Pawnbroker
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A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral. While many items can be pawned, pawnshops typically accept jewelry, musical instruments, home audio equipment, computers, video game systems, coins, gold, silver, televisions, cameras, power tools, firearms, and other relatively valuable items as collateral.
If an item is pawned for a loan (colloquially "hocked" or "popped"[1]), within a certain contractual period of time the pawner may redeem it for the amount of the loan plus some agreed-upon amount for interest. In the United States the amount of time, and rate of interest, is governed by law and by the state commerce department policies. They have the same license as a bank, which is highly regulated. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be offered for sale to other customers by the pawnbroker. Unlike other lenders, the pawnbroker does not report the defaulted loan on the customer's credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item. The pawnbroker also sells items that have been sold outright to them by customers. Some pawnshops are willing to trade items in their shop for items brought to them by customers.
History
The first pawn shops were in ancient China about 3,000 years ago. Pawnbrokers, often working independently, would offer short-term credit to peasants. The business model existed 1,500 years ago in Buddhist monasteries, no different from today, through the ages strictly regulated by Imperial or other authorities.[citation needed]
In the West, pawnbroking existed in the ancient Greek and Roman civilizations. Most contemporary Western law on the subject is derived from the Roman jurisprudence. As the empire spread its culture, pawnbroking went with it.
In spite of early
Crusaders, predominantly in France, brokered their land holdings to monasteries and diocese for funds to supply, outfit, and transport their armies to the Holy Land. Instead of outright repayment, the Church reaped a certain amount of crop returns for a certain amount of seasons, which could additionally be re-exchanged in a type of equity.
A pawnbroker can also be a charity. In 1450, Barnaba Manassei, a
Business model
Assessment of items
The pawning process begins when a customer brings an item into a pawn shop. Common items pawned or, in some instances, sold outright by customers include
The pawnbroker assumes the risk that an item might have been stolen. However, laws in many jurisdictions protect both the community and broker from unknowingly
The pawnbroker assesses an item for its condition and marketability by testing the item and examining it for flaws, scratches or other damage. Another aspect that affects marketability is the supply and demand for the item in the community or region.
To assess value of different items, pawnbrokers use guidebooks ("blue books"), catalogs, Internet search engines, and their own experience. Some pawnbrokers are trained in the identification of gems, or employ a specialist to assess jewelry. One of the risks of accepting secondhand goods is that the item may be counterfeit. The customer can either sell the item outright if, as in most cases, the pawnbroker is also a licensed secondhand dealer, or offer the item as collateral on a loan. Most pawnshops are willing to negotiate the amount of the loan with the client.
Determining amount of loan
To determine the amount of the loan, the pawnshop owner needs to take into account several factors. A key factor is the predicted resale value of the item. This is often thought of in terms of a range, with the low point being the
In determining the amount of the loan, the pawnshop owner also assesses the likelihood that the customer will pay the interest for several weeks or months and then return to repay the loan and reclaim the item. Since the key to the pawnshop business model is earning interest on the loaned money, pawnshop owners want to accept items that the customer is likely to want to recover, after having paid interest for a period on the loan. If, in an extreme case, a pawnshop only accepted items that customers had no interest in ever reclaiming, it would not make any money from interest, and the store would in effect become a second-hand dealer. Determining if the customer is likely to return to reclaim an item is a subjective decision, and the pawnshop owner may take many factors into account.
In some countries such as Sweden, there is legislation to prevent the pawnbroker from making unfair profits (usury due to financial distress or ignorance of the customer) at the expense of the customer by low valuations of their collaterals. It is stated that the pawnbroker may not keep the collateral but must sell them at public auction. Any excess after paying the loan, the interest and auction costs must be paid to the customer. If the item does not fetch a price that will cover these expenses the pawnbroker may keep the item and sell it through other channels. Despite this protection, the cost for the customer to borrow money this way will be high, and if they cannot redeem the collateral it would in many cases be better to sell the goods directly.
Inventory management
This article possibly contains original research. (June 2022) |
Some stores slim down inventory by selling items to speciality retailers. Some pawnshops sell speciality items online, on eBay or other websites.
Another growing trend in the industry is vehicle pawn or auto pawning. This form of pawnbroking works like a traditional pawn loan, however, these stores only accept vehicles as security. Many stores are also accepting "Title Loans", where a customer can pawn the ownership or "Title" documents of their vehicle. This essentially means that the pawnbroker owns the car while the customer continues to drive it, and the customer regains ownership once they pay back their loan.
Auxiliary operations
While the main business activities of a pawnshop are lending money for interest based on valuable items that customers bring in, some pawnshops also undertake other business activities, such as selling brand-new retail items that are in demand in the neighborhood of the store. Depending on where a pawnshop is located, these other retail items may range from musical instruments to firearms.
Many pawnshops will also trade used items, as long as the transaction turns a profit for pawn shop. In cases where the pawnshop buys items outright, the money is not a loan; it is a straight payment for the item. On sales, the pawnshop may offer layaway plans, subject to conditions (down payment, regular payments, and forfeiture of previously paid amounts if the item is not paid off).
Other activities carried out by pawnshops are financial services including fee-based check cashing, payday loans, vehicle title or house title loans, and currency exchange services.
Upscale pawnshops
Upscale pawnshops began to appear in the early 20th century, often referred to as "loan offices", since the term "pawn shop" had a very negative historical reputation at this point.[6] Some of these so-called loan offices are even located in the upper floors of office buildings. The modern euphemism for the upscale pawn shop is the "high-end collateral lender",[7] lending to upper-class often white-collar individuals, including doctors, lawyers and bankers, as well as more colorful individuals like high-rolling gamblers.[8] They are also interchangeably called "upscale pawnshops" and "high-end pawnshops" due to their acceptance of higher value merchandise in exchange for short-term loans. These objects can include wine collections, jewelry, large diamonds, fine art, cars, and unique memorabilia. Loans are often sought to deal with business revenue shortfalls and other expensive fiscal issues.[9] Upscale pawnshops have also been featured in reality television.
Industry
In the United States, there are over 11,000 pawnbrokers and an industry revenue of $14.5 billion.[10] The US industry serves 30 million customers.[11]
Three-ball symbol
The pawnbrokers' symbol is three golden balls suspended from a bar. The three-ball symbol may be indirectly attributed to the
Most European towns called the pawn shop the "Lombard". The
In Asia
In Hong Kong the practice follows the Chinese tradition, and the counter of the shop is typically higher than the average person for security. A customer can only hold up his hand to offer belongings and there is a wooden screen between the door and the counter for customers' privacy. The symbol of a pawn shop in Hong Kong is a bat holding a coin (Chinese: 蝠鼠吊金錢, Cantonese: fūk syú diu gām chín). The bat signifies fortune and the coin signifies benefits. In Japan, the usual symbol for a pawn shop is a circled number seven because "shichi", the Japanese word for seven, sounds similar to the word for "pawn" (質).
The majority of pawnbrokers in Malaysia are Malaysian Chinese, a group that makes up 25% of the population. In Malay, the word for pawn is "pajak gadai". A valid and licensed pawnshop in Malaysia must always declare itself as a "pajak gadai" or a pawn shop for its company registration. It must also fulfill the requirement of the Ministry of Housing and Local Government that the pawn counter be no higher than four feet and bulletproof, and have stainless-steel counters/doors, strong rooms with automatic locks and safes, CCTV, alarms and pawnbroker insurance.
In the
In India, the Marwari
Pawnbroking is also a traditional trade in Thailand, where pawn shops are run both privately and by local governments.
In Sri Lanka, pawnbroking is a lucrative business engaged in by specialized pawnbrokers as well as commercial banks and other finance companies.
In Indonesia, there is a state-owned company called Pegadaian which provides a range of conventional and Sharia-compliant pawnbroking services across the archipelago. The company accepts high-value items such as gold, motor vehicles, and other expensive items as collateral. In addition to pawnbroking activities, the company provides a range of other services, such as a safe deposit box and gold trading services.
See also
- Consignment shop
- Lombard banking
- Wilson v First County Trust Ltd (No 2)[2003] UKHL 40, [2004] 1 AC 816
References
- ^ "pop". Oxford English Dictionary (Online ed.). Oxford University Press. (Subscription or participating institution membership required.)
- ^ Gregg, Samuel (2016). "How Medieval Monks Changed the Face of Banking". American Banker. 1 (88) – via EBSCOhost.
- ^ Leon Teutli Ficachi. "Nacional Monte de Piedad" (PDF). Archived from the original (PDF) on December 19, 2008. Retrieved 2008-10-01.
- ^ ISBN 1-56409-034-5.
- ^ Notimex. "Dispone Monte de Piedad de 905 mdp para préstamos" (in Spanish). Torreón: El siglo de Torreón. Retrieved 2008-10-01.
- ISBN 9780226905693. Retrieved July 11, 2013.
upscale pawnshops.
- ^ "Pawn Shops for the (Formerly) Rich". The Wall Street Journal. September 28, 2010. Retrieved July 11, 2013.
- ISBN 9781616491413. Retrieved July 11, 2013.
- ^ Russ Wiles (July 15, 2012). "Pawn shops are going upscale for affluent clients". USA Today. Retrieved July 11, 2013.
- ^ "U.S. Pawn Shops Industry Sails Through The Recession". Prweb. Cision. Retrieved 2 February 2016.
- ^ "Pawn Industry Statistics". nationalpawnbrokers.org. National Pawn Brokers Association. 7 October 2010. Retrieved 2 February 2016.
- JSTOR 3110507.
- ^ [1] Archived February 2, 2013, at the Wayback Machine
- ^ "Official Gazette, Vol. 1". Official Gazette (Philippines). Philippine Executive Commission. 1942.