National Pawnbrokers Association (NPA)
2050 Stemmons #195
P.O. Box 420028
Dallas, Texas 75342-0028
Phone: 214-745-4746
Fax: 214-745-1459

More information on the pawnbroking industry

Pawnbroking Backgrounder
As mankind's oldest financial institution, pawnbroking carries on a tradition with a rich history.  Pawnbroking can be traced back at least 3,000 years to ancient China, and has been found in the earliest written histories of Greek and Roman civilizations.

During the Middle Ages, certain usury laws imposed by the Church prohibited the charging of interest on loans, thus limiting pawnbroking to people who had religious beliefs outside of the Church. Out of economic necessity, and because of problems in the banking system, pawnshops made a resurgence in later years. The House of The Lombards operated pawnshops throughout Europe. They even counted
royalty, such as King Edward III of England, among their clientele during the 14th century. The symbol of the Lombards' operations were the three gold balls that still remain the trademark of pawnshops.

Pawnbrokers, also known as collateral loan brokers, make loans based purely on the intrinsic value of the collateral. Checking the customer's credit history is not necessary because only the value of the item being pawned is considered. If the loan, or at least the interest, is not paid off during the specified term (usually three or four months), the item is forfeited and may be resold by the broker.

A typical transaction begins with a potential borrower coming into a pawnshop with the item he or she wants to pledge. The pawnbroker then determines how much to loan the patron for the item. Loans are paid out at a rate of about one-third to one-half of the price the broker can expect to receive for the sale of a good during the worst of times. This assures that a profit will be made.

Pawning has long been a source of capital for people in times of need, as well as a means of financing business ventures. Today, statutory regulations of banking and finance are based on the legal foundation established by pawnbrokers. Many of the first leaders in the banking industry had roots in pawnbroking. As was the case 3,000 years ago, pawnshops continue to be a source of convenient credit for individuals
in need of a short-term loan.

Pawnbroking Facts

The Numbers:

Membership in the National Pawnbrokers Association has in risen from 50 in 1988 to more than 3000 today.

In 1911, there were 1,976 licensed pawnbrokers in the country, or about one for every 45,700 citizens.

In 1988 there were approximately 6,900 pawnshops in the United States, one for every two commercial banks.

There are between 12,000 and 14,000 pawnshops in operation throughout the United States today.

Pawnshops made about 35 million loans in 1988. Between 70 and 80% of all items pawned are redeemed.

As many as 10 percent of the adult population are served by pawnshops each year.

According to an article entitled "Cash Customers" in Forbes Magazine (May 1993), 25 million households representing more than 75 million people do not have a bank account. People without bank accounts would find it extremely difficult, and most likely impossible, to obtain a credit card or obtain a loan from any other legitimate source than a pawnbroker.

The Record:

Formerly a male dominated industry, today women are also making their mark as pawnbrokers.

Pawnshop clientele are represented in a range of ages (must be 18 or older), races and genders with male and female customers being about equal. As the public becomes more educated about the types of services pawnbrokers provide, pawnshops are serving a wider and more diverse clientele.

A items received by a pawnbroker must to be listed with the city and/or state's police department, therefore reducing the chance of a consumer receiving stolen property.

The pawn industry is one of the most regulated in the country. Most regulation has been initiated, sponsored and supported by pawnbrokers. Regulatory agencies include the Office of Consumer Credit and Law Enforcement on a local and national level.

Pawnbrokers have state, regional and national industry associations which work at self-policing the industry. In the case of public companies, the Federal Securities and Exchange Commission oversee their operations.

Pawnshops serve as a source of credit to millions of Americans, providing average small secured loans ($50 to $100) for a brief time period (two to four months).

Around the World:

Free enterprise in the form of pawnbroking has reappeared in Russia and communist states such as  China to fill the gaps of their national banking system.

Historical Facts

The Nursery Rhyme "Pop Goes The Weasel" refers to pawning. A weasel is a shoemaker's tool and to "pop" is to pawn. "That,s the way the money goes... Pop goes the weasel."

Queen Isabella of Spain pawned the crown jewels to finance Columbus' voyage to America.

The word pawn originates from the Latin word "patinum" which means cloth or clothing. The French word "pan" refers to a skirt or blouse. In the early centuries, the principle assets people had were their clothes and borrowed money by pawning their clothing.

The universal symbol of pawnbroking is three gold balls and is one of the most easily recognized in the world. The Medici family in Italy along with the Lombards in England were money lenders in Europe.  Legend has it that one of the Medicis in the employ of Emperor Charles The Great fought a giant and slew him with three sacks of rocks. The three balls or globes later became part of their family crest, and ultimately, the sign of pawnbroking.

Miscellaneous Facts

Many pawnshops around the country cater to the likes of actors, producers and directors.

High quality merchandise such as gold and diamond jewelry, VCRs and musical instruments can be found in pawnshops for about half the price compared with retail stores. The 1980s provided a boom Period for pawnbroking, with new shops opening in all parts of the country. This upturn, in part, is due to the increase in the number of Americans excluded from mainstream credit markets and small bank closings and in significant part to the upgrading by the industry of the products and service offered to
the public.

Most Commonly Asked Questions About Pawnbroking

Question: How does a pawnshop work?

Response: Pawnbrokers lend money on items of value ranging from gold and diamond jewelry to musical instruments, televisions, tools, household items, etc.. These items maintain their value over a reasonable period of time and are easy to store, especially jewelry. All customers provide collateral, eliminating the need to distinguish high risk from low risk borrowers. Typically, loans are small averaging between $70 and $100, although they can be as small as $20 or as high as several thousand dollars depending on the value of the collateral. Contracts vary from state to state, but the average loan
period is 90 days. Generally, interest rates will vary with the amount of the loan. The process is much the same as any other lending institution, with the primary difference being the size of the loan, the collateral and the holding of the merchandise until the interest or the loan has been repaid.

Question: Why would someone go to a pawn shop to get a loan?

Response: Pawnshops 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 loan is not repaid. A customer receives a percentage of the value the broker believes the collateral would bring in a sale. Although the loan to collateral ratio varies over time and across pawnshops, a loan of about 50 percent the resale value of the collateral is typical. In other words, pawnbrokers feel their loan is "paid in full" at the time it is made. When a customer pawns an item, terms of the loan are printed on a pawn ticket that is given to the customer. The ticket states the customers name, address, type of identification provided to the pawnbroker, a description of the item, amount lent, maturity date, interest rate and amount that must be paid to redeem the item. Most states regulate pawnshop interest rates and other charges, such as storage or insurance fees.

Question: What is the foreclosure procedure?

Response: If a customer defaults, the collateral becomes the property of the pawnshop after the loan is overdue by a specific amount of time, generally one to three months. Most states require the broker to notify by mail the owner of the pledge that he will loose the right to his property unless he redeems it within the stipulated grace period. In case of default, some states require the collateral be sold at public auction. Thirteen states and the District of Columbia require any surplus from the sale of the collateral
over the amount owed the pawnbroker, including accumulated interest and any costs related to the sale, to revert to the pawner.

Question: Do most pawning customers lose their merchandise?

Response: On average, 70 to 80 percent of all loans are repaid. Repeat customers make up most of our 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 loans, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the loan. It is solely the choice of the customer whether he/she elects to repay the loan.

Question: How can I be sure the merchandise I purchase at a pawnshop isn't stolen?

Response: Less than one half of one percent of all loans are identified as stolen goods. Thieves and robbers are a pawnbrokers worst enemy. Pawnbrokers work closely with local law enforcement to catch and prosecute these perpetrators. A customer must provide positive identification to show evidence of the transaction. This information is then presented to the police department, therefore decreasing the
likelihood that a thief would bring stolen merchandise to a pawnshop. Pawnbrokers are trained to look for signs of stolen property to avoid these costly mistakes. It is not in the interests of the pawnbroker to accept potentially stolen merchandise because the police can seize the merchandise and the pawnshop owner loses the collateral and the loaned money.

Question: What is the difference between buying at a pawnshop and buying at a retail store?

Response: Mainly price. Pawnshops can offer you merchandise ranging from 1/3 to 1/2 off retail prices.

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 very active in the community, both
politically, and in local charities. Pawnshops today range from a single or multi-store operation to publicly held company chains. The atmosphere at a pawnshop is nothing like what you saw in Rod Steiger's depiction in The Pawnbroker -- just visit one to see for yourself.

Question: Are pawnshops a "bad times industry?

Response: Pawnshops survive bad times if they make adjustments both at the retail and loan counters, but they do far better in good times. In hard times, customers move away to finds employment, have less ability to repay their loans and the value of all merchandise goes down. Merchandise values go down because the major retail discounters sell for less to maintain or broaden market share. If they sell for
less, pawnbrokers must loan less thus earning a smaller return. Regardless of income level, most people periodically borrow money. In good times, customers are more able to repay their loans and unredeemed merchandise sells faster because customers have more discretionary income.

Question: Do pawnshops attract indigents and derelicts?

Response: Absolutely not. Indigents and derelicts have no assets to use as collateral. No one builds a business around these people. The typical pawnshop loan customer is employed, living within one mile of the store, is of either sex, 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 pawnshop customers are repeat customers.

Question: Do pawnshops down-grade 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 pawnshop negatively impacts values. On the contrary, if they attract customers, they enhance the opportunities for other merchants and the community.

Question: Are there firearms in pawnshops?

Response: Pawnshops are registered firearms dealers with permanent places of business. Pawnshops comply with all Federal (ATF) regulations as well as furnishing local law enforcement with information regarding every transaction. No other dealer does this. As registered licensed dealers, pawnshops comply with the 5 day waiting period and back ground checks required by the Brady Bill. Federal firearms regulations require an individual to be 21 years of age to purchase a handgun and 18 years of age to purchase a long gun. Pawnshops provide a unique public service by taking guns as collateral for pawn loans. They are the only business that actually takes guns out of circulation and keeps them locked up in secured vaults. There are an estimated 1.5 million secured firearms in pawn shop vaults across America.

Question: Are pawnshop rates excessive?

Response: To provide the service, all lenders must charge rates commensurate with risk, size and duration of the loan, collateral offered, and recourse. Pawnshop loans are small dollar, high risk, short duration loans. The item stands as the sole collateral offering no other recourse. And pawnbrokers are liable for replacement value if something happens to the item in their care. There are no hidden charges as with other lending institutions. On the other hand, pawnbrokers cost basis is far greater.
They incur cost for security, handling, storage, and regulation not incurred by others. Due to the 15-20% of pawn shop customers that elect not to repay their loans, pawnbrokers are forced to turn their "bad debt" into a retail center to recover their cost. Other lending institutions do not incur retail cost including additional floor space, gondolas, counters, personnel, advertising, shop lifters, retail competitive cost, and new merchandise cost to supplement the unredeemed goods.

Question: Should photographing or fingerprinting pawnshop customers be required?

Response: Pawnshop customers already provide full identification with each transaction, a copy of which goes to local law enforcement. Additionally, most pawnshops maintain surveillance cameras in their stores, the same system used by banks. To require anything more than required by banks implies there is a relationship between how much money one has and their integrity. You have questioned the quality of their character based on financial status - a form of discrimination.

Question: Should there be zoning restrictions other than general retail?

Response: Pawnshops are neighborhood businesses providing vital services to the community. To restrict zoning to other than general retail should require a very compelling reason. The compelling reason should not be historical perception. To restrict zoning there should be something wrong with the service provided, the business itself, or the customer served. The services provided by pawnshops include:

1.Discount Retail (new and pre-owned) is an opportunity for customer to make their dollars go further - it helps other merchants and community by giving them more discretionary funds.

2.Short-term credit enables the community to pay the bills of other local merchants such as groceries, medical expenses, utilities, auto and transportation to work. The pawn business is a neighborhood business with the majority of customers residing within 1-2 miles. The same people utilize a pawnshop that utilize McDonalds. If appearance or wrongful activities are a problem, it has to do with that particular business, regardless of the kind of business. The customer is the surrounding neighborhood - if good, good - if bad, bad. Restrictive zoning denies access to credit to low income consumers who cannot travel or who are uncomfortable in restrictive areas. Restrictive zoning implies the neighborhood is dishonest and questions the integrity of the residents - and it says that how much money your have determines the quality of your character.

Information on this page taken from National Pawnbrokers Association's home page 
http://www.nationalpawnbrokers.org

National Pawnbrokers Association
(NPA) 2050 Stemmons #195 PO Box 420028
Dallas, Texas 75342-0028
Office: 214-745-4746 Fax: 214-745-1459