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Licensed, regulated pawnbrokers offer consumer credit secured by possessory security interests in personal goods and provide safety-net loans to approximately 30 million Americans. Each day, pawnbrokers help families through challenging economic times by providing non-recourse, short term loans that have no impact on a consumer’s credit history.
Pawn customers appreciate this unique form of credit and tend to borrow only what they need, as evidenced by the relatively low national average loan amount of $150. Furthermore, pawn customers repay their loans and redeem their collateral at a correspondingly high average national redemption rate of 80 percent. These parameters appear to be holding constant, despite the current downturn in the economy.
The pawn industry is a heavily regulated provider of consumer financial services. In addition to state licensure requirements and laws concerning the terms and conditions of pawn loans, pawnbrokers are subject to 13 federal laws. These federal, state, and, in some instances, local laws govern every aspect of pawn transactions including interest rates, loan duration, redemption methods, record-keeping and transaction reporting requirements.
Section 9006, New Information Reporting for the Internal Revenue Code, is likely to add approximately $60 to $100 for each consumer who obtains a pawn loan from me or sells me second-hand goods outright. Those are high customer acquisition and retention costs.
Almost every state strictly controls the fees pawnbrokers can charge their pawn loan customers. As a result, pawnbrokers cannot increase their fees for pawn loans to cover increased federal compliance costs. Accordingly, increased compliance costs will be borne not only by my business but by my employees. They will diminish our ability to make the smaller loans we make to consumers who need them to survive in this economy.
It is quite evident that no other financial services would be able to fill the void left by the disappearance of the pawn industry. Pawn loans typically range from 30-90 days and involve substantial operational expense in terms of appraisal of collateral values, storage, insurance, and security infrastructure.