How millions of Americans could be adversely impacted by legislation intended to protect them

Pawnbroking is frequently misunderstood and is often lumped in with other forms of non-bank credit. Alternative lending institutions like payday lenders and check cashers are the central focus of pending legislation that would cap the rates charged at 36% APR (story here), but pawnshops are not specifically excluded. This could mean that thousands of pawnshops could be shut down, leaving consumers with no comparable option.

On the face of it, the legislation, known as The Protecting Consumers from Unreasonable Credit Rates Act, would appear to be pro-consumer, designed to protect the most vulnerable consumers who don’t have access to traditional banking products.

The language in the bill, however, does not exclude pawnshops. And that’s a very real problem for the tens of millions of American families who depend on pawnshops to meet their short-term financial needs.

Pawn transactions should be considered differently because, unlike the other non-bank institutions mentioned in the law, they are non-recourse meaning that a pawn loan doesn’t perpetuate the cycle of debt and is not predatory (explained here). Pawn loans never impact a consumer’s credit score and the transaction is governed by over a dozen federal plus state and local laws. For many consumers, pawn loans are an essential lifeline for unexpected expenses.

Here are other little-known facts about pawnshops:

Here are some important ways that pawnshops are a vital part of the economy:

Pawnshops by the numbers

There are more than 74,000 people who work in this industry.

More than 63 Million Americans are unbanked or underbanked and rely on alternative lenders for their financial needs.

Approximately 10,000 pawnshops are independently owned by entrepreneurs who live, work, and contribute to their communities. Their stores are a valuable resource to their customers, stakeholders, and neighborhoods.

Pawnshops are good for the environment

Pawnshops offer quality used items at a significant discount, keeping tons of discards out of landfills.

Pawnshops are a significant source of recycled gold and play a big role in responsible mining efforts.

Pawnshops and the police

Less than 1/10th of 1% of the items in pawnshops are ever reported as stolen.

Contrary to old stereotypes, pawnshops actually work closely with police, and many upload their daily transactions to law enforcement.

Pawnshops are regulated by over a dozen Federal Statutes as well as state and local regulations.

Pawnshops and personal finance

Unlike bank loans, payday loans, and most other forms of credit, pawns are non-recourse, meaning the consumer is under no obligation to repay and there is no impact on their credit if they fail to repay the loan.
Pawn loans serve customers from all walks of life. Many have no access or limited access to a bank. Others have exhausted their regular credit facilities. Some have an immediate need and don’t have time to deal with lengthy application processes.

Collateral loans acquired at pawn shops do not require a credit check.

Most consumers have never done business in a pawnshop and have no way of knowing that no other lender offers a similar transaction to a pawn. If pawnshops are shut down by this law, consumers who depend on them are left with no comparable option, thus perpetuating new risks to the very people who can least afford them.