can be attributed to the regulation of second-hand dealers and pawnbrokers.33

Table 7: Fixed Direct Costs (Consumer Affairs Victoria)

                                      Fixed Direct       Fixed Direct         Total Fixed Direct
                Branch                Salary Costs      Operating Costs             Costs
      Compliance & Enforcement           $16,456.56              $912.15               $17,368.71
      Dispute Resolution                  $3,141.60              $179.52                $3,321.12
      Victorian Consumer &
      Business Centre                    $24,696.60                  $0.00              $24,696.60
      Enquiries                               $0.00               $169.29                 $169.29
      Consumer Policy                     $8,957.70               $368.70                $9,326.40
      TOTAL                              $53,252.46              $1,629.66              $54,882.12

The total fixed direct costs of administering the second-hand dealers and pawnbrokers
regulatory scheme is $54,882 per annum.

Indirect Costs

In addition to the ongoing costs outlined in the section above, Consumer Affairs Victoria
also incurs corporate services costs. These costs include the salary and operating costs of
the Director of Consumer Affairs Victoria and the Corporate Resources Branch. It has
been assumed that Corporate Resources costs, which includes financial services and
human resource costs, is 10 per cent of the total fixed direct costs ($5,488.21) and the
Director’s Office’s costs are 5 per cent of the total fixed direct costs ($2,744.11).
Therefore, the total indirect cost of administering the second-hand dealers and
pawnbrokers regulatory scheme is $8,232.32.

Fee Level Options
Parliament has decided through the Act that fees for actions under the Act should be
prescribed. In this context, this Regulatory Impact Statement accepts the principle that
fees for administration of the Act should be prescribed and does not explore other
strategic alternatives to the fees schema.

For example, in some Australian jurisdictions second-hand dealers and pawnbrokers are
required to register every three years. While this option would present a cost saving to
second-hand dealers and pawnbrokers and Consumer Affairs Victoria, the requirement to
register annually is set in the Act. Therefore, this is not a feasible option in this context
and has not been explored in the Regulatory Impact Statement.



33
  For the Enquiries Branch, the costs reflect the number of calls Enquiries take on second-hand dealer and
pawnbroker issues multiplied by the cost per call rate which takes into account salary and other operating
costs.


                                                                                                       72
However, there remain alternatives for how, and how much of, the costs of administering
the second-hand dealers and pawnbrokers regulatory scheme (total $240,161) should be
recovered. The following five options were considered:
    • Option 1 – This was the base case where no fees would be charged.
    • Option 2 – The current fee levels would be charged.
    • Option 3 – The full costs of the scheme would be recovered with the fixed direct
       and indirect costs recovered proportionately through all fee types34.
    • Option 4 – The full costs of the scheme would be recovered with the fixed direct
       and indirect costs recovered through the annual registration fee only.
    • Option 5 – The variable direct costs of the scheme only are recovered.

Table 8 outlines the fee levels under each of the above options and the shortfall in costs
recovered under each option.




34
  Under this option, the fixed direct and indirect costs are allocated to each of the fee types according to the
“proportion of total variable direct costs” for each fee type outlined in Table 7.


                                                                                                            73
           Table 8: Options for Fee Levels

                                                                                                            Direct Cost
                                                Base Case     Current Fees   Full Cost Recovery Options      Recovery
                                                                                                              Option
                                                Option 1        Option 2      Option 3       Option 4        Option 5
                                 Expected                                                      Fixed
          Fee type               Number of                                                   Direct &
                                                                             Fixed Direct
                                Applications                                                  Indirect      Fees reflect
                                                                              & Indirect
                                                                                               Costs         Variable
                                                 No Fees      Current Fees      Costs
                                                                                            allocated to      Direct
                                                                             Allocated to
                                                                                              Annual        Costs only
                                                                               All Fees
                                                                                            Registration
                                                                                                 Fee
Application for registration        496           $0.00         $121.22        $140.74        $103.75           $103.75
Application to vary or revoke        1            $0.00         $165.30         $39.10         $28.82            $28.82
Application for permission          10            $0.00         $165.30        $885.07        $652.47           $652.47
Annual statement                   5613           $0.00         $33.06         $27.35          $31.41            $20.16
Late payment or lodgment            561           $0.00          $22.04         $14.13         $10.42            $10.42
Annual endorsement                  150           $0.00         $440.80         $0.00           $0.00            $0.00
Certified copy of register           1            $0.00          $5.00           $7.70          $5.68             $5.68

Expected Revenue                                  $0.00       $325,998.64    $240,161.23    $240,161.23     $177,046.80
Expected Cost                                  $240,161.23    $240,161.23    $240,161.23    $240,161.23     $240,161.23

Shortfall in costs recovered                   -$240,161.23    $85,837.41       $0.00          $0.00        -$63,114.44

           Assessment of Fee Level Options

           Option 1 is the base case where no fees would be charged. Under this option, none of the
           costs of administering the scheme would be recovered, leaving a shortfall of $240,161
           which would need to be funded by Consumer Affairs Victoria out of general taxpaying
           revenue. This option is inconsistent with the intentions of the Act and Government cost
           recovery policy.

           Under Option 2, the current fee levels would be charged. With this option, there would be
           cross-subsidisation between the fees types and a total over-recovery of costs of $85,837.
           This is inconsistent with the Government’s cost recovery policy.

           Under Options 3 and 4, the full costs of administering the second-hand dealers and
           pawnbrokers regulatory scheme would be recovered. This aligns with the Government’s
           cost recovery policy. Option 3 proposed to allocate the ongoing (fixed direct and indirect)
           costs of the scheme (e.g. compliance and enforcement costs, policy costs, etc.) to all the
           fees, whereas Option 4 proposed to allocate the ongoing costs of the scheme to the annual
           registration fee only. Option 3 provides for full recovery of cost where ongoing costs are
           allocated across all fees, and Option 4 provides for full cost recovery where ongoing costs
           are allocated only to the annual licence fee.




                                                                                                           74
Option 5 would recover the variable direct costs of processing the different types of
applications. Under this option, there would be an under-recovery of costs of $63,114,
which is inconsistent with the Government’s cost recovery policy.

As one of the primary objectives is “to recover the costs of efficiently administering the
proposed Regulations through cost-reflective and equitable fees”, Option 4 is the
preferred option. Under this option, all of the costs of administering the regulations would
be recovered and in comparison with Option 3 (which also recovers all of the costs) the
fees would be more equitable.

Option 3 would require the ongoing costs of administering the proposed Regulations to
be allocated across all fees. This is not considered reasonable. Primarily, because under
this option an unsuccessful applicant for registration would be required to contribute
towards the ongoing costs of a scheme (as the application fee is non-refundable), which it
would not be a part of. Further, other than the annual registration fee, which all
registrants are required to pay each year, the other fees are applicant-driven.

By allocating all of the ongoing costs to the annual registration fee, it ensures that all
participants in the registration scheme contribute to the ongoing costs of administering
the proposed Regulations. Therefore, Option 4 is the preferred option and the proposed
fees are based on this option.

Proposed Fee Levels
The proposed fees are as follows:
   (1) For the purposes of section 7(2)(c) of the Act, the fee that must accompany an
       application for registration as a second-hand dealer is 9 fee units.
   (2) For the purposes of section 8B(3) of the Act, the fee for an application by a person
       to vary or revoke any conditions imposed on registration is 3 fee units;
   (3) For the purposes of section 10A(3)(b) of the Act, the fee to accompany a
       permission application is 59 fee units;
   (4) For the purposes of section 11 of the Act, the annual registration fee is 3 fee
       units.
   (5) For the purposes of section 11AA of the Act, the proposed fee for an annual
       endorsement is nil fee units.
   (6) For the purposes of section 11A(4) of the Act, the proposed fee for late payment
       or lodgement is 1 fee unit;
   (7) For the purposes of section 13(3) of the Act, the proposed fee for a copy of the
       register is $5.

Table 9 provides a summary of the existing fee unit levels compared with the proposed
fee unit levels, outlining the expected annual revenue for each fee under the proposed
Regulations.




                                                                                             75
  Table 9: Comparison of Current and Proposed Fees

                                          Existing Fee           Proposed Fee          Expected Annual
        Fee Type                                                                          Revenue
                                          (Fee Units)             (Fee Units)
Application for registration                   11                      9                   $49,193
Application to vary or revoke
                                               15                      3                      $33
conditions
Permission application                         15                     59                    $6,501
Annual registration                            3                       3                   $185,565
Late payment or lodgment                       2                       1                    $6,182
Annual endorsement                             40                      0                      $0
Copy of register                               $5                     $5                      $5
                                                                    Total Revenue         $247,48135


  Fees in Other Australian Jurisdictions
  Following is a summary of the fees charged in other Australian jurisdictions to be a
  licensed/registered second-hand dealer and/or pawnbroker.

  Queensland

  In Queensland, the following fees are charged to be a licensed second-hand dealer and/or
  pawnbroker under the Second-Hand Dealers and Pawnbrokers Regulation 2004 (Qld):
      • Application for a dealer’s licence $480.00
      • Application for a dealer’s licence for 3 years $1 090.00
      • Application for a collector’s licence $51.30
      • Application for renewal of a dealer’s licence $305.00
      • Application for a 3 year renewal of a dealer’s licence $915.00
      • Application for renewal of a collector’s licence $51.30
      • Application for a pawnbroker’s licence $480.00
      • Application for a pawnbroker’s licence for 3 years $1 090.00
      • Application for renewal of a pawnbroker’s licence $305.00
      • Application for a 3 year renewal of a pawnbroker’s licence $915.00
      • Application to change the place endorsed on a licence $29.30 (SHD) $29.80 (PB)
      • Application for a replacement licence $27.10 (SHD) $29.80 (PB) $27.10
      • Inspection of the register of licences $29.30 (SHD) $27.10 (PB) $27.10

  New South Wales



  35
    Converting the costs to whole fee units, results in approximately $7,000 being over-recovered due to
  rounding.


                                                                                                       76
In New South Wales, the following fees are charged to be a licensed second-hand dealer
and/or pawnbroker under the Pawnbrokers and Second-Hand Dealers Regulation 2003
(NSW):
    • Application fee for granting of licence $413 (includes processing component $150
       and fixed component $263)
    • Application fee for renewal of licence $298 (includes processing component $35
       and fixed component $263)
    • Application fee for restoration of licence $333 (includes processing component
       $70 and fixed component $263)
    • Application fee for replacement of licence $24 (includes processing component
       $24 and fixed component $0)
    • Application fee for extract of register (per entry) $14 (includes processing
       component $0 and fixed component $14)

Western Australia

In Western Australia, the following fees apply for the issue of licences:
   • Pawnbroker’s licence only 1 year $341
   • Pawnbroker’s licence only 2 years $574
   • Pawnbroker’s licence only 3 years $806
   • Second-hand dealer’s licence only (computer option) 1 year $341
   • Second-hand dealer’s licence only (computer option) 2 years $574
   • Second-hand dealer’s licence only (computer option) 3 years $806
   • Second-hand dealer’s licence only (facsimile option) 1 year $437
   • Second-hand dealer’s licence only (facsimile option) 2 years $809
   • Second-hand dealer’s licence only (facsimile option) 3 years $1,179
   • Pawnbroker’s licence and second-hand dealer’s licence 1 year $387
   • Pawnbroker’s licence and second-hand dealer’s licence 2 years $621
   • Pawnbroker’s licence and second-hand dealer’s licence 3 years $853

The following fees apply for the renewal of licences:
   • Pawnbroker’s licence only 1 year $252
   • Pawnbroker’s licence only 2 years $488
   • Pawnbroker’s licence only 3 years $724
   • Second-hand dealer’s licence only (computer option) 1 year $252
   • Second-hand dealer’s licence only (computer option) 2 years $488
   • Second-hand dealer’s licence only (computer option) 3 years $724
   • Second-hand dealer’s licence only (facsimile option) 1 year $403
   • Second-hand dealer’s licence only (facsimile option) 2 years $773
   • Second-hand dealer’s licence only (facsimile option) 3 years $1,142
   • Pawnbroker’s licence and second-hand dealer’s licence 1 year $269
   • Pawnbroker’s licence and second-hand dealer’s licence 2 years $523
   • Pawnbroker’s licence and second-hand dealer’s licence 3 years $760

The fee for each inspection of the register kept is $10.


                                                                                   77
South Australia

There is no registration system for second-hand dealers and pawnbrokers in South
Australia. However, penalties apply for not advising the Commissioner of Police.

Tasmania

There is no registration system for second-hand dealers and pawnbrokers in Tasmania.
However, penalties apply for not advising the Commissioner of Police.




                                                                                       78
Appendix 4: Second-Hand Dealers and Pawnbroker Controls in
Other Australian Jurisdictions
      LEGISLATION                  COVERAGE                  EXEMPTIONS                                     CONDUCT OF BUSINESS
New South Wales
Pawnbrokers and Second-    All persons who deal in   Second-hand market conducted      Second-hand dealers:
Hand Dealers Act 1996      secondhand goods.         for charitable purposes.          − Must keep records for prescribed goods.
Pawnbrokers and Second-    All pawnbrokers.          Licensed dealers in second-hand   − Records not required for goods temporarily returned for
Hand Dealers Regulations                             vehicles are exempted from           repair/maintenance.
2003                                                 certain provisions of the Act.    − Reduced recording requirements apply if goods imported into
                                                                                          Australia.
                                                                                       − The required records must be made as soon as possible after the
                                                                                          goods are bought/received.
                                                                                       − In general, prescribed goods must be held for 10 days after receipt.
                                                                                       − Auctioneers must keep certain records.
                                                                                       − If transaction is by way of phone/fax etc. seller not required to
                                                                                          produce prescribed identification.
                                                                                       Pawnbrokers:
                                                                                       − Must keep prescribed records.
                                                                                       − Unredeemed goods must be sold as soon as practicable.
South Australia
Second-Hand Dealers and    All persons who deal in   Second-hand market conducted      Second-hand dealers:
Pawnbrokers Act 1996       second-hand goods         for charitable purposes.          − Must keep records for prescribed goods.
Second-hand Dealers and    All pawnbrokers           Licensed dealers in second-hand   − Records not required for goods temporarily returned for
Pawnbrokers Regulations                              vehicles are exempted from           repair/maintenance.
1998                                                 certain provisions of the Act.    − Reduced recording requirements apply if goods imported into
                                                                                          Australia.
                                                                                       − The required records must be made as soon as possible after the
                                                                                          goods are bought/received.
                                                                                       − In general, prescribed goods must be held for 10 days after receipt.
                                                                                       − Auctioneers must keep certain records.
                                                                                       − If transaction is by way of phone/fax etc. seller not required to
                                                                                          produce prescribed identification.
                                                                                       Pawnbrokers:
                                                                                       − Must keep prescribed records.




                                                                                                                                                            79
      LEGISLATION                       COVERAGE                            EXEMPTIONS                                         CONDUCT OF BUSINESS
                                                                                                         − Unredeemed goods must be sold as soon as practicable.
Australian Capital Territory
Second-hand Dealers and        Persons who deal in certain         Advances or loans made by             Second-hand dealers:
Collector Act 1906             second-hand goods, including        bankers, brokers, etc. or licensed    − Must keep prescribed records.
Second-hand Dealers and        metal, clothes, boots, furniture,   auctioneers in the ordinary course    − Must hold certain goods for 5 days after receipt.
Collectors Regulation          tools, jewellery, drapery.          of mercantile or banking              Pawnbrokers:
                                                                   transactions if the interest on any
Pawnbrokers Act 1984           All pawnbrokers.                                                          − Must keep prescribed records.
                                                                   such loans or advances does not
Pawnbrokers Regulation 1994                                                                              − Unredeemed goods on which $10 or more was lent, must be sold at
                                                                   exceed the rate of 14% p.a.
                                                                                                            public auction.
Western Australia
Pawnbrokers and Second-        Dealers in all second-hand          Licensed auctioneers.                 Second-hand dealers:
hand Dealers Act 1994          goods, except such things as,       Licensed firearms dealers.            − Must keep records for prescribed goods.
Pawnbrokers and Second-hand    books, scrap metal, clothes,                                              − Not mandatory to keep computer records.
                                                                   Licensed motor vehicle dealers.
Dealers Regulations 1996       furniture, household soft                                                 − In general, must hold certain goods for 14 days after receipt.
                               furnishings, household                                                    − Certain requirements to obtain identification are not required if goods
                               decorative goods, kitchenware                                                are purchased outside Western Australia or at an auction.
                               and collectables.
                                                                                                         Pawnbrokers:
                               All pawnbrokers (financial                                                − Must keep prescribed records.
                               bodies receiving goods under                                              − Required to keep computer records.
                               “buy back” contracts are not
                                                                                                         − Unredeemed goods must be sold as soon as practicable.
                               pawnbrokers).
                                                                                                         − Must notify pawner of surplus of the proceeds of the sale.
Northern Territory
Consumer Affairs and Fair      All persons who deal in             An auctioneer within the meaning      Second-hand dealers:
Trading Act                    secondhand goods which are          of the Auctioneer Act.                − Must keep records for prescribed goods.
Consumer Affairs and Fair      not exempt. Exempt goods            A dealer within the meaning of        − Must keep certified photograph of employees.
Trading (Pawnbrokers and       include such items as books,        the Firearms Act.                     − Employees must wear a name badge.
Second-hand Dealers)           scrap metal, clothing and
                                                                   A motor vehicle dealer.               − Records not required for goods temporarily returned for
Regulations                    furniture.                                                                   repair/maintenance.
                                                                   A registered corporation, a bank
                               All pawnbrokers (financial                                                − Must retain goods for 14 days.
                               bodies receiving goods under        or a financial institution.
                                                                                                         Pawnbrokers:
                               “buy back” contracts are not        Trade-ins/disposal of goods
                                                                                                         − Must keep prescribed records.
                               pawnbrokers).                       pursuant to the Uncollected
                                                                   Goods Act.                            − Unredeemed goods must be sold as soon as practicable.
                                                                                                         − Must keep certified photograph of employees.
                                                                   Selling of second-hand parts for      − Employees must wear a name badge.




                                                                                                                                                                               80
      LEGISLATION                     COVERAGE                           EXEMPTIONS                                        CONDUCT OF BUSINESS
                                                                motor vehicles.                       − Minimum redemption period of 1 month.
                                                                                                      − Unredeemed goods must be sold as soon as practicable so as to
                                                                                                        receive the best market price reasonably obtainable.
                                                                                                      − Must notify pawner of surplus of the proceeds of sale.
Tasmania
Second-hand Dealers and       All second-hand dealers.          Licensed auctioneers or real estate   Second-hand dealers:
Pawnbrokers Act 1994          All pawnbrokers.                  agents.                               − Must keep prescribed records.
                                                                                                      − In general, goods must be retained for 7 days after receipt.
                                                                                                      Pawnbrokers:
                                                                                                      − Must keep prescribed records.
                                                                                                      − Redemption period is 6 months.
                                                                                                      − Forfeited goods to be sold at auction unless under prescribed value.
Queensland
Second-hand Dealers and       Dealers or collectors in all      Advances made by bankers,             Second-hand dealers:
Collector Act 1984            second-hand goods, except         brokers, etc. in the ordinary         − Must keep prescribed records.
Second-hand Dealers and       such things as, books, stamps,    course of business, on the security   − Must hold certain goods for 7 days after receipt.
Collectors Regulation 1994    goods refunded or exchanged,      of anything taken as a pawn.          Pawnbrokers:
                              used video cassettes and tyres.
Pawnbrokers Act 1984                                            Charities.                            − Must keep prescribed records.
Pawnbrokers Regulation 1994
                              All pawnbrokers.                  Licensed auctioneers.                 − Unredeemed goods over $40 must be sold at public auction.
                                                                Licensed motor dealers/motor
                                                                salespersons.
                                                                Licensed weapons dealers.
                                                                Local governments.
                                                                Person who acquires ownership of
                                                                new goods and then lets or hires
                                                                them.
                                                                Registered banking or life
                                                                insurance company, trustee
                                                                company, friendly society or
                                                                building society.




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