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House Bill 6029 (S-1)Contact: Office of Policy and Legislative Affairs Agency: Licensing and Regulatory Affairs
Senate Commerce and Labor
of Labor & Economic Growth supports the bill.
Background: Pawnbroking is one of the oldest businesses in the world. There are records of pawn shops in China as far back as 3,000 years ago. The story that Queen Isabella pawned the crown jewels to finance Columbus’ first voyage to the New World is probably a myth, but it underscores the importance of pawnbroking in the Middle Ages.
Pawnbrokers lend money on items of value, including jewelry, televisions, musical instruments, and bicycles. The loans are based entirely on the value of the collateral. According to the National Pawnbrokers Association, the typical loan is small, averaging less than $100. The average loan period is 30 days. Although the collateral may be foreclosed if the loan is not repaid within the specified time, usually 3-4 months, 70-80 percent of the loans are repaid. Because pawn contracts are secured, no-recourse loans, the customer decides whether he or she will redeem the item pawned.
Pawnbrokers are generally small businesses. It is estimated that there may be as many as 14,000 pawnbrokers in the United States. In recent years the pawn business has changed by the entry of large companies. There are now publicly traded pawn companies. The largest, Cash America, operates 474 pawn shops in 17 states and 2 foreign countries.
are regulated by local units of government. The first pawnbroking ordinance
in the United States was enacted in New York City in 1912. Michigan’s
law on this subject goes back at least to 1889. Currently, there are two
basic laws relating to pawnbrokers in Michigan. Public Act 273 of 1917
requires licensing by the local unit of government. Public Act 231 of
1945 imposes a fingerprinting requirement and stipulates the obligations
of pawnbrokers and the State Police with respect to that requirement.
Description of Bill: The bill amends Sections 9 and 11 of Public Act 273 of 1917 to permit a pawnbroker to charge a monthly usage fee for property pawned and used by the pawner during the term of the pawn or pledge. The pawnbroker is permitted to agree in writing to allow the pawner to maintain possession and continue to use pledged or pawned property.
The Senate substitute makes four changes in the bill.
Summary of Arguments
Pro: Pawn shops traditionally would not have accepted the types of collateral envisioned in the bill, because they typically prefer small items that are more easily stored. By allowing the pawnbroker to agree to allow the pawner to maintain possession and continue to use the property, the pawnbroker isn’t deterred from making the loan by the difficulty of storing the property and the pawner has a source of capital that otherwise would not exist.
Con: It is difficult to see how this concept can work in practice. The pawn business works well, because the pawn shop has possession of the pawned item. If the customer wants it back, he or she must come to the shop and redeem it. If the customer maintains possession, it may be more difficult for the pawn shop to recover the loan.
eliminates the central premise of the pawn transaction (that the broker
retains possession) and thereby transforms it into what is essentially
conduct properly falling under the Regulatory Loan Act. Because the Pawnbrokers
Act has specific provisions for interest and fees above and beyond what
is provided in the Usury Act, these higher limits would control, thereby
possibly creating an unlevel playing field for RLA licensees who would
be able to collect a lesser amount of interest for essentially the same
conduct. This disparity could perhaps create future pressure for RLA licensees
to seek parity (higher interest rate authority).
Budgetary: The bill will have no budgetary impact on the department.
Revenue: The bill will have no revenue impact on the department.
Budgetary: The bill will have no budgetary impact on the state.
Revenue: The bill will have no revenue impact on the state.
Comments: The bill does not increase the responsibilities of local government.
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