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Question:
How does a
pawnbroker's business work?
Question: Why would someone go to a pawnbroker to get a pawn? Question: What is the foreclosure procedure? Question: Do most pawn customers lose their merchandise? Question: How can I be sure the merchandise I purchase at a pawnshop isn't stolen? Question: What is the difference between buying at a pawnshop and buying at a retail store? Question: Why is the image of pawnbroking changing since the 1930s? Question: How are pawnbrokers regulated? Question: Is pawnbroking a "bad times" industry? Question: Do pawnbrokers attract indigents and derelicts? Question: Do pawnbrokers downgrade the neighborhood and hurt property value? Question: Are there firearms in pawnshops? Question: Are pawnshops rates excessive? Question: How does a pawnbroker's business work? Response: Pawnbrokers lend money on items of value ranging from gold and diamond jewelry to musical instruments, televisions, tools, household items, etc. Since the customer is providing collateral, there is no need to do a credit check. A typical pawn is small, averaging $75 to $100. The interest rate charged by a pawnbroker is controlled by the state and varies widely across the nation. The pawnbroker is also required to hold the merchandise for a specific period of time, giving the borrower time to repay the pawn. This hold period also varies widely but is typically in the 60-90 day time frame. Question: Why would someone go to a pawnbroker to get a pawn? Response: Pawnbrokers 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 pawn is not repaid.
A customer receives a percentage of the value
the pawnbroker believes the collateral would bring in a sale. Although the
pawn to collateral ratio varies over time across pawnshops, a pawn of 30-50
percent of the resale of the collateral is typical. Pawnbroking imposes a
discipline on the borrower that other lenders do not. Pawn pawns do not
cause people to overextend credit or go into bankruptcy.
When a customer pawns an item, terms of the pawn are printed on a pawn ticket that is given to the customer. The ticket also has other information such as the customer's name, address, type of identification provided to the pawnbroker, a description of the item, amount borrowed, maturity date, service charge and amount that must be paid to redeem the item. Back to Top
Question: What is the
foreclosure procedure?
Response: If a customer defaults, the collateral becomes the property of the pawnbroker after the pawn is overdue. Question: Do most pawn customers lose their merchandise? Response: On average, about 80 percent of all pawns are repaid. Repeat customers make up most of the 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 pawns, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the pawn. It is solely the choice of the customer whether they elect to repay the pawn. Question: How can I be sure the merchandise I purchase at a pawnshop isn't stolen? Response: Less than half of one percent of all pawns are identified as stolen goods. Thieves and robbers are a pawnbroker's worst enemy. Pawnbrokers work closely with the local law enforcement to catch and prosecute these perpetrators. A customer must provide positive identification and a complete description of the merchandise to show evidence of the transaction. This information is then regularly transmitted to the police department, decreasing the likelihood that a thief would bring stolen merchandise to a pawnshop. Pawnbrokers are trained to look for stolen property to avoid these costly mistakes. It is not in the interest of the pawnbroker to accept potentially stolen merchandise because the police can seize the merchandise and the pawnbroker loses the collateral and the pawned money. Back to Top
Question: What is the difference between buying at a pawnshop and buying at
a retail store?
Response: Mainly price. If you go to a pawnbroker, gold can be found for about 40 percent less than at retail outlets and other products are usually 30 to 50 percent less. Question: Why is the image of pawnbroking changing since the 1930s? Response: 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 active in the community, both politically and in local charities. Pawnbrokers today range from a single or multi-store operation to publicly held company chains. Question: How are pawnbrokers regulated? Response: Most of the regulations have been initiated, sponsored and supported by the pawnbroking industry. At the state level, most pawnbrokers are licensed and regulated. At the federal level, they follow rules from the Bureau of Alcohol, Tobacco and Fire Arms (FFL license), and are regulated by the Federal Reserve Board (Truth In Lending Act, Regulation Z) in much the same way as banks. They are also required by the Patriot Act to check all customers against the Treasury Department's database of known terrorists. Back to Top
Question: Is pawnbroking a "bad times" industry?
Response: Pawnbrokers survive bad times if they make adjustments both at the retail and pawn counters, but they do far better in good times. In hard times, customers move away to find employment, have less ability to repay their pawns, and the value of all merchandise goes down. If goods sell for less, pawnbrokers must pawn less thus earning a smaller return. In good times, customers have a greater ability to repay their pawns and unredeemed merchandise sells faster because customers have more discretionary income. Question: Do pawnbrokers attract indigents and derelicts? Response: Indigents and derelicts have no assets to use as collateral. No one builds a business around these people. The typical pawnbroker's pawn customer is employed, living within one mile of the store, 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 pawnbroker's customers are repeat customers. Question: Do pawnbrokers downgrade the neighborhood and hurt property value? Response: 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 pawn shop would negatively impact values. On the contrary, if they attract customers, they enhance the opportunities for other merchants and the community. Back to Top
Question: Are there firearms in pawnshops?
Response: Some pawnbrokers are registered firearms dealers with permanent places of business. Pawnbrokers comply with all federal (ATF) regulations as well as furnishing local law enforcement with information regarding every transaction. No other dealer does this. Question: Are pawnshops rates excessive? Response: To provide their service, all lenders must charge rates commensurate with the size and duration of the pawn, collateral, risk and recourse. Pawnbroker pawns are small-dollar, short-duration pawns. The item stands as the sole collateral and pawnbrokers are liable for the replacement value if something happens to the item while it is in their care. There are no hidden charges as with other lending institutions. On the other hand, a pawnbroker's cost basis is far greater. They incur costs for personnel training, appraisal, security, handling, storage, insurance and regulation not incurred by other lenders. Since 15-20 percent of a pawnbroker's customers elect not to repay their pawns, they are forced to turn their "bad debt" into a retail center to recover their cost. Other lending institutions do not incur retail costs that can include additional floor space, gondolas, counters, personnel, advertising, shop lifters, retail competitive costs, and new merchandise costs to supplement the unredeemed goods.
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