pawnbroker, one who makes loans on personal effects that are left as security. The practice of pawnbroking is ancient, as is recognition of the danger it involves of oppressing the poor. In fact, the Bible provides the poor with a number of safeguards against oppression from their creditors. According to Ex. 22.25-27 and Deut. 24, 6, 12, 13, 17, pawnbrokers may not practice usury, may not take necessities of life as security, and in general must not take as a pledge any article whose loss would severely injure the borrower. In the Middle Ages, Christians generally were forbidden by the church to lend money at interest, and pawnbroking was left largely to the Jews as one of the few means of a livelihood open to them. Lombards also engaged extensively in moneylending, however, and in London, the financial center is still called Lombard St. In some Latin American and European nations pawnshops are operated under religious, charitable, or municipal auspices. The most famous such pawnshop is Vienna's Dorotheum, founded (1707) by Emperor Joseph I and still run by the state to provide the poor with easy credit at low rates of interest. In Great Britain and in American states, pawnbroking is regulated by usury laws. Pawnshops are predominantly found in low-income areas, where residents are often unable to establish other types of credit.

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.

Pawning process

The pawning process begins when a customer will bring in an item, whereby the pawnbroker assess the item for its condition and salability, as well as the amount the customer may need for the item. If the pawnbroker is interested in the item, he will offer the customer an amount for it. The customer can either sell the item outright, or offer the item as collateral on a loan.

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.

History

Ancient world

In the west, pawnbroking existed in the Ancient Greek and Roman Empires. Most contemporary Western law on the subject is derived from the Roman jurisprudence. As the empire spread its culture, pawnbroking went with it. Likewise, in the East, the business model existed in China 3000 years ago no different than today, through the ages strictly regulated by Imperial or other authorities.

Middle Ages

In spite of early Roman Catholic Church prohibitions against charging interest on loans, there is some evidence that the Franciscans were permitted to begin the practice as an aid to the poor.

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.

Modern times

In the United Kingdom, typical high street pawn interest rates vary between 5% (79.59% AER) to 12% (289.6% AER) gross per month and the average annual equivalent rate is 85%.

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.

Symbol

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".

Saint Nicholas is the patron saint of pawnbrokers. The symbol has also been attributed to the story of Nicholas and the three bags of gold.

Pawn shops in Asia

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.

Pawnbroker as charity

A pawnbroker can also be a charity. The Monte de Piedad movement began in Perugia, Italy in 1450 with the Orden de Menores Observantes de San Francisco. It had the aim of providing financial assistance to people in the form of no-interest loans, secured with pawned items. Instead of interest, borrowers were urged to make donations to the Church. It spread first through Italy then in other parts of Europe. The first Monte de Piedad organization in Spain was founded in Madrid, and from there the idea was transferred to New Spain by Pedro Romero de Terreros, the Count of Santa Maria de Regla and Knight of Calatrava.The Nacional Monte de Piedad is a charitable institution and pawn shop whose main office is located just off the Zocalo, or main plaza of Mexico City. It was established between 1774 and 1777 by Pedro Romero de Terreros as part of a movement to provide interest-free or low-interest loans to the poor. It was recognized as a national charity in 1927 by the Mexican government.Today it is a fast-growing institution with over 152 branches all over Mexico and with plans to open a branch in every Mexican city.

See also

• Consignment shop
• Lombard banking
• Cash America, a large United States chain of pawnshops
• EZCorp, a growing chain of pawnshops in the United States and Mexico

References

External links

• Online Directory for US Pawn Shops