Consumer Law

Rules of Trade for Pawn Shops and Pawnbrokers

Learn about the pawn industry before you cash in.

If you find yourself needing to pay a bill in a hurry, the pawn shop might be able to help you out. Pawnbrokers have been serving as a resource for cash-strapped people hoping to sell an item—or put up valuable property in exchange for a short-term loan—for thousands of years. To make sure that you get the best deal possible, you’ll want to learn what to expect before making the trip to the pawn shop.

How Pawning Property Works: The Basics

The process of pawning property for fast cash starts when a customer brings an item into the shop. The shop can profit from the client's property in different ways. For example, by:

  • charging interest on short-term loans secured by the property (collateral)
  • selling the collateral if the customer fails to pay the loan, and
  • selling things purchased from people who need quick cash.

Before agreeing to work with you, the broker must determine whether it wants your item. The broker will take into account the property’s resale value, whether there’s much demand for it, and, if you want a loan, how likely it is that you’ll pay off the loan and reclaim the property.

If broker agrees to give you a short-term loan, you’ll leave your item with the pawnbroker as security for a specified period. In exchange, you’ll receive your loan proceeds and a claim ticket that you’ll use to redeem the item. It’s important to keep the ticket in a safe place because sometimes it’s the only proof you’ll have that you’re entitled to the property. If you pay off the loan as agreed, you’ll get the item back. If you don’t, the broker will recoup the loaned money by selling your property.

The pawnbroker might be willing to buy your item outright, too. Whether you are selling an item or using it as the basis for a loan, you should expect the pawnbroker to offer a lower price than what you paid for it. Some haggling is permissible.

Finally, it's a good idea to do preliminary research before you start the process. For example, you might want to explore these options.

  • Check to see that the pawnshop’s license is current.
  • Find out if it’s a reputable business by checking its status with the Better Business Bureau.
  • Research other short-term loan options to make sure you’re getting the best deal.

(If you run into a problem, see Finding Legal Help for Consumer Issues.)

What Type of Property Will the Pawnbroker Accept?

Because the broker will want to turn around the property fast, you’ll have a better chance of striking a deal if it involves a smaller item that will sell quickly. Things commonly accepted by brokers include items such as:

  • appliances
  • jewelry
  • collectibles
  • coins
  • sporting goods
  • tools, and
  • electronic equipment.

Keep in mind that the broker is unlikely to be interested in items without much demand. For instance, if you just moved from your beach loft to a mountain region and you want to pawn your surfboard, you might be out of luck. The broker could assume that because you don’t need it, you’ll be unlikely to return to claim it, or, worse yet, no one else will want it either. The last thing the pawnbroker wants is a valueless item taking up space in the shop. So unless the broker knows a local who likes to surf or has a way to liquidate it online, it’s unlikely that you’ll get a loan.

Consumer Protection: Rights You Should Know

Pawn shops must follow certain laws geared to protect you as a consumer, as well as the public as a whole. For instance, pawn shops must turn transaction records over to law enforcement agencies to aid in the recovery of stolen property. It’s likely that your state will have laws regulating the amount of loan interest and the length of loans. Pawnshops are also required to report certain transactions to the Internal Revenue Service, and to keep records of dealings in gems and precious metals.

Other laws that might apply to your transaction include:

  • The Truth in Lending Act requires a shop to disclose loan terms.
  • The Equal Credit Opportunity Act prohibits lending discrimination due to age, gender, race, national origin, ethnicity, religious preference, marital status, or receipt of public assistance benefits.
  • The Bank Secrecy Act requires a lender to report transactions over a certain dollar amount.
  • The Patriot Act requires you to have valid ID when transacting with a pawn shop.

(You’ll find more information about these and other laws in the article Consumer Protection Laws.)

Questions for Your Attorney

  • What state and local laws regulate pawn shops?
  • If a pawn shop loses, damages, or sells my item before I can reclaim it, what can I do?
  • Will my credit rating be damaged if I don’t repay a pawnshop loan?
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