Feature
The majority of pawnbrokers in the city are charging effective annual interest rates of over 300% on short-term loans and their practices are not in line with hopelessly antiquated legislation.
The writer first went to Stabroek Market with a gold chain to get it properly valued. The chain weighed 5.25 pennyweight and was according to the jeweller of 12 karat quality. With the going rate of $900 this worked out to a raw value of $4725. Armed with this knowledge we first stopped at the Trustee's Relief Pawn Shop on Robb Street just off Camp. A boy took the chain and put it on an electronic scale declaring it was "5 pennyweight." He then scraped a piece of the chain on a black slate and dabbed acid over the mark to test the purity. He said it was 12 karats and when asked how he knew this replied that it was because it had turned red, although there seemed to be little red on the slate. The shop was paying $800 per pennyweight so that worked out to a value of $4000. Trustee's gives out loans of 55% of the value. So the loan would be $2200. Now it was time for the interest rates. If you redeem the chain after 1 week that will cost 4% or $2288; after 2 weeks 10% or $2420; 3 weeks 15% or $2543; four weeks 20% or $2640; and five weeks 25% or $2750. That works out to an annual interest rate of $260%. If after five weeks you still can't find the money to take back the item you must pay off the interest and then you can be given a further five weeks. After this the boy said the shop can work out something as long as you keep on paying the interest. But if you do not pay any interest you are in jeopardy of forfeiting the item.
Despite being amended in 1972 the Pawnbroking Act of 1884 is grossly out of date. It refers to loans of under and over $5.00 which nowadays won't even buy a cigarette. What is more worrying is that Section 9 states "This Act shall apply to any loan by a pawnbroker not exceeding two hundred and fifty dollars except as in this act otherwise provided in relation to any loan where a special contract under this Act is made between the pawnbroker and the pawner at the time of pawning... Nothing in this act shall apply to a loan exceeding two hundred and fifty dollars or the pledge on which the loan is made... and no person shall be deemed to be a pawnbroker by reason of his only paying, advancing or lending on any terms any sum or sums exceeding two hundred and fifty dollars."
Nevertheless many of the shops seem to be operating as if the present law affected them if only observing some of its stipulations. So here, for what they are worth, are the maximum rates that a pawnbroker can charge on a loan over 5 dollars as set out in the Act's Second schedule Part One:
However, a look again at the dusty law book reveals that it is not quite that simple.
The woman at Luthers was very helpful and had some good news. The chain had increased its purity by 2 karats and although having lost a quarter pennyweight was now worth its most at $5500. Even better news was that the shop would give 70% of its value working out to a loan of $3850. The bad news was that it would cost an extra 15% of the loan to take the item out after one week or $577; 20% in week 2 or $770; 25% in week 3 or $962; 30% in week 4 or $1155%; and 35% in week 5 or $1347. This worked out to an annual interest rate of 364%. If you could redeem the item after one year it would cost $14,000 in interest charges.
Stabroek News
August 19, 2001
This writer did a survey of five pawn shops in Georgetown. For those who may not know the purpose of such a service, a pawnbroker gives a customer money based on the value of an item such as gold jewellery, stereo sets, even cars that the customer lodges with him. The customer is then given a set time in which to repay the loan plus interest if he wishes to receive his item back. Pawn shops are a source of instant cash and as such provide a valuable service often to poor people whose options to acquire credit are limited.
In other words there appears at present to be no legislation that applies to the pawnbroking industry and customers have no rights should a shop decide to sell their pledges or simply close.
Profit on loan
"For profit on loan the first fifty cents or part thereof lent on this pledge for not more than one calendar month... one cent." This works out to 2% per month. The same rate applies "for any complete sum of fifty cents above the first fifty cents." Therefore the most a pawn shop can ever charge for one month is 2%.
At Giddings Payday Shop on Regent Street the charge for one month is 25%. The gold chain had increased weight to 5.14 pennyweight but the purity was still 12 kt at $900 per pennyweight working out to a value of $4626. Giddings also pays 55% of the value so the maximum loan was $2544. The first week would cost 12% interest or $305; week 2, 18% or $457; week 3, 22% or $560; week 4, 25% or $636; and Week 5, 30% 763. The annual interest rate is therefore 312%. A sign above the wooden benches in the waiting room reads "Honesty is our policy."
The majority of pawnbrokers will not allow you to lodge your items with them for so long as a year. One shop said that after 17 weeks the pledge is forfeited and it becomes the property of the pawnbroker.
Under Section 13 it states:
"Every pledge shall be redeemable within twelve months from the day of pawning exclusive of that day; and there shall be added to that year of redemption seven days grace within which every pledge... shall continue to be redeemable."
In other words, a pawnbroker cannot sell your item for one year regardless of whether you continue to pay interest or not.
Section 14 continues: "A pledge pawned for above five dollars shall when disposed of by the pawnbroker, be disposed of by sale by public auction not later than eighteen months after the pledge has been pawned...
"The auctioneer shall insert in some public newspaper an advertisement giving notice of sale and stating: a) the pawnbroker's name and place of business b) The months in which the pledges were pawned."
Just for those who might have "bronzes, statues, busts, carvings in ivory and marble, cameos, intaglios, musical, mathematical and philosophical instruments..." these can only be sold four times a year "in January, April, July and October." There is no mention of boom boxes and motorcycles!
At Luthers Pawnbrokers on D'Urban street, not far from the prison, some girls were strolling in to "do some pawning" as the advertisement for one of the pawnbrokers says - as if it were a hobby. All the shops have booths made out of plyboard where you can do your business in private.
But the lady solemnly announced that after 13 weeks the item would be forfeited. On the shelf behind her were two rather dusty looking stereo sets. There were no marble busts.
At Christaf's on Duncan street, Campbellville, the chain weighed the same 5 pennyweight and was valued at $4000. The shop was prepared to pay 60% of the value or $2400. The rates per week were 10% or 40% for four weeks. That was an effective annual interest rate of 480%. In a later interview, owner Christopher Caleb said if a customer does not pay interest after 8 weeks the item is forfeited. He said the current law requiring 2% per month was written in different times. "Nowadays there is exploitation everywhere." He said the shop tried its best to be flexible with its customers, the majority of whom do retrieve their items. He said the customer was made fully aware of the rates and the agreement was purely voluntary.
The anniversary of City Jewellers and Pawnbrokers on Robb and Hincks streets coincides with the date of the original act ? 1884. Perhaps it was passed just for them. The accountant said he did not provide any service for machine?milled jewellery but gladly gave the company rates which included $2000 for each 12kt penny weight and the value of the loan was 25% of that. The interest rate per month was 2% with insurance of 0.5% up to six months and 1% up to a year. This was as prescribed by the law. With such attractive rates one would have thought that the place would be mobbed, but he said business had become very slow. He noted that other places were charging much higher rates but City could not afford to lose its reputation by breaking what he considered to be the existing law. He recalled that back in the seventies there was a high volume with 30?40 customers a day but now it was perhaps one or two a week. Anyway, with such low rates it was not worth it.
Monty Profitt the manager of Giddings Pay Day Pawnshops of which Trustee's Relief is a subsidiary, said in a telephone interview that there was no exploitation of the customer as it was a mutually signed agreement where the person was fully aware of the conditions.
He acknowledged that the interest rates were outside the range as set out in the law but said without these there would be no service as the business could not pay. He said the fact that 85% of the items pledged were redeemed on average after 4 to 5 weeks showed that customers were satisfied with the arrangement. He said while the items might be forfeited once a customer stops paying interest, they were not sold right away. The shop did not hold public but rather private auctions to jewellers.
Because the company paid such a high percentage (55%) of loan on the value of the item it could not keep the pledge for a year as prescribed under the law. But he said the company was always willing to be flexible with a customer as long as they continued to pay interest on the item and could continue the contract indefinitely. In addition regular customers were at times offered lower interest rates. He defended the industry saying it provided a valuable service to the community.
The person purporting to be in charge at Luther's refused to talk about the company's rates and referred all questions to his lawyer whose name he did not divulge. Up to press time his lawyer had not made contact with this writer.
There are practically no risks involved in being a pawnbroker. He collects the item and holds it as collateral which is more security than what a bank has when a person signs over the deed to their house to get a loan. The pawnbroker only pays a fraction of the value of the collateral and thus makes an instant profit should the customer never pay another cent. In addition most customers are poorly educated and have no understanding of percentages. A study in the United States showed that persons going to pawn shops were only interested in one thing - how much they could get for their possession at that very time. As such interest rates mean very little to them. Because most people who go to pawn shops have a desperate need for cash they are willing to accept any terms given to them and as such can be exploited. That is why in most countries regulations are put in place which set limits on the interest rates pawnbrokers can charge. (William Walker)