Consumer Law

Rules of Trade for Pawn Shops and Pawnbrokers

Pawn shops have been around forever. But when the economy gets tight, pawn shops become even more popular.

The lure: It's a quick way to get some much needed cash. Before you rush out to sell some jewelry or coins, though, be sure you know some of the rules these shops have to follow.

How It Works

In case you haven't seen the popular Pawn Stars TV show, pawnshops work in incredibly simple ways. You take something of value to the shop and:

  • An employee or pawnbroker estimates the value of the item
  • He may offer to buy your item outright - you can haggle over price, but don't expect a big change from his original offer, or
  • You can take a loan from the broker and leave your item there as collateral

If you sell your item, the broker will try to make a profit by selling it for more than what he paid you.

If, like most customers, you take a loan, you have a certain amount of time to repay it - one or two months, maybe a bit longer. If you don't repay it, the pawnshop can sell your item for any price it wants.

It's Complicated, Though

Don't be fooled by this simple process. There's much more to it. Pawnshops have to follow federal laws. Each state has laws regulating this business, too.

Federal Laws

Some of the federal laws pawnshops have to pay follow include the:

  • USA Patriot Act, designed to stifle terrorism-related activities. For you, it means you can't do any business with a pawnbroker unless you have a government-issued picture ID, like a driver's license, and you may have to give a fingerprint
  • Truth in Lending Act (TILA). The pawnbroker has to explain to you clearly and in writing all of the terms of your loan, such as interest rate, fees, etc.
  • Federal Trade Commission (FTC) Safeguard and Privacy Rules to protect your personal information - including your name, address, phone number, and bank and credit card account numbers, etc.
  • Federal firearm laws, including record-keeping and background check requirements for buyers/sellers
  • IRS rules on reporting cash transactions over $10,000

As you can see, there's a lot more to your sale or loan than you may realize.

State Laws

The nuts and bolts of the pawn industry are really governed by the states. Each state has its own laws, and they may vary a great deal from state to state. Generally, however, you'll find laws on:

  • Licensing and registration. In most states, pawnbrokers must apply for a license or register with a state agency - like the state consumer protection agency or state tax department. In some states, brokers need a license from the city or town where they do business
  • Interest rates and fees on loans are capped or limited in practically every state. Generally, you can expect to pay anywhere from 3 to 25 percent in interest on your loan. On top of that, most states let pawnbrokers charge a service fee in money (like $10) or interest (20 percent), each month
  • Records. Usually, pawnshops have to keep detailed records of everything they buy or take as collateral - serial and model numbers, brand name; precious metal type, gemstone description, etc.
  • Reporting. In some states, pawnshops have to give reports of their purchases to local police to help identify stolen goods. In other states, a shop has to honor your request to check their inventory for stolen goods if you give it a police report on your stolen property
  • Pawn tickets. If you take out a loan, the pawnbroker must give you a ticket showing what item you pawned, how long you have to repay, how much you have to repay, etc.
  • Grace periods. In some states, you're automatically granted a grace period - usually 15 to 30 days - after your loan period expires. You have that additional amount of time to pay your loan and reclaim your property before the shop can sell your item

What You Should Do

If you want to do business with a pawnshop:

  • Make sure it's a reputable, licensed shop. Ask to see its license, check with the state agency in charge of licenses, and check with your local Better Business Bureau (BBB)
  • Keep your pawn ticket if you take out a loan. If you lose it, you can't get your property back. In some states, you may be able to file a report with the pawnshop to stop someone else from using your ticket
  • If you can't pay back your loan in time, ask the pawnshop for a time extension. Be prepared to pay more fees and interest, though

Pawnshops can be the right answer for anyone who needs some quick cash or has valuables he no longer wants or needs. If you're careful, you can get what you need without a hitch.

Questions for Your Attorney

  • What can I do if a pawnshop loses or damages my property before I can reclaim it?
  • Is my credit rating damaged if I don't repay a pawnshop loan?
  • What can I do if my application for a pawnbroker's license is denied?

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