A Prosecution or Persecution of Pawn Brokers?

Pawn brokers under the gun. Fredericksburg’s All-Star Pawn & Gold does a good business in pawned guns.

The Virginia Attorney General’s office has extracted settlements from two Fredericksburg-area pawnbrokers for allegedly charging illegal interest and fees. Spotsylvania Pawnking LLC and Stafford-based All-Star Pawn & Gold will provide more than $62,000 in refunds to more than 1,000 customers to resolve the allegations.

The two pawn shops also paid the Attorney General’s office a total of $12,600 reimbursement for expenses, costs and attorney’s fees.

“In recent years we have seen a rash of pawnbrokers around Virginia skirting laws and overcharging consumers,” said Attorney General Mark Herring in a press release about the settlement. “If you’re considering using a pawn shop or other small dollar loan lender, you should always closely review the terms and know your rights before signing anything that might result in even more money coming out of your pocket.”

The press release provided no details about what the pawn shops charged in interest and fees. But in a previous press release, Herring accused B&B Pawnbrokers, Inc., also of Fredericksburg, of “predatory lending.” B&B, Herring charged, had made automobile title loans without a license, charged an illegal 10% monthly “processing fee” on all pawnbroker loans, and exceeded state limits on allowable interest rates and other charges.

The settlements are part of a larger initiative in which the AG’s office has partnered with the federal Consumer Financial Protection Bureau to enforce state and federal consumer finance statutes.

Bacon’s bottom line: Let me be 100% clear about one thing up front. Pawn shops, like any other business, should not cheat their customers. They must obey their contractual commitments, and they must obey the law. If they break either, they pay the price. Very simple.

That said, I’m always a little suspicious about campaigns against “predatory” lenders. The crusade against pawn shops reminds me of the crackdown on payday lenders motivated by a misguided effort to help the poor. In the case of payday lenders, the real offense typically is not cheating customers but lending money on terms that offend the consciences of do-gooders and social justice warriors. Is that what’s happening here with Virginia’s pawn shop prosecutions? I don’t know. I’m just raising the question.

The fact that Pawnking and All Star Pawn & Gold settled the case does not inspire confidence. Maybe they’re guilty as charged — or maybe they didn’t want to fight prosecutors with deep pockets.

Pawnking’s settlement provides a restitution averaging $67.29 per client, and so does All Star’s. Yup, exactly the same amount. That makes it sound like a cookie-cutter restitution. One must ask, is there any relationship between the restitution offered and the alleged harm done? According to the press release, customers who received loans between Sept. 13, 2014, and Nov. 12, 2015, can contact the companies directly. Why isn’t the AG’s office dispensing the checks? Does the AG’s office even know the identities of the presumed victims?

Pawn shops fill an important function in the economy. Most poor people do not have checking accounts, and those who do are required to maintain minimum balances and are punished for overdrafts. For the most part, they live in a cash-only society. When they run short, they don’t have savings accounts or credit cards to fall back on. Here’s the sales pitch on the All Star website:

If you’ve found yourself needing some quick cash recently and if you’ve been turned down for a personal loan, consider heading to All-Star Pawn & Gold.

All-Star Pawn & Gold offers collateral-based loans, meaning the loan is secured by something of value. You bring in something you own, and if we are interested, we will offer you the loan. The pawnbroker, All-Star Pawn & Gold, then keeps your item until you repay the loan.

You will receive a pawn ticket. Don’t lose this! Not only is it the receipt for your loan, but it also summarizes the terms of your pawn loan: fees, expiration date, description of your item, etc. …

If you don’t return to make payments on your pawn loan All-Star Pawn & Gold keeps your item. There are no other consequences: no collection action and no [effect] on your credit report.

Virginia law regulates interest rates. Pawnbrokers cannot demand interest greater than 10% per month on a loan of $25 or less, 7% monthly on a loan between $25 and $100, and 5% on a loan of $100 or more. When the loans are small, the interest is a pittance. A 10% loan on $25 is $2.50 per month. It’s hard to see how that might cover the cost of greeting the client, evaluating the item, storing the item, processing the paperwork, and, if the client never returns, selling the item.

The pawn shop offers items for sale on the premises, as seen in the photo above. All-Star also sells product on eBay. When I checked, the broker had put up the following for bids: a Casio adapter and power supply, a Bluetooth speaker phone, a Samsung micro-SDHC card, and a Snap-On tool kit. Some items were for sale for as little as $10. This is a very labor-intensive business, and it does not lend itself to big profit margins. How many rich pawn brokers have you met in your life?

Let’s imagine a world in which there are no pawn brokers or payday lenders. Would that world be any easier on the poor? No. The poor would have nowhere else to go for quick cash. Would the world be a better place if pawn brokers never cheated the poor? Certainly. Do we know that Pawnking and All-Star cheated their clients? No, not from any information contained in the AG’s press release. Do we know that the AG prosecuted the pawn brokers… for being pawn brokers? No. But it’s a question worth asking.

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2 responses to “A Prosecution or Persecution of Pawn Brokers?

  1. In related news a spokesman for the Gambino family raised guidance for 2017 earnings citing “a favorable regulatory environment down south”.

  2. I think we may have the answer to all these delinquent student loans.

    Turn them over to Payday Lenders and Pawnshops..

    😉

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