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Pawnbroking
Background
How
does a pawnshop work?
Why
would someone go to a pawn shop to get a loan?
What
is the foreclosure procedure?
Do
most pawning customers lose their merchandise?
How
can I be sure the merchandise I purchase at a pawnshop isn't stolen?
What
is the difference between buying at a pawnshop and buying at a
retail store?
Why
is the image of pawnbroking changing since the 1930s?
Are
pawnshops a “bad times” industry?
Do
pawnshops attract indigents and derelicts?
Do
pawnshops down-grade the neighborhood and hurt property value?
Are
there firearms in pawnshops?
Are
pawnshop rates excessive?
Should
photographing or fingerprinting pawnshop customers be required?
Should
there be zoning restrictions other than general retail?
Pawnbrokering
Background
As mankind's
oldest financial institution, pawnbroking carries on a tradition with
a rich history. Pawnbroking can be traced back at least 3,000 years
to ancient China, and has been found in the earliest written
histories of Greek and Roman civilizations. During the Middle Ages,
certain usury laws imposed by the Church prohibited the charging of
interest on loans, thus limiting pawnbroking to people who had
religious beliefs outside of the Church. Out of economic necessity,
and because of problems in the banking system, pawnshops made a
resurgence in later years. The House of The Lombards operated
pawnshops throughout Europe. They even counted royalty, such as King
Edward III of England, among their clientele during the 14th century.
The symbol of the Lombards' operations were the three gold balls that
still remain the trademark of pawnshops. Pawnbrokers, also known as
collateral loan brokers, make loans based purely on the intrinsic
value of the collateral. Checking the customer's credit history is
not necessary because only the value of the item being pawned is
considered. If the loan, or at least the interest, is not paid off
during the specified term (usually three or four months), the item is
forfeited and may be resold by the broker. A typical transaction
begins with a potential borrower coming into a pawnshop with the item
he or she wants to pledge. The pawnbroker then determines how much to
loan the patron for the item. Loans are paid out at a rate of about
one-third to one-half of the price the broker can expect to receive
for the sale of a good during the worst of times. This assures that a
profit will be made. Pawning has long been a source of capital for
people in times of need, as well as a means of financing business
ventures. It is interesting to note that when Christopher Columbus
approachethe pawnbrokers. Today, statutory regulations of banking and
finance are based on the legal foundation established by pawnbrokers.
Many of the first leaders in the banking industry had roots in
pawnbroking. As was the case 3,000 years ago, pawnshops continue to
be a source of convenient credit for individuals in need of a
short-term loan.
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How
does a pawnshop work?
Pawnbrokers
lend money on items of value ranging from gold and diamond jewelry
to musical instruments, televisions, tools, household items, etc..
These items maintain their value over a reasonable period of time and
are easy to store, especially jewelry. All customers provide
collateral, eliminating the need to distinguish high risk from low
risk borrowers. Typically, loans are small averaging between $70 and
$100, although they can be as small as $20 or as high as several
thousand dollars depending on the value of the collateral. Contracts
vary from state to state, but the average loan period is 90 days.
Generally, interest rates will vary with the amount of the loan. The
process is much the same as any other lending institution, with the
primary difference being the size of the loan, the collateral and the
holding of the merchandise until the interest or the loan has been repaid.
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Why
would someone go to a pawn shop to get a loan?
Pawnshops
offer the consumer a quick, convenient and confidential way to
borrow money. A short term cash need can be met with no credit check
or legal consequences if the loan is not repaid. A customer receives
a percentage of the value the broker believes the collateral would
bring in a sale. Although the loan to collateral ratio varies over
time and across pawnshops, a loan of about 50 percent of the resale
value of the collateral is typical. In other words, pawnbrokers feel
their loan is "paid in full" at the time it is made. When a
customer pawns an item, terms of the loan are printed on a pawn
ticket that is given to the customer. The ticket states the customers
name, address, type of identification provided to the pawnbroker, a
description of the item, amount lent, maturity date, interest rate
and amount that must be paid to redeem the item. Most states regulate
pawnshop interest rates and other charges, such as storage or
insurance fees.
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What
is the foreclosure procedure?
If a customer
defaults, the collateral becomes the property of the pawnshop after
the loan is overdue by a specific amount of time, generally one to
three months. Most states require the broker to notify by mail the
owner of the pledge that he will loose the right to his property
unless he redeems it within the stipulated grace period. In case of
default, some states require the collateral be sold at public
auction. Thirteen states and the District of Columbia require any
surplus from the sale of the collateral over the amount owed the
pawnbroker, including accumulated interest and any costs related to
the sale, to revert to the pawner.
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Do
most pawning customers lose their merchandise?
On average, 70
to 80 percent of all loans are repaid. Repeat customers make up most
of our business, similar to any other lending or retail
establishment. Pawnbrokers know the vast majority of their customers
because they often borrow against the same items over and over again.
Pawnbrokers offer non-recourse loans, looking only to the item being
pledged to recover their investment if the borrower chooses not to
repay the loan. It is solely the choice of the customer whether
he/she elects to repay the loan.
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How
can I be sure the merchandise I purchase at a pawnshop isn't stolen?
Less than one
half of one percent of all loans are identified as stolen goods.
Thieves and robbers are a pawnbrokers worst enemy. Pawnbrokers work
closely with local law enforcement to catch and prosecute these
perpetrators. A customer must provide positive identification to show
evidence of the transaction. This information is then presented to
the police department, therefore decreasing the likelihood that a
thief would bring stolen merchandise to a pawnshop. Pawnbrokers are
trained to look for signs of stolen property to avoid these costly
mistakes. It is not in the interests of the pawnbroker to accept
potentially stolen merchandise because the police can seize the
merchandise and the pawnshop owner loses the collateral and the
loaned money.
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What
is the difference between buying at a pawnshop and buying at a
retail store?
Mainly price.
Pawnshops can offer you merchandise ranging from 1/3 or 1/5 off
retail prices.
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Why
is the image of pawnbroking changing since the 1930s?
Today's
pawnbroker is upgrading everything from the interior and exterior of
his or her shop location, employee presentation, customer service,
signage, marketing and the merchandising approach. Pawnbrokers focus
on providing exceptional customer service and are very active in the
community, both politically, and in local charities. Pawnshops today
range from a single or multi-store operation to publicly held company
chains. The atmosphere at a pawnshop is nothing like what you saw in
Rod Steiger's depiction in The Pawnbroker -- just visit one to see
for yourself.
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Are
pawnshops a “bad times” industry?
Pawnshops
survive bad times if they make adjustments both at the retail and
loan counters, but they do far better in good times. In hard times,
customers move away to finds employment, have less ability to repay
their loans and the value of all merchandise goes down. Merchandise
values go down because the major retail discounters sell for less to
maintain or broaden market share. If they sell for less, pawnbrokers
must loan less thus earning a smaller return. Regardless of income
level, most people periodically borrow money. In good times,
customers are more able to repay their loans and unredeemed
merchandise sells faster because customers have more discretionary income.
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Do
pawnshops attract indigents and derelicts?
Absolutely not.
Indigents and derelicts have no assets to use as collateral. No one
builds a business around these people. The typical pawnshop loan
customer is employed, living within one mile of the store, is of
either sex, and occasionally needs short term cash for an unusual
bill such as a medical expense or car repairs. The typical retail
customer is a bargain hunter, either by need or desire and comes from
all walks of life. Most pawnshop customers are repeat customers.
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Do
pawnshops down-grade the neighborhood and hurt property value?
Neighborhood
property values are impacted by the appearance and care given to the
properties. There is no factual basis to support a claim that an
eye-pleasing pawnshop negatively impacts values. On the contrary, if
they attract customers, they enhance the opportunities for other
merchants and the community.
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Are
there firearms in pawnshops?
Pawnshops are
registered firearms dealers with permanent places of business.
Pawnshops comply with all Federal (ATF) regulations as well as
furnishing local law enforcement with information regarding every
transaction. No other dealer does this. As registered licensed
dealers, pawnshops comply with the 5 day waiting period and back
ground checks required by the Brady Bill. Federal firearms
regulations require an individual to be 21 years of age to purchase a
handgun and 18 years of age to purchase a long gun. Pawnshops provide
a unique public service by taking guns as collateral for pawn loans.
They are the only business that actually takes guns out of
circulation and keeps them locked up in secured vaults. There are an
estimated 1.5 million secured firearms in pawn shop vaults across America.
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Are
pawnshop rates excessive?
To provide the
service, all lenders must charge rates commensurate with risk, size
and duration of the loan, collateral offered, and recourse. Pawnshop
loans are small dollar, high risk, short duration loans. The item
stands as the sole collateral offering no other recourse. And
pawnbrokers are liable for replacement value if something happens to
the item in their care. There are no hidden charges as with other
lending institutions. On the other hand, pawnbrokers cost basis is
far greater. They incur cost for security, handling, storage, and
regulation not incurred by others. Due to the 15-20% of pawn shop
customers that elect not to repay their loans, pawnbrokers are forced
to turn their "bad debt" into a retail center to recover
their cost. Other lending institutions do not incur retail cost
including additional floor space, gondolas, counters, personnel,
advertising, shop lifters, retail competitive cost, and new
merchandise cost to supplement the unredeemed goods.
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Should
photographing or fingerprinting pawnshop customers be required?
Pawnshop
customers already provide full identification with each transaction,
a copy of which goes to local law enforcement. Additionally, most
pawnshops maintain surveillance cameras in their stores, the same
system used by banks. To require anything more than required by banks
implies there is a relationship between how much money one has and
their integrity. You have questioned the quality of their character
based on financial status - a form of discrimination.
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Should
there be zoning restrictions other than general retail?
Pawnshops are
neighborhood businesses providing vital services to the community. To
restrict zoning to other than general retail should require a very
compelling reason. The compelling reason should not be historical
perception. To restrict zoning there should be something wrong with
the service provided, the business itself, or the customer served.
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