A pawnshop is a business in which a person can get a loan of cash in exchange for handing over personal property of value, such as jewelry, to the pawn shop owner. The item of property is technically a kind of security for the loan. In reality, some borrowers never return to repay the loan and reclaim their property. In this case the pawnshop becomes the owner and offers the property for sale to the public. On occasion, a customer simply sells their item of personal property outright to the pawnbroker for a one-time cash payment.
Or, sometimes, the property owner will choose not to redeem their property by paying off the loan plus interest within the time specified by their contract with the pawnbroker. In this case also, the pawnbroker becomes the owner outright of the property and can sell it.
However, if an owner of pawned property returns within the proper period of time and is ready to repay the loan plus the specified interest, the owner should get their property back from the pawnbroker.
A pawn broker usually does not perform credit checks on the borrower and there are no consequences to the borrower if they never return to pay back the loan and redeem their property. This means that the transaction does not affect their credit rating. Rather, the pawnbroker has made a quick evaluation of the property and if the borrower never returns, the pawnbroker believes they will get their money back from the sale of the item.
One issue that plagues pawnbrokers is the risk that the property pawned in their shops is stolen. Generally, the pawnbroker assumes this risk when they take possession of the property. However, in many states, the law protects both the public and the broker from unknowingly dealing with stolen goods.
State law may require that the pawnbroker establish positive identification of the seller of property through photo identification, such as a driver’s license. State law may also require that the broker enforce a holding period on items purchased to allow time for local law enforcement authorities to track and identify items that may have been stolen.
Many states require pawnbrokers to report all items pawned to the local police daily so they can check it against reports of burglaries and robberies. These procedures mean that very little stolen property can be found in pawn shops. If a pawnbroker should be in possession of stolen property and the rightful owner from whom it was stolen shows up to claim it, the pawnbroker must return it to the owner.
In some states, pawn shops must give a list of all items that have been pawned recently and any serial numbers that may be found on the items to the local police, so the police can determine if the items have been reported stolen.
Some police departments even advise the victims of burglaries or robberies to visit local pawn shops to possibly locate items that were stolen from them. Some pawn shops set up their own screening procedures to avoid buying stolen property.
Of course, pawning property that has been stolen is a crime that may be charged as a felony in some states. In Florida, conviction of the crime of selling stolen property is punishable by up to 15 years in prison and a maximum fine of $10,000 upon conviction.
Pawn shops are highly regulated by all of the same federal laws that apply to entities designed as financial institutions. The federal laws that regulate pawn shops are:
- The Patriot Act;
- The Truth in Lending Act;
- The Equal Credit Opportunity Act;
- The Data Privacy and Safeguard rules from the Federal Trade Commission (FTC).
The Bureau of Alcohol, Tobacco, Firearms and Explosive (ATF) regulated pawn shops that deal in firearms. A pawn shop may also hold a Federal Firearms License. States also regulate the pawn industry. Of course, most pawnbrokers have a business license at least and may even be regulated by local authorities as mentioned above.
When Can a Pawnshop Be Civilly Liable?
A pawnshop has usually taken ownership of the property in question as security for a loan. Therefore, a pawnshop can be liable for its own negligence in losing property that is security for a loan or allowing the property to be stolen by a third person. Of course, if the property has been sold outright to a pawnbroker, any loss goes to the pawnbroker and not the customer.
Third Person Theft/Lost Property
Most states have said that pawn shops have to exercise “ordinary care and diligence” in safeguarding the property of which they are in possession to secure loans. Property held as security for a loan is held in trust and the pawn shop owner owes a duty of care to the owner, the person who pawned it, not to allow it to be lost, stolen or damaged.
If a pawnshop is negligent in losing or allowing the property to be stolen by a third person, then it is liable to the customer who gave the property to the pawn shop owner, if they want to pay off the loan and get their property back.
In one reported case, the owners of a pawn shop were found liable for negligence in the operation of their pawnshop business, because they had put no security measures at all in effect in their place of business. Specifically they had not taken any precautions to protect the pawnshop from unlawful intrusion, i.e. break-ins.
There was no clear showing that there was a competent, trained security guard on the premises. Furthermore, when the robbery occurred, the vault in which they kept valuables was open. When robbers armed with .45 caliber pistols entered the shop and stole pawned items without difficulty, the pawn shop owners were found civilly liable for the losses to their customers.
Often the pawn transaction is evidenced by a pledge contract. The contract identifies the borrower, or person who has entrusted their personal property to the pawnbroker in exchange for a loan. The pledge contract also provides that the pawnshop must notify the former owner of the property if it is going to be offered for sale to the public. This would mean that the time allowed for the borrower to repay their loan, plus interest, has expired.
If a pledge contract exists, a pawnshop is clearly liable for stolen or lost property without regard to the general principles of bailment, if the former owner desires the property back and it is within the time period allowed for the borrower to repay their loan.
Additionally, if the former owner of the property tenders money to get the property back, and the pawnshop fails to produce it, the property can be regarded as lost or stolen and the pawnshop is liable to the owner. Other written documentation of a pawn transaction may include a bill of sale.
Of course, if an employee of a pawnshop steals pawned property in the shop, the pawnbroker is liable to the former owner of the property, if they appear to redeem the property again. The issue would be the value of the loss. The remedy might be forgiveness of the loan; this would mean that the borrower would not have to repay their loan and this would be their remedy for the loss of the property they pawned.
Do I Need an Attorney for a Civil Liability Pawnshop Issue?
If you have pawned property and it has been lost, stolen or damaged, you may wish to consult an experienced commercial lawyer. If you discover that you have purchased stolen property from a pawn shop, you too may wish to consult a commercial lawyer. They can inform you of your rights and how to go about recovering your loss from the pawnbroker.