Wonk alert! A hot issue in the pawn world

All pawnshops are regulated by the states, and some municipalities add additional regulations. The national government is not involved.

But there’s a move to create a national pawn structure. It would be similar to the situation with commercial banks, which can seek either a state or a federal charter. (The majority of banks have state charters, including the big ones in Hawaii.)

The National Pawnbrokers Association is against national regulation, but there is a minority of the membership that disagrees:

The National Pawnbrokers Association opposes any legislation that grants authority to the federal government to charter, regulate, supervise and examine non-depositary providers of credit services and products to consumers. These responsibilities have traditionally been managed by the states. The NPA has been monitoring, H.R. 6139, which authorizes the Office of the Comptroller of the Currency to grant “federal charters” to non-depository providers of financial services who meet fairly exclusive requirements.   

This may not seem to be much of an issue for customers, but it can be.

Think of it like you do credit cards. Your credit card issuer is almost certainly domiciled in South Dakota, which has VERY credit card issuer-friendly laws. S.D.’s laws are not so friendly to credit card holders, though.




Pawn 101: Borrowing local vs. national

In a previous post, we talked about a Kamaaina Loan customer who needed — and got — cash just overnight.

The only way to do this is to deal with a local pawnbroker.

There are Internet pawnbrokers, but it takes a little while to get a loan with them. If you need cash within hours (or on the weekend), then local is your only option. (We are talking here about people who don’t have money to get out of ATMs and suchlike.)

There is a question whether Internet pawnbroking is legal.

Pawnbroking has always been regulated, and in the early days of the United States, regulation was done by cities. The first pawn regulations were passed in New York City about 200 years ago.

As the country grew, and pawnshops grew along with them, in both extent and numbers, the states took over regulation (although cities can impose additional regulation on top of state rules).

Although pawnshops are subject to some national laws (like anti-moneylaundering laws), the Congress has never specifically passed pawn regulations. Unlike banks, which have a choice of seeking a federal or a state charter, pawnshops are all state-controlled.

Or were, until the rise of Internet pawnbroking. There does not appear to be any way an Internet pawnbroker can be in compliance with state regulations. For example, most states prevent taking a pawn pledge out of their jurisdictions during the mandatory hold period. But the essence of an Internet pawn is that you send your gold to an address somewhere else.

It might be that the pawn does not begin until the item arrives at the Internet pawn office, wherever that is, but this theory has not yet been tested in courts.

Something to think about next time you are planning to place your valuable property temporarily in the hands of a pawnbroker.