A pawnbroker is an individual or business entity that offers monetary loans in exchange for an item of value to the given pawn broker. The word pawn is derived from the Latin pignus, for pledge, and the items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral.
If an item is pawned for a loan, within a certain contractual period of time the pawner of an item may purchase it back for the amount of the loan plus some agreed upon amount for interest. The amount of time, and rate of interest, is governed by state law and the pawnbroker's policies. If the loan is not paid (or extended, if applicable) within the time period, the customer forfeits title of the item to the pawnbroker. Unlike other lenders, though, the pawnbroker does not report the defaulted loan on the customer's credit report – since the pawnbroker has title to (and physical possession of) the item; the pawnbroker may recoup the loan value through outright sale of the item at his place of business, called a pawnshop or pawn shop. The pawn shop also sells items that have been sold outright by customers to the pawnbroker.
However, the pawnbroker assumes the risk that an item purchased was actually stolen property. In the community's interest in not allowing a legitimate businessman to act as a fence, laws to protect both the pawnbroker and the community at large exist in some jurisdictions. These laws often require the pawnbroker to establish positive identification of the seller through photo identification (such as a drivers license or government-issued identity document), as well as a holding period placed on an item purchased by a pawnbroker (to allow for local law enforcement authorities to track down stolen items).
Common items pawned by customers include jewelry, electronics (this includes hardware such as televisions and computers and software such as video games, as well as movies), musical instruments, firearms, and tools (both hand tools and power tools). Gold is a very popular item which is almost always purchased; even if the source (such as a piece of broken jewelry) has little value, the gold can still be sold in bulk to a bullion dealer or smelter for the value of the gold content.
In England, the pawnshop came in with William the Conqueror, with an Italian name, Lombard. In 1338, Edward III pawned his jewels to the Lombards to raise money for his war with France. King Henry V did much the same in 1415.
The Lombards were not a popular class and Henry VII Tudor harried them a good deal. In the very first year of James I Stuart an Act against Brokers was passed and remained on the statute-book until Queen Victoria had been on the throne thirty-five years. It was aimed at the many counterfeit brokers in London. This type of broker was evidently regarded as a fence. It is also known that Queen Isabella of Spain pawned her jewelry in order to send Christopher Columbus out to what he believed was western India.
The pawnbroker in the United States is generally subject to considerable legal restriction. Each state has its own regulations regarding pawnbrokers, generally regulating the amount of interest that is allowed to be charged on a collateral loan. In Massachusetts, a 2007 Boston Globe investigation suggested 10% monthly interest was not uncommon. In the state of New York, interest at pawnshops is limited to 4% per month.
The pawnbroker's symbol is three spheres suspended from a bar. The three sphere symbol is attributed to the Medici Family of Florence, Italy, owing to its symbolic meaning of Lombard. This refers to the Italian province of Lombardy, where pawn shop banking originated under the name of Lombard banking. The three golden spheres were originally the symbol which medieval Lombard merchants hung in front of their houses, and not the arms of the Medici family. It has been conjectured that the golden spheres were originally three flat yellow effigies of byzants, or gold coins, laid heraldically upon a sable field, but that they were converted into spheres to better attract attention.
Most European towns called the pawn shop the "Lombard". The House of Lombard was a banking family in medieval London, England. According to legend, a Medici employed by Charles the Great slew a giant using three bags of rocks. The three ball symbol became the family crest. Since the Medicis were so successful in the financial, banking, and moneylending industries, other families also adopted the symbol. Throughout the Middle Ages, coats of arms bore three balls, orbs, plates, discs, coins and more as symbols of monetary success. Pawnbrokers (and their detractors) joke that the three balls mean "Two to one, you won't get your stuff back".
In Hong Kong the practice follows the Chinese tradition, and the counter of the shop is typically higher than the average person for security. A customer can only hold up his hand to offer belongings and there is a wooden screen between the door and the counter for customers' privacy. The symbol of a pawn shop in Hong Kong is a bat (the animal) holding a coin (Cantonese: fūk syú diu gām chín). The bat signifies fortune and the coin signifies benefits.
In Japan, the usual symbol for a pawn shop is a circled digit seven, as "shichi", the Japanese word for seven, sounds similar to the word for "pawn" (質).
In India, the Marwari Jain community pioneered the pawnbroking business, but today others are involved; the work is done by many agents called "saudagar". Instead of working from a shop, they go to needy people's homes and motivate them to become involved in the business. Pawn shops are often run as part of jewelry store. Gold, silver, and diamonds are frequently accepted as collateral.
Pawnbroking is also a traditional trade in Thailand.