About Pawnbroking

Information on the Pawn Industry

Pawnbroking Background

As mankind's oldest financial institution, pawnbroking carries on a tradition with a rich history. Pawnbroking can be traced back at least 3000 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 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 usually made out for about one-third to one-half of the price the broker can expect to receive for the sale of the item during the worst of times. This assures 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 year 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 risen from 50 in 1988 to more than 3,000 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 legitimate source other 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.

All items received by a pawnbroker must be reported to the city and/or state's police department, therefore reducing the chance of 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 oversees their operations.
    Pawnshops serve as a source of credit to millions of Americans, providing average small secured loans (often $50 to $100) for a brief time period (typically one to four months).

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, electronics,   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.