American pawn brokers are licensed by local authorities or local city officials (mayor, alderman or police commissioner) and are subject to the rules and regulations of the state in which they operate. The regulations vary from state to state, but those set forth by the state of New York and Massachusetts have been widely adopted by most other states.
Pawn Broker permits
The laws of New York subject Pawn brokers to renew permits annually at a cost of $500. Pawnbrokers must file a Third Party bond. The bond is executed by the pawnbroker and two responsible guarantors. The sum of the average bond is no less than $10,000.
Pawn Broker Interest Rates
Pawnbrokers are allowed to lend at a 3% interest rate per month for the first 6 months and at an interest rate of 2% for every month thereafter. If the pawn loan is more than $100, the pawnbroker is allowed to lend at a 2% interest rate for the first 6 months and 1% for every month thereafter. Lending at a higher interest rate than that permitted by the individual state is considered a misdemeanor. The state licensing authority are at liberty to fix interest rates according to the lending amounts.
Most states allow pawnbrokers to sell unredeemed pledges at the end of a year, (Massachusetts allows pawnbrokers to sell unredeemed goods four months after the date of deposit). Pawnbrokers may not function as a second-hand business at any time while operating as a state licensed pawn broker. In some states, such as Massachusetts, pawnbrokers are obligated to provide local police a list of pledge items taken over the last 24 hours in order to reduce the possibility of a consumer receiving stolen goods. The list must specify the precise time of the transaction, the amount lent and the borrowers details (legal name, ID#, address, telephone number). According the National Pawnbrokers Association, national figures reveal
"that less than 1/10 of 1 per cent of the items securing loans or sold to us are claimed to be stolen property."
IMPORTANT NOTICE: Although all U.S. pawn brokers are subject to substantial legal restrictions, many buy/sell shops that pose as pawnbrokers violate those restrictions without penalties.
Buy/Sell shops buy merchandise and give borrowers the option to buy it back after 30 days. The loan interest rates range from 20% or 30% per month (or 240% interest per year). Many of these buy/sell shops do not allow borrowers to buy back the pledged items after 30 days. The merchandise is then sold at an inflated price. Buy and sell shops are NOT licensed pawnbrokers and are not regulated by state laws. It is strongly advised that consumers borrow from licensed Pawnbrokers only. It is also advised that consumers read the terms and conditions before pledging goods.
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