Pawn transactions are a special type of secured transaction. As such, pawn transactions have their own set of regulations apart from the UCC. They are regulated by the Pawnbrokers Act, §56-12-1 et seq.
A. Identifying a Pawn Transaction
The typical pawn transaction is as follows. A person (the pawn debtor) transfers to the pawnbroker an item of personal property, such as jewelry, in exchange for a loan of money up to $2000 from the pawnbroker. The debtor receives a pawn ticket for the item. The debtor then has a certain amount of time (typically between 30 and 90 days) to repay the money to the pawnbroker. If the money is not repaid, then the pawnbroker can sell the item and keep the proceeds.
Permissible Charges: For the first thirty-day period of the pawn transaction, a pawnbroker may charge $7.50 or ten percent of the amount loaned, whichever is greater. This charge may be applied only during the first thirty days of the loan and may not be imposed when an existing loan is refinanced. (A loan is refinanced when some portion of a later loan is used to repay an earlier loan with the same pawnbroker.) After the first thirty days, the pawnbroker may charge up to four percent (4%) per month on the unpaid principal balance of the loan. §56-12-13.
B. When Can the Pawnbroker Sell the Pawned Item?
The pawnbroker must wait at least ninety days after the pawn debtor’s default before he or she can sell or otherwise dispose of the pawned property. §56-12-11(B). A pawn debtor defaults when he or she does not repay the pawnbroker within the time allowed for repayment under the parties’ agreement.
C. Required Conduct Concerning Sale of a Pawned Item
If the pawnbroker sells the pawned property at his or her place of business, the sale must be made in accordance with the following requirements:
- If the sale of the pawned property results in more money than the pawnbroker loaned to the pawn debtor, then the pawnbroker must make a record of the sale and the amount of the surplus;
- The pawnbroker must notify the pawn debtor by first class mail of the amount of the surplus and that the pawn debtor has the right to claim the money;
- If the amount of surplus is under $100, the pawn debtor has 90 days from the date of mailing to claim it. If the amount of surplus is over $100, then the pawn debtor has 12 months from the date of mailing to claim it;
- If the pawn debtor does not claim the money in the required time, the pawnbroker has the right to keep it. §56-12-11.
D. Pawnbroker Responsibilities
Section 56-12-14 outlines the practices that a pawnbroker must not engage in. The pawnbroker:
- Must not enter into a pawn transaction with a person who is under 18 years old or under the influence of alcohol or other intoxicants;
- Cannot require that the pawn debtor be personally liable in connection with the pawn transaction;
- Cannot accept any waiver of any right or protection that is granted to the pawn debtor by the Pawnbrokers Act;
- Must exercise reasonable care to protect the pawned item from loss or damage;
- Must return the pawned item to the pawn debtor upon payment of the full amount due under the pawn transaction;
- Cannot charge the pawn debtor for insurance in connection with the pawn transaction;
- Cannot receive any item of property from which the manufacturer’s name plate, serial number or identification number has obviously been changed, covered or destroyed;
- Cannot purchase or receive any item of property that he or she knows is not lawfully owned by the person attempting to pawn it;
- Cannot enter into a pawn transaction in which the amount loaned exceeds $2000; and j. Cannot require that any of the money loaned to the pawn debtor be spent at the pawnbroker’s place of business or in any other manner directed by the pawnbroker.
Violation of the Pawnbrokers Act is a petty misdemeanor. One who has violated the Act may also have his or her pawnbroker permit suspended or revoked. §56-12-15. When a pawnbroker violates the Act, he or she forfeits the entire amount of the pawn service charge. If the transaction was usurious (that is, the pawnbroker charged more than is allowed under the Act), then the pawnbroker may be liable to the pawn debtor for three times the service charge. §56-12-16. If the pawnbroker loses or damages the pawned goods, he or she shall compensate the owner for the reasonable value of the pawned item.