There is a controversy brewing in New York City and in other parts of the country around secondhand dealer laws that could signify big changes around reuse and recycling. Also known as pawnshop laws, they mandate rules and regulations around items sold to and resold by vendors. They have been described as a patchwork of laws since they range from local (down to municipalities), state and federal statutes that could affect the buying of and reselling of some used goods, including mobile phones and electronics. In this blog, I will offer some context and uncover some recent events in New York City that have us concerned about how these laws could impact the reuse and recycling market.
History behind these laws…a look at California
Looking back at the history of secondhand dealer laws, it might be beneficial to look at California, which first started regulating pawn shop and secondhand dealers in 1957. This was done to prevent trafficking in stolen goods where local government did not already require the reporting of transactions “involving identifiable secondhand tangible personal property.” Over time, the law grew to require the filing of reports, but many local governments decided to ignore the law because it was not very successful as a means of tracing stolen property, plus there was the added headache of detailed paperwork. And, for some strange reason the reporting requirements that were primarily enforced on pawnbrokers were under a different mandate, the Collateral Loan Law. So while the original intent was to regulate pawnbrokers and to prevent stolen goods from entering the marketplace, pawnbrokers became managed under a completely separate law—not secondhand dealer laws at all. This is Government at its finest.
Then, when the state of California tried to update the secondhand dealer law in 2000, the Legislature passed Senate Bill 1520 to require the Department of Justice to create a statewide system for the” electronic reporting of certain transactions by dealers involving secondhand goods.” Somewhat typical of government inertia, the legislation failed to provide a way to fund the estimated $2.8 million cost of creating the electronic reporting system. Hence pawnbrokers, the intended main users of any future electronic reporting system, didn't want to pay all of the costs to create the new system, so they—subsequently-- have backed several bills over the years trying to get others involved to share the costs. If this works out, the “proposed assessment would be levied in the form of licensing fees for secondhand dealers to the tune of several hundred dollars each year.”
For right now, under current law, a “secondhand dealer” is any person or entity taking in pawn, trading, accepting for sale on consignment for auction, or auctioning, any tangible personal property. In addition, the law requires secondhand dealers and pawnbrokers to be licensed by local law enforcement agencies, however, in many cases, local government choose to only require general business license. This could be changing.
New York scenario
So each state has tried to enact and enforce secondhand dealer laws in its own way. The history in California is just one example of how confusing and complicated this issue really is. Let us move on to what is happening in New York.
In April, the New York Department of Consumer Affairs sent a letter to an unknown retailer stating that they were in violation of New York Licensing Law that governs dealers in secondhand articles. The New York Licensing Law defines a Dealer in Secondhand Articles as: “any person who, in any way as a principal broker or as an agent…, accepts or receives second hand articles as returns of merchandise or in exchange for or for credits on any other articles or merchandise.”
The letter goes on to say that based on the trading in of an iPhone for credit toward a new device constitutes dealing in secondhand articles and is required to be licensed.
Then, one month later, the CTIA-The Wireless Association crafted a letter to address the concerns around the interpretation of these laws. The letter, sent to Susan Petito, Esq. Assistant Commissioner, Intergovernmental Affairs, New York City Police Department, asks that wireless carriers be excluded from the requirement to be licensed as a secondhand dealer and not be forced to obtain and keep records on anyone who trades-in, sells back or turns in a used mobile device. In addition, CTIA asserts that wireless carriers in New York City are exempt from secondhand dealer laws because they do not resell the device they reclaim inside their stores. The letter cites a court ruling:
A recent court decision correctly found that the City’s second-hand dealer law does not apply to a wireless carrier’s trade-in program. In that case, the wireless carrier was issued a citation for violating the City’s second-hand dealer law through the operation of its trade-in program. The carrier argued that it was not a second-hand dealer because its trade-in devices were shipped out-of-state, and it did not turn around and sell the used devices it accepted for trade-in at its store. The court agreed, dismissed the citations, and held that “I don’t think you are a secondhand dealer, as perceived by this statute.”
So what is driving this? Why are consumer affairs in NY concerned over pawnshop laws being enforced on carriers and other retailers? The big driver is smartphone theft and the concern that trade-in and mobile phone buyback programs encourage thieves to steal phones and sell them back via these programs. Here is an excerpt from the first paragraph of the letter from CTIA to the New York Police Department:
Although we appreciate the need for the City to establish procedures to ensure that certain retailers are not trafficking in stolen merchandise, applying the law and the proposed rules to wireless carriers violates federal and state law and will have a negative impact on the privacy of wireless customers in New York and on wireless carrier take-back and recycling programs that advance the City’s goal of ensuring environmentally sound product stewardship.
The letter goes on to outline the various steps that CTIA in cooperation with the industry players have done to combat smartphone theft. The association mentions the “Smartphone Anti-Theft Voluntary Commitment” that was developed in April 2014. As CTIA explains, “each device manufacturer and operating system signatory agrees that new models of smartphones first manufactured after July 2015 for retail sale in the United States will offer, at no cost to consumers, a baseline anti-theft tool that is pre-loaded or downloadable on wireless smartphones and enables customers to remotely wipe the authorized user’s info; render the smartphone inoperable; prevent reactivation and reverse inoperable phone it is recovered.
CTIA has also promised that each carrier will sign a commitment to offer a basic application or tool that will mitigate phone theft. CTIA refers to a stolen phone database that is accessible to sales agents during the buyback transaction. They add that in April 2013 the four largest carriers agreed to create an interconnected database to “report and track all lost and stolen 4G/LTE phones in the U.S. Wireless carriers use this database to check whether a device presented to them has been reported lost or stolen.” As noted here, this database is limited to only 4G/LTE enabled devices and excludes 3G and older phones. CTIA also alludes to the fact that there is a global effort to link these databases so when a stolen phone goes overseas, it will be flagged as well.
What is happening in stores today?
Many contend that there needs to be a more consistent and thorough way to capture the seller’s information which is a requirement of secondhand dealer laws (one of the main requirements is to present a form of ID like a Driver’s License). However, it is not that straightforward. These laws have some contradictory statements, especially when it comes to what carriers can disclose about their own customers. 1) Secondhand dealer laws require information capture but other Federal statutes say that wireless communications carriers cannot disclose to the government information on their customers.
In our experience from testing various trade-in and buyback programs, the requirements vary from program to program around identification and verification of the person trading in or selling back a device. All these programs we track require the phone to be identified via its serial number but some do not require customer identification or even customer information such as name and address. However, some programs ask for Driver’s License of some type of ID or even a thumb print in the case of ecoATM.
On one hand, these laws were put in place to prevent trafficking and to legitimize secondhand dealers. But now, given the popularity of mobile phone buyback programs, they are just either being ignore or, in some instances, taken to the extreme. As far as smartphone theft and criminal activity, one could also contend that the only programs subject to more scrutiny are those that are giving out cash payouts or perhaps the lesser known places that offer to buyback your device, no questions asked. These are the programs where ID should be required and customer information mandatory, right? To play devil's advocate, are thieves really motivated to go to a Verizon store and receive an in-store giftcard? But, the laws, licensing and ID requirements need to apply to everyone across the board, especially as police departments attempt to enforce them. One other interesting angle is how carriers and big retailers will manage second-hand dealer laws in all of the various retail locations? Some buyback support vendors like NextWorth are working on a comprehensive database with information on all secondhand dealer laws that they will make accessible to their customers. Managing secondhand dealer laws might create some additional costs and impact the reuse and recycling market in the near term but should not greatly impact this market. Stay tuned for more on this issue in the future from Bamboo Mobile.