The term pawnshop generally refers to a for-profit business that engages in the act of lending money on the security of goods that are left in the pawnshop. Pawnshops also engage in the business of putting personal property that they acquired from a private seller up for sale to the public in their storefront.
In many cases, personal property that is transferred in a pawnshop transaction is done so with the condition that the personal property may later be redeemed or repurchased by the seller within a certain period of time for a predetermined price that is agreed upon between the seller and the pawnshop. Some shops also deal in personal loans.
It is important to note that each individual state will have laws that define and regulate pawnshops within the state. For example, the state of Texas defines a pawnshop as a location at which or premises in which a pawnbroker regularly conducts business.
Texas law further provides that a pawnbroker is a person who is engaged in the business of lending money on the security of pledged goods or purchasing goods on the condition that the goods may be redeemed or repurchased by the seller for a fixed price within a fixed period.
Are There Laws Regarding Pawnshops?
As mentioned above, each state has its own set of laws and regulations regarding pawnshops. The reason that pawnshops are regulated by state and local laws is that pawnshops involve finance law in issuing personal laws, as well as business and contract law due to the transfer of personal property from an individual to a business.
It is important to note that pawnshops are generally required under state laws and regulations to obtain a license to operate. As far as the process for obtaining a license to operate, the exact method and regulations involving licensure will depend on the laws of the state in which the pawnshop operates.
For instance, in the state of Texas, in order for a pawnshop to obtain and maintain a license to operate, they must submit an application to the Consumer Credit Commission under oath that states:
- The full name and place of residence of the applicant;
- The full name and address of each member if the applicant is a partnership;
- The full name and address of each officer, shareholder, and director if the applicant is a corporation;
- The location where the business is to be conducted; and
- Any other relevant information required by the commissioner.
Additionally, in order to operate a pawnshop in Texas, the application must also be accompanied by the required application fees, proof of insurance, a bond, and a proof of the pawnbroker maintaining net assets of at least $150,000 that are used or readily available for use in the business of each pawnshop. Further, each individual employee of the pawnshop may also be required to obtain professional licensure.
In addition to the requirement of a professional license to operate, state laws and regulations also require certain standards of recordkeeping for each pawnshop. The exact recordkeeping requirement varies by state. However, in general, pawnshops must keep adequate books and records relating to the pawnbroker’s pawn transactions and preserve those records for up to two years from the date that the initial transaction occurred.
Additionally, for each individual transaction, a pawnbroker must generally obtain and record all of the following information when executing a pawn transaction:
- The identifying information of the pawnshop, such as the name and address of the pawnshop;
- The identifying information for the seller/pledgor, such as their name, address, driver’s license number, or other official identification information that can identify the pledgor;
- The date that the transaction is occurring;
- A sufficient description of the personal property that is being pledged;
- Information that identifies the amount of cash that is being advanced or credit that is being extended to the pledgor;
- Information identifying any financial charges related to the cash being advanced or credit being extended;
- Information concerning the total amount that must be paid by the pledgor in order to redeem the pledged goods, as well as the maturity date of the pawn transaction;
- Generally, there must also be a statement that states that the pledgor is not obligated to redeem the pledged goods, and the pledged goods may be forfeited to the pawnbroker after a period of time after the maturity date.
State laws often also require a minimum age for any person who is seeking to pawn items with the pawnshop, which is generally 18 years of age. Pawnshops are also often required to comply with police reports regarding stolen items and verify ownership of pawned items.
Once again, state statutes will vary in regard to the regulations concerning stolen property that is found in a pawnshop. However, if personal property is found in a pawnshop, the property may be seized by police.
The property may also simply be purchased back by the original owner, who may then seek to initiate a civil lawsuit against the criminal offender who stole the property. A court order may also be necessary to recover the stolen property.
In addition to all of the above laws and regulations, as a small business, pawnshops must also be cognizant of their state’s tax laws and regulations associated with their work and organization. This also means that the pawnshop may be audited.
Being audited means that the business’s financial records, policies, and procedures will be reviewed in order to ensure that the business is in compliance with applicable laws and regulations of the state and federal laws that regulate the business.
Audits may also be done internally by the business owner in order to better their business voluntarily. However, external state agency auditors or an Internal Revenue Service (“IRS”) agent may audit the business to ensure compliance with local laws.
Potential Legal Consequences for Violations
As can be seen, there are numerous laws and regulations concerning pawnshops. In general, if a pawnshop or pawnbroker fails to properly perform any of the above requirements by law, then:
- The pawnshop may lose its professional license to operate and can be shut down;
- The pawnshop may be fined by the agency in charge of regulating pawnshops in accordance with the state regulation statutes;
- In rare cases, the pawnshop owner(s) may be placed in jail for criminal acts, such as fraud.
It is important to note that operating a pawnshop without the proper license is considered a misdemeanor offense in most states, which is generally punishable by:
- A criminal fine not to exceed $10,000;
- Imprisonment in county jail for a period of time not to exceed one year;
- A combination of both the criminal fine and confinement.
In addition to penalties regarding licensure and the ability to operate a pawnshop, pawnshops may also be exposed to civil liability in the operation of their business under the tort laws of their state. Tort law is the broad category of laws that cover civil lawsuits and claims. The purpose of tort laws is to compensate victims for any losses resulting from the tortfeasor’s violations, as well as to deter or discourage the tortfeasor from repeating the civil violation in the future.
The most common legal consequence for business torts is the pawnshop having to pay monetary damages. This means that if the pawnshop is found liable for committing a business tort, it will be liable to compensate the injured party (i.e., the “plaintiff”) for any financial losses that the plaintiff suffered as a result of the pawnshop’s tortious actions.
What Happens When a Pawnshop Buys a Stolen Item?
Once again, the exact laws regarding what occurs when a pawn shop buys a stolen item will vary by state. In general, a pawnshop has an obligation to monitor any and all goods purchased, accepted in pawns, or otherwise acquired by the pawnshop in order to identify and prohibit transactions involving stolen goods.
Then, if a consumer initiates a criminal offense report with local law enforcement, the pawnshop must comply with the law enforcement’s investigation and allow them to search the records maintained by the store. Additionally, the pawnshop must assist law enforcement in locating and recovering stolen property.
Do I Need an Attorney for a Pawnshop and Criminal Liability Issue?
You might be having an issue that is associated with a pawnshop, or you might be a pawnshop owner who is experiencing an issue regarding state laws and regulations on pawnshops. If this is the case, it is in your best interests to consult with an experienced business attorney.
An experienced business attorney will be able to help inform you of your legal rights and your best course of legal action regarding your specific issue under state laws and regulations. They can tell you whether there is any Pawn Shop Act that applies to your area or other similar law.
Additionally, a business attorney will also be able to help you with working with law enforcement regarding stolen property or possible criminal liability. Finally, a business attorney will also be able to represent you in court as needed.
