University of Southern California Dissertations and Theses

Pawnbrokerage in California

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Pawnbrokerage in California

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Content PAWNBROKERAGE IN CALIFORNIA by Sol Shocket A Thesis Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree MASTER OF ARTS (Economics) January 1958 UMI Number: EP44757 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI EP44757 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 U N IV E R S IT Y O F S O U T H E R N C A L IF O R N IA G R A D U A T E S C H O O L U N IV E R S IT Y P A R K L O S A N G E L E S 7 £ < t 'se 555*} T his thesis, w ritte n by * Sol Shocket C tP p *' ^ under the guidance of lA3.....Faculty Comm ittee, and approved by a ll its members, has been p re sented to and accepted by the F a c u lty of the Graduate School, in p a rtia l fu lfillm e n t of the requirements fo r the degree of Master of Arts JOHN D, COGKE........ A c tin g D ean Dean D ate............... .......................................................... Faculty Committee Chairm an “ TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION............................. 1 The Demand for Consumer Credit .... I The Problem..................... 2 Special qualities of pawnbrokerage . 2 Statement of the problem.......... 3 Special facets of the problem . . 4 Significance of the problem .... 7 Basic Terms and Concepts............. 8 Pawnbroker .......................... 8 Pledge . . . ...................... 9 Register book ...................... 9 Redemption.......................... 9 Expiration .......................... 9 Holding period ...................... 9 Methods of Approach to the Problem . . 10 A Review of the Literature........... 10 The Projected Organization of the T h e s i s.............................. 12 CHAPTER II. I i iv PAGE HISTORY OF PAWNBROKING............ 14 History of Pawnbroking by Private Individuals..................... 15 Pawnbrokers in biblical times . . . 15 Later day pawnbroking.......... 16 Historical types of pledges at private pawnshops ................. 19 Pawnbrokerage as the progenitor of banking....................... 20 History of the pawnbroker's symbol . 22 History of Pawnbrokerage by Nonprofit Private Organizations ............... 22 Operating advantages of Remedial Loan Associations............. 23 Share of the pawnbroking trade held by Remedial Loan Associations . . . 24 The appraisal policies of Remedial Loan Societies............... 26 The effect of nonprofit pawnshops on interest rates ............... 29 Types of articles taken by Remedial Loan Societies ........... 31 ; CHAPTER i s s Weaknesses of Remedial Loan i I Societies . . . i I History of Pawnbrokerage by Government Agencies . . .......................... i Pawnbroking as a state monopoly . . . . Types of articles taken by government j pawnshops ............................ Appraisal policies of state pawnshops . Type of clientele of state I pawnbrokerage . . . ................. Variations from government monopoly of pawnbrokerage ......... ......... Profitability of state pawnbrokerages . HI. REGULATION OF PAWNBROKERAGE i . . Aims of regulation ................... i Need for regulation ............. . Pawnbrokers1 reaction to regulation ........................ The Russell Sage Foundation's recommendation ..................... Legislation problems ............... VI CHAPTER PAGE The extent of police control......... 48 The licensing of pawnbrokers .... 48 Register book requirements........ 50 Police report sheet regulations . . . 56 The pawnshop s q u a d ................. 61 Pawnbroker cooperation with police forces ..................... 62 Stolen property ........................ 64 The seriousness of the problem of stolen property ................... 65 The mandatory handling of stolen property..................... 66 The regulation of closing hours . . . 68 Restrictions on labeled property . . 70 The requirement of a minimum pledge period ..................... 71 The use of fingerprinting........... 73 The repossession of stolen property . 78 IV. THE REGULATION OF THE HOLDING PERIOD OF COLLATERAL LOANS.......... 85 The period of time pledged articles must be held by the pawnbroker........... 85 CHAPTER PAGE Differences in the required holding periods............... ■ . 86 Police interest in establishing a specific holding period .... 87 Advantages of an extended holding period..................... 88 Disadvantages of an extended holding period ................. 89 Advantages of a shorter holding period ................. 90 The record of redemption of pledges..................... 93 Abuse of an extended holding period..................... 96 A case study to determine the length of time pledges are left in pawn..................... 99 V. THE REGULATION OF INTEREST RATES AND THE DISPOSAL OF UNCLAIMED PLEDGES . . . 120 The effectiveness of usury laws . . . 120 Interest rates of different types of pawnbrokers ............. 122 ; CHAPTER i VI. viii PAGE Justifications for a higher pawnbroker interest rate .... 125 Variations in interest rates . . . 128 Interest rates in California . . . 129 Legal methods of making pawnbroking more profitable............. 133 The regulation of the disposal of unredeemed pledges ............... 137 Pawning versus selling ........... 138 The disposal of pledges through public auction ................. 141 Weaknesses of the auction method of disposal of pledges.... 144 The pawnbroker during the business cycle . ............. 150 THE PLEDGEE AND THE PAWNBROKER.... 154 Types of customers............. 154 Clientele of Remedial Loan Associations ................... 155 Clientele of private large loan pawnbrokers ................... 155 CHAPTER PAGE Clientele of private small loan pawnbrokers.......... 156 Reasons for patronizing a pawnshop . 161 Pawnshops as storage places .... 162 Reasons for making large loans at pawnshops............... 163 Reasons for making small loans at pawnshops............... 164 Types of pawnbrokers........... 166 Appraisal of merchandise...... 167 The appraisal policy of private pawnbrokers ................. 168 The effect of competition on appraisal................... 169 VII. SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS 172 Summary............................ 172 Conclusions ................... 174 The value of regulation of interest rates............... 175 The value of regulation of the holding period ................... 175 ! CHAPTER PAGE Recommendations for Changes in the j Regulation of Pawnbrokers............ 179 i BIBLIOGRAPHY..................................... 184 LIST OF TABLES TABLE I. Percentages of Total Clothing Loans Made in 1956 . . ................. \ II. Percentages of One Dollar Clothing I Loans Made in 1956 ............... III. Percentages of Two Dollar Clothing Loans Made in 1956 ............... I IV. Percentages of Three Dollar Clothing i Loans Made in 1956 ............... V. Percentages of Four Dollar Clothing Loans Made in 1956 ............... VI. Percentages of Five Dollar Clothing Loans Made in 1956 ............... VII. Percentages of Six Dollar Clothing Loans Made in 1956 ............... VIII. Percentages of Seven Dollar Clothing Loans Made in 1956 ............... IX. Percentages of Eight Dollar Clothing Loans Made in 1956 ............... PAGE 104 104 105 105 106 106 107 107 108 TABLE PAGE X. Percentages of Nine Dollar Clothing Loans Made in 1956 ....................... 108 XI. Percentages of Ten Dollar Clothing Loans Made in 1956 ....................... 109 XII. Percentages of Eleven, Twelve, Thirteen, and Fourteen Dollar Clothing Loans Made in 1956 ................... 109 XIII. Percentages of Fifteen Dollar Clothing Loans Made in 1956 ................... 110 XIV. Percentages of Sixteen, Seventeen, Eighteen, and Nineteen Dollar Clothing Loans Made in 1956 110 XV. Percentages of Twenty Dollar Clothing Loans Made in 1956 .................. Ill XVI. Percentages of Total Jewelry Loans Made in 1956 .................. Ill XVII. Percentages of One Dollar Jewelry Loans Made in 1956 .................. 112 XVIII. Percentages of Two Dollar Jewelry Loans Made in 1956 .................. 112 XIX. Percentages of Three Dollar Jewelry Loans Made in 1956 .................. 113 r ~ - ! TABLE XX. ! i i XXI. i XXII. I : XXIII. XXIV. I XXV. I XXVI. XXVII. XXVIII. XXIX. xiii PAGE Percentages of Four Dollar Jewelry Loans Made in 1956 ....... 113 Percentages of Five Dollar Jewelry Loans Made in 1956 ................... 114 Percentages of Six Dollar Jewelry Loans Made in 1956 ................... 114 Percentages of Seven Dollar Jewelry Loans Made in 1956 ................... 115 Percentages of Eight Dollar Jewelry Loans Made in 1956 ................... 115 Percentages of Nine Dollar Jewelry Loans Made in 1956 .................. 116 Percentages of Ten Dollar Jewelry Loans Made in 1956 ................ 116 Percentages of Eleven, Twelve, Thirteen, and Fourteen Dollar Jewelry Loans Made in 1956 .................. 117 Percentages of Fifteen Dollar Jewelry Loans Made in 1956 .................. 117 Percentages of Sixteen, Seventeen, Eighteen, and Nineteen Dollar Jewelry Loans Made in 1956 .................. 118 xiv TABLE PAGE XXX. Percentages of Twenty Dollar Jewelry Loans Made in 1956 ....................... 118 XXXI. Percentages of Twenty-one, Twenty-two, Twenty-three, Twenty-four, and Twenty-five Dollar Jewelry Loans Made in 1956 .................... 119 XXXII. Percentages of Jewelry Loans Over Twenty-five Dollars Made in 1956 . . . 119 LIST OF FIGURES FIGURE PAGE 1. Police Commission Permit............... . 51 2. Pledge Form................................. 52 3. Pawnticket................................. 54 4. Police Report Sheet F o r m ................. 58 5. Form for Reclaiming Property............. 79 CHAPTER I INTRODUCTION ’ ’ The small borrowers outnumber the large ones ten to one."'*' Institutions designed to lend small sums can be of great value to the general public. Unfortunately, the business practices of these lending agencies special izing in meeting the small loan needs are not well known. Public and professional opinion has not been provided with the information necessary to make value judgments of the benefits or detriments derived by society from this type of institution. Such a valued judgment is vital since the regulation of such agencies is a public function. I. THE DEMAND FOR CONSUMER CREDIT i As the economy has progressed, the role of credit, land particularly consumer credit, has had a proportionately 1 (greater share in the development of a higher standard of i ^Katherine L. Smith, "Municipal Pawn Shops," Current Literature, XXIX (October, 1900), p. 427. r ■ 2 living. More and more institutions have developed to meet the need for consumer credit in the form of small loans. The pawnbroker historically was the first agency designed to fill the need of a source of capital available for small loans. Other institutions developed as the need for greater and greater amounts of consumer credit arose. Banks have instituted small loan departments. Personal finance companies have been organized to meet the need for signature loans based on wage assignments or chattel mortgages that were unacceptable as bank collateral. !Credit unions have developed to care for the special needs and problems in particular occupations with which they are in close contact. II. THE PROBLEM Though other agencies have arisen to supply small loan credit, they have never•entirely replaced the function of the pawnbroker. Special Qualities of Pawnbrokerage The pawnbroker has continued to fill the gap left by other lending institutions by virtue of his unique method of operation. The exhaustion of credit from all other sources has no bearing upon the loans he makes. Nor does the character or responsibility of the lender act to the detriment of the issuance of a loan. The pawnbroker asks no question of the borrower other than reasonable proof of ownership of the article being pledged as col lateral. The basis of the pawnbroker's loan is solely | . i that of collateral left in his safekeeping. He has redress j against the merchandise only. It is not possible for him ( | to secure a deficiency judgment. Under special circum- | stances his services are indispensable and he is the only source of funds available. The pawnbroker sometimes acts i as the court of last resort for the borrower. j I : t ! f Statement of the problem. No form of debt is i without a degree of burden to the borrower. The manner in ■ i 1 which the lender provides for the obliteration of that debt can heighten or lessen the degree of burden. Some of the burdens imposed by the pawnbroking industry on the l lenders are necessary, others are not. However, all of i ! i the burdens are conspicuous even when necessary. A proper I (balance for the good of society must be found between the j benefit supplied by the pawnbroker and the detriment incurred by the lender. Society must handle this problem judiciously for some of the people to whom this material \ I assistance is offered are dangerously near the point where jpublic relief must be given. In recent years there has I been a rapid decline in the number of establishments ful filling the pawnbroker function. What has occasioned this decline? Is the decline detrimental or beneficial to society as a whole? What can be done to expedite or retard the demise of the pawnshops? If the pawnbrokers are allowed to exist, can they provide a useful service to society as a whole? I f j Special facets of the problem. The pawnbroker can offer a useful service to society under adequate regula tion, as "most persons who borrow on personal property for the first time want the money to pay bills." The pawnbroker "has people coming in asking for a loan who have scratched every other surface for a loan and cannot receive it." So the pawnbroker is in actuality ^John Mapplebeck, "The Oldest Banker--Your Uncle," Saturday Evening Post, CXCV (May 26, 1923), p. 48. ^State of California, "Before the Senate Interim Committee on Pawnbrokers," August 24, 1956, p. 73. (Transcript of hearing.) "preventing an increased number of burglaries and rob- ..4 beries from persons in distressing situations." This is : particularly true in the larger cities. Pawnshops do not ; thrive in a smaller community. They are only profitable in large cities where their services are essential because i of the character of the population. Excessive regulation, however, can and has restricted and done away with the services legally offered by the pawnbroker, with the result that the very regulations designed to safeguard the lender can force him to seek illegal means of satis fying his vital needs. To provide service through pawnbrokers is a i necessity unless society itself wishes to supply the needs of those who patronize pawnbrokers. The regulation of pawnbrokers is a necessity to protect the borrower. Care must be taken not to impair the effectiveness of society's ability to provide either necessity. In principle, most persons consider pawnbroking an evil; but if so, it is a necessary evil, and the evil is small compared to the necessities supplied. 4Ibid., May 11, 1956, p. 6. The very method of operation, as well as the stability of the industry, has changed drastically. nIn |England, Scotland, and Wales in 1913 there were more than (five thousand licensed pawnbrokers. In 1950 there were 11,654 and in 1956, 1,002.”5 1 . . . In this country the trend in the reduction of pawnshops has been just as noticeable. This trend has not been a sectional one, but has been evident in all portions i of the country. In Los Angeles there are eighty hock [shops today compared with 120 only ten years ago, a drop of one third. In the same period the St. Louis pawnshop community also shrank by one third. "New York has only 130 licensed pawnshops compared with 150 at the end of World War II. What have been the factors to which this [decline in business establishments can be attributed, in { spite of a continued demand? I For the pawnshops, the inadequacy of information I -*”Hard Times for Pawnbrokers,” The Economist, CLXXXII (March 2, 1956), p. 706. | ''Christmas Less Cheery for Hock Shops,” Business Week, December 22, 1956, p. 70. naturally hinders study and constructive action.^ There 'is a need for statistics. The number of pledges made, the I average amount loaned, the aggregate amount loaned, the jnumber of redemptions, and the disposal of the unclaimed remainder— all should be known and analyzed. How do services rendered compare with the charges made? How can borrowers be given a maximum amount of protection without stopping investment? A sufficient flow of capital into the industry to meet the demand for loans must be :maintained. i ! I Significance of the problem. A popular assumption iis that pawnshops fluctuate in a manner opposite to that of the business cycle. "Many pawnbrokers deny that their business slumps during periods of general prosperity and Q thrives in the course of depressions." "Contrary to popular belief, it is not the borrowing of poor persons 9 that makes the pawnshops prosper." The statistics ^Edmund Mottershead, "Pawnshops," The Annals of the American Academy, CXCVI (March, 1938), p. 149. ®New York Times, March 31, 1929, Section IX, p. 2. ^Boyden Sparks, "Is Your Watch at Simpsons?" Saturday Evening Post, CCIX (February 27, 1937), 314. r ~ " . ; available for periods of prosperity, such as February, * I 1929, indicate that the facilities offered by pawnbrokers t > ! are very widely used: "Over 5,000 watches and 6,000 pieces, ■ I • «l I ! of jewelry are pledged daily in New York City alone." j If pawnshops do not fluctuate in a manner opposite to the ; business cycle, how are changes in economic conditions j reflected in the pawnbroker's industry? What is causing the pawnbrokers to leave the industry in such large numbers and what, if anything, should be done about it? ! III. BASIC TERMS AND CONCEPTS . f t i Pawnbroker In this thesis the pawnbroker will be considered :as separate from any other type of moneylender. The pawnbroker deals in pledges as distinguished from mort gages. "The business of pawnbroking is one well known to the law and constitutes of itself a distinct class of persons and things."*'*' *®A. Strokosch, "Brother to Shylock," Century Magazine, CXVII (February, 1929), 400. *^California Reports, Vol. CXLVIII, p. 262. I' 9 i i I Pledge i I j A pledge is a contract by which the possession of j personal property is transferred as security. Relying I ! ! upon such property as security for a loan negates the | ; conception of a chattel mortgage. , Register Book i The register book is a grouping of pledge forms. Each book ordinarily contains five hundred pledge forms. ' Redemption | A redemption is the removal of collateral by the / payment of the loan plus interest. Expiration An expiration is the forfeiture of collateral at !the end of a specified time period. Holding Period The holding period is the amount of time required by law for the retention of collateral prior to sale. All other terms have the connotation generally found in business usage. I ....' ....."......................... “ . 10 i ! IV. METHODS OF APPROACH TO THE PROBLEM I j i The different points of view about pawnbroking that can be held by the borrower, by the lender, and I I by the general public are all based on divergent sympa thies. This thesis will look at the pawnbroker's point ; of view. Based upon facts which have demonstrated the i ; needs of the lender and the borrower, it is hoped that a better understanding will be gained as to how those needs can be best met. I j j The writer has had twelve years field experience | i in the industry. From the limited literature on this j industry and from personal contact with representative ; samples of lenders, borrowers, and public officials con- !nected with the industry, a report of the operations of the industry will be made. V. A REVIEW OF THE LITERATURE The pawnbroking industry, though one of the oldest businesses, is one of the poorest sources of written material. Business records are rarely available except in the cases of government or charitable enterprises. Published volumes available in both the University of I Southern California Library and the Los Angeles City I j Library were virtually nonexistent. j A study of the pawnbroking industry was done in , 1924 under the auspices of the Russell Sage Foundation. : The result was a recommendation for a uniform pawn- 1 ' brokerage act. Bulletins published by the National Federation of Remedial Loan Associations, and transcripts of hearings ; conducted before the State of California Senate Interim ! Committee on Pawnbrokers were excellent sources of infor- I i mation on specific problems of operation within the j industry. All other information had to be sifted from maga zine and newspaper sources. Some of these sources were very factual and objective in their treatment of subject matter. The great majority of the writings of these media tended to dramatize and sentimentalize the bizarre aspects of the industry. The finest over-all presentation of information was found in Bulletin No. 21 of the United States Bureau of Labor, written by W. R. Patterson, and published in 1899. Though antiquated in many respects, some of the \ i i ; facts were still meaningful and others suggested new , avenues of exploration and comparison. 1 ! i ! A great aid to an analytical and statistical j approach of the problems of the pawnbroking industry was i the register books of a small local establishment. From I j figures derived from this very limited sample a better ' understanding of the operation of the industry was possible. i VI. THE PROJECTED ORGANIZATION OF THE THESIS It will be necessary to examine briefly the history i I of the industry and the various types of charitable and * i private enterprises that have evolved to fill the need of collateral lending. This background material will be presented in Chapter II. It will serve to give a better understanding of today's problems and their possible' solutions. Chapter III is designed to examine the object and effects of public regulation of the technical operation of the industry. Chapter IV examines the effect of public regulation r 13 i of the holding period. The records of a local establish- ; ment are analyzed to discover the actual amount of time pledges remain in the pawnbroker's possession. In Chapter V the regulation of interest rates and ! methods of disposal of expired pledges are discussed. Chapter VI analyzes the economic and business principles involved in the operation of a pawnshop. Also, the problems of the pawnbroker and the pawn customer as 1 individuals are discussed. Finally, in Chapter VII a summary is presented j with conclusions being made. Recommendations for positive i | action on the problem presented are also given. CHAPTER II HISTORY OF PAWNBROKING i There is no question of the antiquity of pawn broking. The actual development of the industry has, however, been difficult to trace. Man first found it advantageous to barter some of his possessions for those of his neighbors. Undoubtedly, soon afterward he also found occasion to pledge personal property as security when confronted by some pressing demand. Loans secured ' by pledges of personal property have been traced^ back to times before money was in existence. * • It will be necessary to delve lightly into the history of pawnbroking throughout the world in order to better understand the local situation. By comparison with with world conditions it will be possible to see if the local problem is any different than the world one. It will also be possible to see if any solution to the *\John Mapplebeck, ”The Oldest Banker--Your Uncle,” Saturday Evening Post, CXCV (May 26, 1923), p. 46. r 15 ' | problem has been attained throughout history that would be ! applicable today in our local situation. I. HISTORY OF PAWNBROKING BY I PRIVATE INDIVIDUALS ! Probably the earliest civilization to know pawn broking was the Chinese. China is known to have had 2 j pawnbrokers more than 3,000 years ago. Pawnbroking has remained a venture for private capital in the Orient up to the present day. \ 1 The later civilizations that flourished in the ; Mediterranean also knew the art of pawnbroking. Here it i ’ was practiced by the Egyptian, Assyrian, and Fhonecian. These cultures were lending money while the Hebrews were o as yet only shepherds and farmers. Pawnbrokers in Biblical Times The practice of pledging possessions to another person can be found as far back in the Bible as Exodus. The reasons for pledging property were varied. They ^New York Times, April 14, 1957, Section III, p. 1. 3 Mapplebeck, loc. cit. ranged from funds to buy new flocks of sheep to the secur- ; ing of jewelry to adorn new wives. It was in the occidental world that the private entrepreneur first found that the state could act in the j capacity of a competitor, if it so desired. As early as 31 B.C., Emperor Augustus started the first government pawnbrokerage in Rome.^ i However, as Christianity developed, its views of moneylenders made the trade onerous to members of the new faith. The church regarded with disfavor the lending of ! money in return for interest. This provided a shortage of ! i those willing to provide the lending service. The new l religious teachings, however, did not solve the need for a lending service. It was largely the Hebrews who filled the void and became moneylenders. Hebrews had no religious restraints to engaging in this type of occupation. Later Day Pawnbroking As the state developed, efforts were made to regulate the moneylenders. A pawn or pledge became one of ^Raul Tumley, "It's no Crime to Pawn Your Watch,” American Magazine, CLVI (November, 1953), 106. i the classes of bailments recognized and defined under j ’ ! ! Roman law and later under English law. There are other | i j records of the regulation of pawnshops in the interest of \ i borrowers in Bavaria as early as 1198, and in France in 1 1350.5 Along with regulation by the state, religious | jgroups began to set up benevolent pledge systems. The jFranciscan Friars, early in the fifteenth century, estab- ;lished a pawnshop.^ In Italy, a religious banking j institution, called the Monte-di-Pieta, was also founded in the fifteenth century. The purpose of these religiously! !sponsored institutions was to break the Hebrew monopoly, jThe religious orders hoped to operate at moneylending while charging low interest rates, or even no interest rates at all.^ Once the religious barriers to moneylending were lowered, the field was entered by individuals of all races - and creeds. Pawnbroking became known throughout the ^Municipal Affairs, Vol. II, December, 1898, p. 747. fi New York Times, loc. cit. ^Gunnar D. Kumlein, "Misery that Pays," Common wealth Magazine, LIII (December 1, 1950), 194. r is nations of the world. When migrations occurred to other parts of the world it was usually people of similar descent i 1 | who became involved in pawnbroking. The new arrivals pre- j t ferred to deal with persons who had backgrounds similar to i their own. In the United States pawnbroking has been ; done for over a hundred years by people of the nationality i that happened to be coming here in the greatest numbers as | immigrants. During colonial times it was the English and the Scotch who established pawnshops in this country. Later the Irish and the Germans established shops as their [ tide of immigration swelled. Finally, it has been the ! , I I Polish, Russians, and other Eastern Slavic nationalities i who predominated the pawnshop industry. These are still the predominant figures today in the United States. How ever, in New England and the North Atlantic states there are still English, Scotch, and Irish pawnbrokers running establishments founded by their forefathers. Similarly, on the Pacific Coast when the Chinese and Japanese migra tions occurred there were formerly some Chinese and Japanese pawnbrokers. Only the negro seems to be absent in this field of finance as a lender. He is, on the other i Q : hand, one of the constant borrowers. Historical Types of Pledges at Private Pawnshops | There have always been two main categories of i 1 borrowers. They are the large borrowers and the small borrowers. Large borrowers are the ones best known to the general public. They pledge all forms of jewelry and other ' articles of exceptional value. The second group, though not as romanticized,«has also been known throughout the past. Some evidences of , the transactions df this group have been uncovered. They i have proved to be very telling documents. An account book of a pawnbroker of France revealed the business trans actions of a five-day period in 1417. In all, eighty loans were recorded. With the exception of a broker and a goldsmith, the pawners were all craftsmen or peasants. Many of them were weavers, spinners, and shoemakers. In general, they borrowed small amounts. Articles of clothing were given as security in forty-six instances. The remainder of the pawns were made up of tools, arms, 19 ; \ Q Mapplebeck, loc. cit. kitchenware, bedding, and jewelry. Peasants were likely to pledge their ploughshares, their hoes, and their axes, i I j The skilled tradesmen pawned their tools. This tendency I to pawn clothing and tools, as well as cheap jewelry, for j q small loans has persisted through the centuries. j Pawnbrokerage as the Progenitor of Banking ! The entrepreneurs who acted as pawnbrokers have i depended largely on their own financial resources. The constant taking of articles in pledge required the pawn broker to provide for the safekeeping of his collateral. I • He must return these articles upon repayment of the loan. |This safekeeping of valuables given as security probably I suggested a similar deposit of money and other items of value in a place of safety. It is not unusual, even today, to find persons who do not wish to carry large sums of money on their person using the pawnshop as a safe deposit box when the regular banking facilities have closed for the day. This type of transaction occurs in actual ! practice in this manner: A pawnticket for a nominal sum, 9 Raymond DeRover, Money, Banking, and Credit in Mediaeval Bruges (Cambridge, Massachusetts: The Mediaeval Academy of America, 1948), pp. 121-122. usually five or ten dollars is given stating that the !security being held for the loan is one hundred dollars or {any other large sum of cash. The borrower receives five dollars and a pawnticket showing the receipt of one hundred dollars from the pawnbroker. The pawnbroker receives one hundred dollars from the borrower. When the borrower wishes to redeem his loan he returns to the pawnbroker |with his receipt and five dollars plus the required inter est on five dollars. Upon presentation of this the pawn broker returns to the borrower the security being held, I [namely, one hundred dollars. The pawnbroker has received i his fee and supplied a service to the borrower--the safe guarding of the borrower's funds. Historically, pawn brokers, by offering a safekeeping service in addition to / a lending service, probably created the initial banking institutions.^ Such transactions, of necessity, require the borrower to have more confidence in the ability of the pawnbroker to safeguard his funds than in his own ability to do the same. r . Patterson, Pawnbroking in Europe and the United States, United States Bureau of Labor Bulletin No. 21 (Washington: Government Printing Office), p. 187. r ~ " ■.................■ ~ .....'............. ""..~ ................ 22 i ! i i ! History of the Pawnbroker’s Symbol j No history, however short, would be complete with- j ! I out a discussion of the cluster of three brass balls that [ i i has always been associated with pawnbrokerage. The actual j j 1 origin of the symbol is mainly a matter of speculation. I | Most pawnbrokers contend that it dates back to the Lombard j merchants with whom Edward III pawned his jewels to raise j } ■ I money for a war on France. Others contend that it came : from the three golden apples of St. Nicholas of Porara, j who is the patron saint of all pawnbrokers. Some trace it ^ to the Medici family. Though the origin of the three brass balls is j ! I uncertain, the symbol itself has been adopted by pawn- i brokers through the years. It is only in very recent times j i that the use of the three brass balls has gone into dis- j I repute. Of the eighty pawnbrokers in Los Angeles there ! I is not a single one that displays the traditional symbol. II. HISTORY OF PAWNBROKERAGE BY NONPROFIT PRIVATE ORGANIZATIONS The privately controlled pawnshop was originally j ^New York Times, loc. cit. ........ "... 23 ' , the only source of pledge capital. To meet the demand to supply money at less than private pawnshop rates, other i ! forms of pawnbrokers developed. The original religiously I 1 sponsored pawnbrokerages of the fifteenth century have had their counterparts in the succeeding centuries. The latest form is the Remedial Loan Association. This is designed to act as a charitable, nonprofit pawnbrokerage. The ;United States has been the greatest breeding ground of this type of organization. The emphasis has been on i charitable lenders as a check on private lenders since the government itself is not engaged in the field. Remedial | j Loan Societies have been established in almost all large metropolitan areas across the nation at one time or another. New York, Chicago, and San Francisco have had the largest organizations. Operating Advantages of Remedial Loan Associations Because of the charitable nature of Remedial Loan Associations they derive in their operation a competitive advantage. They are not so much concerned with making a profit as with rendering a service. Besides the initial advantage of not having to show a profit, they receive another competitive advantage in relation to their ' treatment under the tax structure of most nations. In the i I i United States and Mexico such charitable organizations find their income tax free if they choose to operate on ; a nonprofit basis.^ i A further advantage' is derived by some charitable ! pawnbrokerages in that the administrative heads of the j organization donate their services. This is true of the ; Provident Loan Association of New York. It is a nonprofit organization which has been operating with a philanthropic objective since 1894. All the trustees including the i president, secretary, and treasurer have always served without remuneration.13 j With three such outstanding advantages at the out set , how much of the pawnbroking trade have these institu tions taken away from the private pawnbroker? I Share of the Pawnbroking Trade Held by Remedial Loan Associations It is very difficult to obtain figures on which to •^Samuel Kaplan, "People's Pawnshop," Americas, VI (October, 1954), 13. ^"Credit by Loanmobile," Burrough's Clearing House Magazine, XXXII (December, 1952), 4. ' " " .. ’ 25 ' base percentages. Remedial Loan Associations do not publicize the statistics of their operation. An idea of the scope of activity of charitable organizations can be best had by examining some examples of such institutions. In Mexico, every day two to four thousand people line up at the various appraisers’ windows of the National ! Pawnshop to surrender their belongings.^ This is a | charitable, tax-free organization that operates from a single location. In New York City, the Provident Loan Society, a l I pawnbrokerage, operates a branch system throughout the j I city. At one time it even operated a loanmobile.This ; was an innovation designed to do away with the necessity of opening too many branch offices. It consisted of a | bus-type vehicle which would go to different sections of 1 town on a regular schedule. In this manner an appraiser could make pledge loans to those desiring them in outlying districts of the city. Currently, the Provident is making 16 four hundred thousand loans a year. This has been ^Kaplan, loc. cit. ^ ’’ Credit by Loanmobile,” loc. cit. 16Ibid. r '■ 2 6 . : i adjudged to be roughly 65 per cent of the pledge loans in , j ' New York City. Since its inauguration in 1894, the , Provident alone has loaned more than one billion dollars j | to more than twenty-one million loan seekers.^ The Appraisal Policies of Remedial Loan Societies How has it been possible for private pawnbrokers I to exist in the face of competition which operated tax- free, nonprofit, and with donated administrative services? I The answer for the continued existence of private pawn brokers is the classic one. Private pawnbrokers generally i lend from 50 to 100 per cent more on an article than the j i i 18 j lower interest rate loan societies. In the case of the Provident Loan Society, drastically low evaluation policies have removed most of the risk from their pawnbrokerage operations. This evaluation policy alone has made it possible to operate a branch system successfully in what is acknowledged to be a very personalized business. Actually, Provident Loan appraisals are so conservative ^Caroline Bird, "The Providential Provident," Colliers Magazine, CXXI (February 7, 1948), 73. ^ " P a w n s h o p Deluxe," Fortune Magazine, L (October, 1954), 234. ! 27.'. that the pledger usually has something coming to him after the loan with interest and cost of selling is satisfied 1 9 by the sale of the collateral. What is the cause of this low evaluation policy? One basic fault with nonprofit pawnbrokerages is that the nonprofit pawnbrokers depend upon the private i itrader for the disposal of their unclaimed pledges. The (private trader is as important to their business as the pawn customer. The private traders are a limited group of individuals with the facilities for the disposal of (large quantities of used merchandise. In an attempt to | (assure that their operations do not produce financial losses, nonprofit pawnshops have resorted to two policies. The first policy is the establishment of the auction method of disposing of unclaimed property. Theoretically, this should assure the market price for unclaimed pledges. It should result in the quick turnover of frozen invested capital in the form of unclaimed pledges into cash which can be reloaned. However, pawnshops must dispose of pledges in such quantities that this theory of maximum l^Bird, loc. cit. market price is restricted. Only traders are interested in used merchandise in sufficient quantities to keep the capital investment of the nonprofit pawnbrokers liquid. The number of traders is limited and they tend to perform I as a combine in their own best interests. Without the t assurance of a ready market for unclaimed pledges the | nonprofit pawnshops have been forced to implement their second method of assuring that they do not operate at a loss. They have drastically reduced their appraisal ipolicies so that they do not suffer a loss regardless of the reaction of traders. By minimizing the amount originally loaned, the nonprofit pawnshop can be certain i i that no loss will be incurred if the collateral must be I sold. These lower appraisal policies run directly counter | to one of the original purposes of establishing nonprofit pawnshops. Instead of being able to offer higher appraisals, the nonprofit shop offers substantially lower appraisals. As a result, the private pawnbroker is still j able to exist in competition with the nonprofit forms of ipawnbroking. The first thing a pawn customer asks is "How much can I get?" Private pawnbrokers can give higher |appraisals because they combine the trader function with ! 29 their pawnbroking. They operate their own retail outlet in addition to acting as a pawnbroker. Unless the non profit organizations are also willing to establish their own retail sales outlets, they cannot hope to displace i the private pawnbrokers. The establishment of charitable retail outlets is not given the kind consideration that the establishment of charitable pawnshops receive. The instances where this logical extension of pawnbrokerage ' have occurred are rare, and in all probability will con tinue to remain so. The Effect of Nonprofit Pawnshops on Interest Rates The second question a pawn customer asks is "How much will it cost?” It is in this area that nonprofit organizations best serve the public. The rates that these |government and nonprofit, private pawnshops charge are generally below the rates permitted by law and, therefore, below the rates charged by the private pawnbroker. This sets a floor on interest rates. Nonprofit pawnshops, at the beginning, tried to charge no interest or the very slightest charge. They soon found that their losses required that they charge interest rates equal to the private operators on small loans, and somewhat lower than the private operator on large loans. If the pawn customer is willing to accept the lower appraisal, he can secure ihis loan at the lower rate. The lower risk should yield ja lower return. Private pawnbrokers, in competing with nonprofit organizations, have had to either lower their interest rates or raise their appraisals. Under either I action the pawn customer gains. For the larger loans the nonprofit organizations have accomplished a service. The facilities of these organizations are available on a world-wide basis. jUnfortunately, the same cannot be said for the small loan [ category. Sufficient capital to meet the loan demand was not attracted to nonprofit private pawnshops, therefore, facilities could not be made available to the poorer b o r r o w e r .20 Furthermore, because of their lower appraisal rates and desire to minimize risk, nonprofit pawnshops afford little or no relief to the great mass of pawn customers. ^David jacque Gallert, Walter S. Hilborn, and Geoffrey May, Small Loan Legislation (New York: Russell Sage Foundation, 1932), pp. 12-15. Types of Articles Taken by Remedial Loan Societies The Remedial Loan Society very heavily restricts the type of collateral it will accept. This is another reason for the continued existence of the private pawn broker. The societies receive little or no clothing in ; pawn because of the lack of storage facilities. For the same reason, articles of furniture and very bulky commod ities are refused. The only articles acceptable are those which have high value relative to the space they occupy and the care that must be taken in storing them. Articles ;such as watches, rings, and all kinds of jewelry and plate 1 21 form the great bulk of the pledges. Weaknesses of Remedial Loan Societies By restricing the type of article acceptable as collateral, the Remedial Loan Societies are automatically excluding from their charitable endeavors a great many » people. These are persons who have, historically, always found the need to pledge clothing and bulky goods. These persons are from the poorest classes. They are the ones whose ignorance and overpowering need makes them the most 21 Patterson, loc. cit. (likely victims of abuses from pawnbrokers. Yet these are ! j the persons whom the charitable organizations have not been able to assist. The Remedial Loan Societies, of their own accord, have drifted away from the small borrower. Many are changing from lending on pawns only. Today they are i accepting other forms of collateral as security. Some are developing into signature loan companies, while others prefer mortgage loans. Of the twenty-seven Remedial (Loan Societies in the United States in 1928, the lowest ilisted average loan was $23. Only five companies had | . . . . . . . . . an average below $50, and seventeen companies had an i o o average of above $100. Even the Provident Loan Society, which makes loans from one dollar up, had 62 per cent of its loans for more than $14; 46 per cent were for more than $24; and 27 per cent were for more than $49.23 provident takes pride that it caters to the five and ten dollar trade more than any other Remedial 29 *^National Federation of Remedial Loan Associa tions, ’ ’ Work of the Remedial Loan Societies 1927-1928,” p. 8. 23 Edmund Mottershead, ’’PawnshopsThe Annals of the American Academy, CXCVI (March, 1938), 154. P " ... . ..“ "....... ...... ....... ." ... 33 i Loan'Society. Provident points out that it is the profit ( i realized from loans made to the rich man or large borrower that makes it possible for the society to make approximately o / one third of its loans under $15. Although limiting their service as to size of loan and type of article, many Remedial Loan Societies have had j to discontinue operations. Many reasons have been given i for this. They vary from inefficiency of operation, dis honesty of employees, dying interest on the part of : directors and stockholders, to the lack of sufficient | funds to meed the demand. Perhaps the most promising I - . . . . . t i reason given for the demise of so many Remedial Loan i j Societies is the formation of legitimate profit-making : agencies capable of meeting the demand for loans on a 2S | reasonable basis. III. HISTORY OF PAWNBROKERAGE BY GOVERNMENT AGENCIES In most countries throught the world the reaction ^Bird, 0£. cit., p. 19. ^ B u l l e t i n Qf National Federation of Remedial Loan Associations, September, 1924, p. 2. I to the lending monopoly of the Hebrews was the entrance by I i | the state itself into the lending field. Under the legis- . I lative power of the political state many different methods j j t I of handling the need of pawnbrokers were attempted. j Pawnbroking as a State Monopoly In some countries pawnbrokerage has become a government monopoly. No private or nonprofit charitable j pawnbrokers are permitted. France is one of the countries i that operates a pawnshop as a government monopoly.^ Italy, through the well known Banco-di-Napoli, also ! I joperates as a government monopoly. The traditions of the j iBanco-di-Napoli go back to times when Italians taught the 27 world the art of banking. Though the Dutch government does not operate the pawnshops as a monopoly in the mother country, it has adopted this policy in some of its posses sions. Throughout the islands of Java, a beneficiently ■paternalistic government has established pawnshops. Nearly I every town of appreciable size has at least one. These are; 26New York Times, February 26, 1928, Section III, p. 3. 27Kumlein, loc. cit. I oo managed by the government itself. Has the establishment : of a monopoly situation through government control suc cessfully provided for the needs of those persons who tend to use the facilities of pawnshops? Types of Articles Taken by Government Pawnshops Government pawnshops have not restricted the types of articles that they will accept from their customers. I Most government operated shops are a single unit in one ! building. The edifice is composed of many rooms in which j trained appraisers handle specific items. An idea of the j variety of pledges received can be garnered by visiting ' the salesrooms of these pawnshops. Here pledged articles that have not been redeemed in the allotted time period are offered for sale. As you wander around the different i salesrooms you get the impression that the building is an art museum and a department store rolled into one. The range of articles on which loans are made easily equals j the huge listings in a Sears Roebuck or Montgomery Ward Catalogue. If anything, the offerings in the pawnshop salesrooms outstrip the mail-order houses in varieties, ^ M a r g a r e t Mackprang, "Java Pawnshop Treasures,” Asia Magazine, XXXII (December, 1932), 606. certainly in strangeness.^ I Appraisal Policies of State Pawnshops What has been the state pawnbroker’s policy of ; evaluating such a tremendous variety of pledges? The best evaluation of the efficiency of the work done by appraisers can be had from the record of losses they have incurred. It would be well to remember that the object of a state operated pawnshop system is not to make a profit, but to provide the maximum service possible without incu- 1 ring a loss. Statistics of 1887 show that in France, of . I articles sold at auction during that year, more than i 14,000 realized prices several times greater than the original loans, over 2,000 being three times greater, over 500 being four times greater, 77 being six times greater, 16 being nine times greater, and 2 being twenty- three times greater.30 These prices were paid not by amateurs, but by close-fisted dealers buying to sell again at a still further advance. 29 Kaplan, loc. cit. ^Cleveland Moffett, "Paris Pawnshops," Century Magazine, LXV (January, 1903), 331. r 37 Why have the appraisals been so conservative? As a rule, the appraisal of articles offered in pledge is ! ; placed in the hands of persons whose moral responsibility I to their employer, the government, is to see that no loss ; is sustained. A record of too many overevaluations would ! jeopardize the employment of any appraiser. Therefore, j there is a natural tendency to constantly underevaluate, thus reducing the risk to the appraiser's security. In France the appraiser has been made liable to the pawnshop Ol for any loss incurred due to his faulty evaluation. i i The difference between the amount received from the sale i { of the pledge and the amount loaned is paid by the i appraiser. This is done to prevent collusion between the borrower and appraiser to defraud the state through exces sive evaluations. This leads to a natural tendency for the appraisers to systematically undervalue the articles offered. The result is detrimental to the borrower, who is seeking to maximize the liquidity of his assets. A state monopoly causes serious hardship to those with limited possessions. Underevaluation is also detrimental on Pat ter son, loc. cit. ■ to the institution itself. Such small advances lessen the i i I j revenue derived from interest payments based upon the i | amount loaned. : 1 These underevaluation policies have led to a fan- j tastic world living around the highly respectable and i i official pawnbrokerage in those nations where it exists : as a monopoly. Those who cannot accept the low evaluations i ! are forced to use the facilities of persons who operate illegally. It has even become the business of some to purchase the pawntickets given by the government pawnshop. i This is done to obtain the right to the surplus arising i . on from the sale of the corresponding pledges. I The governments have responded to these actions by ;passing laws which have attempted to curb the abuse arising i from the sale of pawntickets and illegal pawnbroker opera- i ( tions. A most plausible plan is that of Belgium, where it is made a penal offense to purchase or deal in pawn tickets. Yet it is understood that even there a limited trade in pawntickets is carried on. 3-* The more logical solution of raising the evaluation policies has not been ! 32ibid. 33Ibid., p. 237. 1 attempted because of the financial difficulties that these ' t , government agencies are experiencing even with the lower t i evaluations. 1 j iType of Clientele of State Pawnbrokerage ! The result of the evaluation policies of state i operated pawnshops has been that those persons in greatest (need of assistance can no longer depend on assistance. Statistics for the year 1892, in the city of Paris, showed ! :that 104,330 articles were offered on which the appraisers refused to make a loan. Another 40,541 would-be pawners refused to accept the loan offered them on their pledges.34; 1 These people were left with no other' place to go since i I the state operated as a monopoly. In Italy, customers of the official pawnbrokery were supposed to be considered in such a position that they could afford to receive only a small part of the real value of their pawns. The result has been a change of the class of clientele that makes use of the state agency. The poverty-stricken people who used to drag their personal and household effects to the pawnshop in order to obtain 34Ibid., p. 223. f 40 sufficient money to live from payday to payday can no ; longer afford the luxury of using the state pawnshop. Today's patrons came from the middle classes and the j wealthy. In Paris, artisans and tradesmen head the list, j Widows and unmarried women follow. Day laborers and factory workmen occupy the third p l a c e .35 Now, many clients drive up in automobiles and obtain loans on jewels, paintings, and antique furniture. ° Variations from Government Monopoly of Pawnbrokerage j Many countries allow private pawnbrokers to operate, as well as public pawnbrokers. Germany and Holland operate in this manner. In Germany, the private pawnbrokers are regulated by the authorities, who also operate their own shops. In Holland, the pawnbrokerages of the government are either run directly by the municipality, or the business may be given into the hands of private partners or corporations for a limited number of years upon payment * K JJElbert Baldwin, "Pawnbroking in Various Coun tries," The Outlook ^togazine, LII (August, 1895). ~*^New York Times, January 9, 1926, p. 5. of a fixed rent. Holland also allows private pawnbrokers ! to operate. A unique feature in Holland is that these private pawnbrokers are not subject to any legal restric tions whatsoever. They enjoy the greatest freedom. They pay no license fees. They are not subject to any regula- j tion as to interest or holding period. They are not even i recognized by the penal code of 1886.^7 In the English-speaking nations, the government operated pawnshop has not developed. Great Britain and the United States both experienced some furor for the | creation of municipal pawnshops at the end of the nine- i ; teenth century, but the movement never succeeded. \ Profitability of State Pawnbrokerages i Perhaps the lack of response to movements for |state pawnshops was due to the poor financial results achieved in those countries that do have such agencies. In Italy, the official pawnshop has regularly operated at a loss.3** This loss is attributed largely to the existence of too large a staff that allegedly costs -"Patterson, o£. cit., p. 187. ^Kumlein, loc. cit. too much. This situation is found in most state monopoly : situations. i In Holland, it has been found that the low value I i s i | of the pledges offered has not only tended to depress the I * i margin of profit, but in many cases resulted in an actual i loss, even when total figures included the unclaimed 39 surplus account. Historically, it has been found that private enterprise still is a necessity in pawnbroking. Competi- ; tion from Remedial Loan Societies or government agencies i ! have not eliminated the private lender. Even when he has i i i been eliminated through government monopoly, the unfilled needs,of the people have resulted in the illegal operations of persons acting as illicit pawnbrokers. Many have advocated the operation of private pawnbrokers, but subject to state regulation. How has this course of action succeeded? -^Patterson, o£. cit., p. 191. CHAPTER III REGULATION OF PAWNBROKERAGE 1 The political state using its inherent police J powers may take whatever action it deems necessary, within constitutional limits, in order to promote the public i i j welfare and safety. It becomes society’s responsibility j to exercise public control over any group or persons in j a community who, by their actions, endanger the well-being I I ; of society as a whole. | . 1 : I Aims of Regulation Historically, pawnbrokers have been regulated in almost every nation in which they have existed. Holland is one of the exceptions. In Holland, there are no legal restraints upon the private pawnbroker. However, Holland does furnish to its citizenry a pawnbrokerage service which is conducted under government auspices. This service has the effect of regulation upon the activities of the private pawnbroker. In the United States the regulation of pawnbrokers is a subject to which appeal to the police power has been made in practically every state in the union. A majority | and that is about a 75 per cent majority, of the states | ; have enacted only enabling legislation. This type of | legislation allows the local community to govern pawn- broking by local ordinance whenever it wishes to do so. ! ! Need for regulation. In certain aspects, pawn- i broking may be harmless. However, pawnbroking offers a : ready shelter for thievery because of the nature of the ; business itself. To this extent pawnbroking encourages i i criminality. Pawnbrokers lend money on the basis of collateral alone. The presence of a ready market to dispose of articles illegally procured is a constant attraction to criminals. This aspect of pawnbroking has been recognized by both city and state governments. Many statutes and ordinances have been enacted which attempt to regulate strictly the manner in which pawnbroking may be conducted. These statutes provide for constant and care ful police inspection and control.^ ^■Asakura v. Seattle, 122 Washington Reports 81 (1922). 2Ibid., p. 83. Pawnbrokers1 reaction to regulation. The general J" 1 i r f | I public has historically demanded strict regulation of j pawnbrokers. Pawnbrokers, as a group, have accepted the ■ theory of the benefits of regulation. They feel that it ; i j serves the best interests of the pawnbrokers themselves, as well as the best interests of the general public. As ! a result of proper regulation, pawnbrokers have found that they are hot subject to imposition and loss through inadvertent dealings with criminals. Regulation consti tutes a reasonable means of keeping the pawnbroking busi- i ness free from abuse by thieves disposing of stolen s S merchandise. It is an aid to those pawnbrokers who have no intention or disposition to aid criminals.^ The Russell Sage Foundation's Recommendation Regulation is most effective if its application is understood by the general public. It is best if regulation is not hampered by differences of intent and application in different communities. A single law would be a definite aid, if it could be uniformly applied with fairness to all localities. This was the aim of the Russell Sage ■^Launder v. Chicago, III Illinois Reports 291 (1912). i Foundation. It authorized a study of the pawnbrokerage , ! laws in the various states. Recommendations for a uniform^ j pawnbrokerage law resulted from this study. These recom- | : mendations were detailed in a report of the Russell I Sage Foundation. The report was published in 1924.^ * Legislation problems. The publication of the . I Russell Sage Foundation was often referred to by legis- ; lators faced with the duty of regulating pawnbrokers. ; However, the recommendations of the Russell Sage Foundation were not widely accepted by most legislative bodies. Adop tion of the recommendations would have resulted in a more \ lenient course of action toward pawnbrokers than already prevailed. Legislators, reflecting the attitude of the general public, were unwilling to condone such a course of action. The pawnbroker has not been regarded with much favor by the. general public. The necessity for the exist ence of pawnbrokers is not overlooked but is likely to be discounted. Pawning has never received sympathetic atten tion from the community, although it represents the ^R. Cornelius Raby, The Regulation of Pawnbroking (New York: Russell Sage Foundation, 1924), p. 63. ! democratization of credit in the widest sense. The Russell 1 i ■ Sage recommendations presented a difficult problem to the legislators. It was necessary to achieve two goals at j ! one time. Sufficient control over pawnbrokers had to i be maintained to appease public opinion. Sufficient ! leniency with pawnbrokers had to be maintained to assure i | the continued existence of legal pawnbrokerages. I Legislators have accepted many popular assumptions as facts and have acted accordingly in seeking to appease public opinion. The general public believes that the ! 'pawnbroker only loans money to those persons in deep poverty. It is a widely held belief that the pawnbroker i :acts as a receiver of stolen property. Some people even assert that the pawnbroker acts as the financial backer of thieves. Few uninformed persons would deny that the i pawnbroker charges usurious interest. Finally, it seems undisputable that the pawnbroker thrives chiefly in slum areas. Some of these popular assumptions are partly true. Other assumptions are entirely false. All of the assump tions about pawnbrokers are based on either historical conditions which have ceased to exist, or on an improper ..... . ..“........ 48 j evaluation of available information. The methods of opera- j , j ! tions of pawnbroking have undergone definite changes since , i the regulation of pawnbrokers was initiated. New regula- j tion, based on facts rather than assumptions, is needed. ; The report by an independent agency did little to alter i public opinion or influence legislators to action which I they were indisposed to taking. The result was that little, if any, action was taken on the basis of the Russell Sage Foundation report itself. The specific :recommendations of this report will be enumerated as !each phase of regulation is discussed. i i The Extent of Police Control The consideration can be turned from the theory of regulation, which is accepted by the pawnbroker and the public alike, to the actual practices of regulation which have been inaugurated to implement the general theory. The licensing of pawnbrokers. A license from the 'local community is necessary in order to conduct a pawn- :brokerage in most states. The object of having a licensing requirement is to provide some assurance to the community I that those who are engaged in the business are persons of ; good character. The responsibility of the pawnbroker can jbe investigated prior to licensing. Any collusion with ! thieves can be prevented by care in granting and renewing j licenses. The licensing ordinance is usually a police- regulated one. The application for a license must be ! approved by the police department before it is granted I in California. The applicant has a right to appeal to :the city council in the event of an adverse ruling by the police department. The applicant has a right to appeal to the court system also, if he is refused a |license. The police department may refuse to renew an |existing license. It also has the right to suspend any license temporarily. The police department may recommend the revocation of an existing license to the city council.^ The courts have found it reasonable that pawn brokers be required to establish their good character before obtaining a license. They have ruled that this requirement is not arbitrary. The requirement has a direct relationship to the detection of crime and the apprehension ^State of California, "Before the Senate Interim Committee on Pawnbrokers," May 11, 1946, p. 11. (Trans cript of hearing.) | of criminals. In the only case to appeal a police com- j missioner ruling, the court upheld the police commission.^ . The fact that the board of police commissioners has the right to grant pawnshop permits also gives the board the I i power to determine whether the applicant is a fit and j proper person to conduct such a business. | Figure 1 is a facsimile of a Board of Police Com missioner' s permit used by the city of Los Angeles. The fee for such a permit is $300 per year. In addition, a license must be secured from the i | city of Los Angeles. The license fee is $50 per year. Register book requirements. The register book consists of the actual documents signed by the borrower when pledging his security. The pledges are numbered numerically. Register books usually contain five hundred pledges. Figure 2 is an exact copy of a pledge form used in the city of Los Angeles. This register book is required to be on hand at all times. It is available for inspection by any fi Zevansky v. Police Commission, 61 California Appellate Reports, Second Series 450 (1943). 51 Serial No. Type of Business Date Granted City of Los Angeles POLICE COMMISSION PERMIT This permit is granted in accordance with provisions of the Los Angeles Municipal Code, and authorizes the below named person to conduct business at the given address only. PERMIT EXPIRES DECEMBER 31st of this calendar year. Issued to: Permit Number Board of Police Commissioners Secretary Notify the City Clerk's office immediately of any change in ownership or location. FIGURE 1 POLICE COMMISSION PERMIT No. ______ Los Angeles 13, California ___________19 I hereby pledge to ________ the following described property, to wit: _ ^ ^ $ Clean ______ _________________________________ Press_______ Repair _____ to secure payment of a loan made this day for a loan period of one month, and which loan shall become due and payable one month after the date hereof in the sum of _______________dollars (etc.) (Sign Here) Signed ____ Address FIGURE 2 PLEDGE FORM authorized person. Provision for a register book in Cali- i : fornia was made by the Pawnbroker's Act of April 17, 1861.^ |Pawnbrokers were the first group of lenders selected for » 'regulation in California. The Pawnbroker's Act of 1861 provided that the register book shall be written in the English language. Entries in the register book must i include the date of the loan, the duration of the holding ■period of the loan, the amount of cash advanced, and the rate of interest to be charged. In addition, an accurate description of the property pledged must be made. The :pawnbroker was also required to give to the borrower a jwritten memorandum containing a copy of the pledge he had i just signed and the written entries made with regard to that pledge. After the surrender of his collateral, a pledge receipt, or pawnticket, is delivered to the borrower in addition to the cash agreed upon. Figure 3 is a facsimile of a pawnticket used in the city of Los Angeles. Prior to this regulation, pawnbrokers had operated in whatever fashion was dictated by their conscience. It was during this time that the abuse of the pawnbrokers' ^Statutes of California, 1861, p. 184. I f you wish the time extended, send the interest due and give the number o f this ticket. (PAWNSHOP) No. _______ 19 I hereby pledge to (Pawnshop), the following described property, to-wit: $ to secure payment of a loan made this day for a loan period of one month, and which loan shall become due and payable one month after the date hereof in the sum of ____________dollars (etc.) (Pawnshop) is hereby authorized to deliver pledged property to the bearer of this duplicate copy of the pledge agreement whether or not endorsed. Not responsible for loss or damage by fire, theft or moths. To redeem SIGN HERE (Signed) ____ No article shown until paid for. ANY PART OF A MONTH USED MUST PAY THE FULL MONTHLY RATE Every pawnbroker shall retain in his possession every article pledged to him for a period of SIX MONTHS after the last date fixed for redemption by his loan contract. FIGURE 3 PAWNTICKET jfunction deservedly earned for the pawnbroker the ill will of the general public and resulted in legislative acts to curb the freedom of pawnbrokers. This regulation requiring the use of a register book and the issuance of pawntickets cannot be opposed on |any realistic grounds. There is no advantage in con ic ealment in the legitimate operation of a pawnshop. Only jpersons willingly and knowingly engaged in the traffic of stolen property would object to this provision of the law. ' Failure to conduct the business of pawnbroker as ’specified was to be considered a misdemeanor. Such failure would result in a fine of from $50 to $500 and/or i up to six months in jail. In 1865, the California Supreme Court upheld the I first California Usury Act of 1861, which regulated the 8 business of pawnbrokers. The attack on the law was based on the charge that it violated Article I of the California Constitution of 1849. This article provided that all laws of a general nature shall have a uniform operation. Those who wished the act to be declared j Sjackson v> shawl, 29 California Reports 267 (1865) . 56 ! unconstitutional claimed that by its terms the act was i limited to a small number of persons, namely, pawnbrokers. Substantially the same attack was made again in ( 1885 under the new California Constitution of 1879. The attack was dismissed as follows: We think the act in question may be sustained. It applies to all persons in this state engaged in the business of licensed pawnbroking and makes all persons engaged in that business amenable to its provisions. The pawnbroker does a business peculiar to himself. He always requires a deposit as security for the amounts loaned, which are usually small, and in that respect at least, his is a business not carried on by any other person in the state. Pawnbrokers are not allowed to do a certain act because the legislature in its. wisdom deemed it injurious and harmful to the community to permit them to do the prohibited act, but the like necessity for a rule of prohibition did not, in the opinion of the lawmaking power apply to other classes of persons in the community.$ The above case has been cited with approval by the Supreme Court of California six times. Police report sheet regulation. A later regula tion requires that the pawnbroker shall, in addition to keeping a register book, each day deliver a true, full, and complete copy of said register to the Chief of ^Ex parte Lichenstein, 67 California Reports 359 (1885). | 57 10 Police. Figure 4 is an exact replica of the report sheet form used by the city of Los Angeles. I In actual practice today these two regulations I are of great value to the pawnbroker. The legitimate i I pawnbroker uses them to discourage suspected thieves from I using his pawnshop as a means of disposing of stolen 1 I property. He does this by impressing upon each potential customer the fact that these register and police report form requirements do exist. He emphasizes that the chances of apprehending a thief are therefore much greater ! when he resorts to the use of a pawnshop. By thus letting j J suspected thieves know that he is obeying the law whole- ' heartedly the pawnbroker is actually protecting himself ; and reducing the amount of possible loss from the handling of stolen property. Once the report forms reach the records division of the local police they are carefully examined. The most helpful items reported by the pawnbroker are those which bear serial numbers. Watches, musical instruments, cameras, radios, televisions, and many household ^ Statutes of California, 1925, p. 509. 58 Office of _____________ Pawn Broker, at No. _________ Los Angeles, California _______________ , 19 I TO THE CHIEF OF POLICE, LOS ANGELES, CALIF: The following is a true description of all property brought or taken in pawn by me during the business day of ______________ , 1 19 ___, rendered in accordance j Signed __________________________ DESCRIPTION OF A1RTICLE Art icle, Maker's Name, and Kind or model Color Size or Length Design Serial Number, Monogram and Inscription Time Pawn Ticket Number Amount Loaned Amount Pur chased Name of Person Pledging or Selling Address of Person Pledg ing or Selling (If in a City, give Street and Number) DESCRIPTION OF PEIRSON DEALT WITH Sex Age Height Weight Complexion Eyes Hair FIGURE 4 POLICE REPORT SHEET FORM [" 5 9.! I appliances have individual identifying serial numbers. A i I ! , list is made by the police department record division of I i all articles which have serial numbers. This list is | filed for immediate and future reference. When a theft ( of an article having a serial number is reported the pawnshop pledge list is examined. In this manner stolen 1 _ i j property that has been pledged may be located and recovered. Another use of the pawnshop serial number list is t ! the tracing of delinquent credit accounts. Many credit ! jewelers and appliance stores use this means to locate i their property. The police department takes no action j other than locating the property in these cases. The action to recover such property is a civil and not a criminal matter. In practice, the credit companies will ; pay the pawnbroker the amount of the loan to recover their property. Payment is made because the credit con tract beclouds the title of the merchandise. This occurs when the contract specifies that the return of the mer- i chandise does not absolve the buyer from the full payment of the purchase price. Any proceeds realized from the return of the article are merely deducted from the amount owed, and a deficiency judgment is sought for the balance, i In California, a duplicate copy is made of the list i of articles with serial numbers. This copy is sent to the! State Bureau of Criminal Identification and Investigation , I 11 j in the capital, Sacramento, California. At Sacramento * i a central file is maintained. It is a clearing house for i reports from all over the state. Here lists of pawned articles are compared with lists of stolen articles. When I j a stolen article is located in this manner, the police 12 department handling the theft is notified. In this ; manner it is possible to connect properties that have been i stolen in San Francisco and pawned in San Diego or vice I I 13 ■ ! | versa. The magnitude of such an operation can be better j appreciated when it is realized that there were 91,000 ; pledges in 1954, and 95,500 pledges in 1955, in the city iof San Diego alone.It seems logical that the advantages of having a central state file would also apply interstate. No move has yet been made to close the interstate ■^"Before the Senate Interim Committee on Pawn brokers," op. cit., p. 24. ■ ^Ibid. ? p, 134, 13Ibid., p. 149. 14Ibid., p. 12. trafficking in stolen property by the use of such a , central file. The pawnshop squad. An additional check upon the i operations of pawnbrokers is achieved by means of a special group of policemen. These men form a detail known !as the pawnshop squad. Each member is responsible for the !coverage of a particular district of the city. He arrives I I at the pawnshop at different hours during the day. Usually |he arrives when least expected. When he enters a pawnshop :he checks the register book. He checks the description of | s |every item taken in pawn to be certain that the report forms are being filled in correctly. He is required to 15 visit each pawnbroker in his district every day. If any disputes arise in the operation of his business, the pawnbroker refers the customer to the pawnshop squad. Here the customer can learn whether or not he is being.imposed upon by the pawnbroker. If the pawnbroker is the subject of too many justified complaints, the pawnshop squad can recommend to the police commission the suspension or ^A. Strokosch, ’'Brother to Shy lock,” Century Magazine, CXVII (February, 1929), 400. ! ' 62 “ ' revocation of the pawnshop owner's license. It should be quite evident that with the existence of such minute and constant supervision the pawnbroker of today has much less chance of being dishonest than other men. The pawnshop business has become an undesirable ;facade for those who desire to accommodate the stolen jproperty traffic. ! Pawnbroker cooperation with police forces. The » j pawnbrokers perfontf a service of unquestionable value by initiating the police report forms which are helpful to police departments throughout the state. Pawnbrokers, however, have voluntarily gone beyond the required actions. Pawnbrokers, themselves, have the feeling that their busi ness in the past has deservedly acquired an undesirable reputation. They have^taken action within their own business associations to recommend legislation seeking to curb known abuses. In discussing cooperation beyond that required by law, the Chief of Police of San Diego, California, stated before the California State Senate Interim Committee on Pawnbrokers: I want to comment on the fact that the coopera tion from pawnshops includes the apprehension of a great many criminals. And we have caught some pretty important people through cooperation of pawnshops. We have a kind of signal arrangement that works well.*-6 In a similar vein the Lieutenant of the Los Angeles Police Department commented: We find in the city of Los Angeles that the pawnbrokers are very cooperative. We find that they do adequately report to us on a twenty-four hour basis and we could cite many instances where they have assisted us in the apprehension of offenders by calling us and notifying us. In addition, State Senator Busch at the same hearing added: i As District Attorney I found that to be the j case in Northern California, especially Alameda County and San Francisco County. We had the i utmost cooperation from the pawnbrokers. Such cooperation is possible because a reliable and capable pawnbroker becomes an accomplished student of ;types of humanity. The success of his business depends a great deal upon this. He can often tell by appearance, together with conversation, when the man who is at his ^"Before the Senate Interim Committee on Pawn brokers," 0£. cit., p. 32. 17Ibid., p. 151. 18Ibid., p. 33. counter is a thief. Newspapers often report the exploits | of such pawnbrokers. j The most outstanding example of this type of pawn- : broker is Mr. Weisenberger of New York City. He has been capturing criminals ever since he surprised burglars in his father's darkened pawnshop when he was sixteen. His l exploits have landed some fifteen hundred culprits in jjail. He has been responsible for the recovery of more 19 than a million dollars worth of stolen property. This apprehension of criminals and the recovery ;of stolen property is one of the important yet unremunera- j tive and often unappreciated ways in which a pawnbroker can serve his community constantly. I Stolen Property Whenever the business of pawnbroking is discussed, a great emphasis is always placed upon the handling of stolen property. Pawnbrokers admit that the nature of the ^Mary Elizabeth Comer, "Cops and Robbers in a Pawnshop," Reader's Digest, LIX (December, 1951), 131. ^®"A Pawnbroker Who Has Passed the Three-ball Limit in Advertising," Printer's Ink, CXXI (October 19, 1922), 110. business holds a natural attraction for thieves. I The seriousness of the problem of stolen property. j What, actually, is the percentage of pledged property | (which is recovered as stolen property? The most complete figures available are from the records of those government (pawnshops which operate as a monopoly. In Paris in 1881 there were 1,598,018 pledges received by the monts-de- piete. Of this number 1,042 were recognized as lost or stolen, and 330 were held as being of suspicious origin. [ ,It is unfortunate that those articles which were merely (lost were included in this account. However, even inelud- 1ing the lost articles and the articles of suspicious origin the total was 1,332 or 8.59 out of every 10,000 articles pledged. This is a percentage of eight one thousandths 21 of 1 per cent. How have the charitable nonprofit organizations fared in this respect? No figures are given in their association bulletins for stolen property losses. The 21 W. R. Patterson, Pawnbroking in Europe and the United States, United States Bureau of Labor Bulletin No. 21 (Washington: Government Printing Office), p. 235. " ~ “ ~ — ~ 66 only emphasis made was that bright thieves avoid such 22 organizations like a plague. The experiences of private pawnbrokers vary. Stolen property losses depend a great deal upon the care with which the pawnbroker conducts his business. The pawn shop register books available for this survey show that out of 22,882 articles pawned in 1956, nineteen articles were recovered as stolen. This compares favorably to the per centage obtained by the government-owned pawnshops of Paris, It is quite evident that stolen property consti tutes a very small, though extremely unpleasant, problem for the pawnbroker. Even Mr. Weisenberger, who takes a particular pride in capturing criminals, states that roughly 98 out of every 100 loan applicants are honest folk.23 The mandatory handling of stolen property. Property ! 9i is the medium of solving crimes. Property would be 22Caroline Bird, "The Providential Provident," Colliers Magazine, CXXI (February 7, 1948), 72. 23Comer, o£. cit., p. 132. ^"Before the Senate Interim Committee on Pawn brokers," o£. cit., p. 137. extremely difficult to recover if thieves dispose of it through underground channels. It would also be difficult o c to apprehend thieves using illegal channels. J In j recognition of this, laws have been enacted in some states making it mandatory that pawnbrokers accept in pawn prop- 26 tery that he feels is stolen. The value of such legis- i i jlation is twofold. First, the property itself can be recovered. Second, the person who pledged the property can be identified. Ordinances which impose duties upon pawnbrokers to identify the persons with whom they deal 27 have been found valid. Pawnbrokers dislike such ordinances. The legiti- | mate pawnbroker wants no part of the business of thieves. Even with full payment of the amount loaned being made, the pawnbroker still suffers a monetary loss. He must ispend valuable time in court appearances as a witness. This usually entails the loss of two full day's working ^John Mapplebeck, "The Oldest Banker--Your Uncle," Saturday Evening Post, CXCV (May 26, 1923), 48. 26 Before the Senate Interim Committee on Pawn- > brokers," op. cit., p. 7. ! 27 125 American Law Reports 598, Annotated. 68 time, one day for preliminary hearings, and another day for trial procedures. Aside from the monetary considera tions, the average pawnbroker dislikes being forced to be the instrument of entrapment for thieves. If he is going to enjoin this type of risk, he wants to do it on a voluntary basis or in a more discrete manner. The use of such ordinances are very rare. They are based on the belief that society's best interests are met through reputable persons being used to recover stolen property. The most prevalent belief is that all steps should be taken to force thieves to dispose of their stolen mer chandise through illegal channels. This is accomplished by making it extremely hazardous and difficult for thieves to use any legitimate outlet, such as a pawnshop, second hand store, or junk yard. The regulation of closing hours. Ordinances have been passed regulating the closing hours of pawnshops. In Los Angeles pawnshops are restricted to the hours of 8 A.M. through 6 P.M. weekdays, and 8 A.M. through 7 P.M. Satur days. They are prohibited from doing business at any other time. This regulation is in accordance with the belief that thievery will be discouraged if legitimate 69 channels for disposing of goods can be restricted. This is the basis upon which the courts have validated ordi nances regulating hours of operation. Pawnbrokerage is considered such a business that morals, safety, or general welfare might be affected by its being permitted to remain OQ open after certain hours. ° The thought behind the ordinance is this: Thieves operate chiefly at night. They will dispose of their loot immediately, if possible. By restricting the hours of pawnbrokers to daylight hours, the police force will be more likely to apprehend the thieves. In actual operation this has proved effective with petty thieves. This type of thief has difficulty finding sources that will give cash for a variety of merchandise obtained by burglaries and petty thefts. It is the petty thief who causes the pawnbroker the most distress through losses incurred by loaning on stolen property. The pawnbroker welcomes this ordinance if it is reasonable. It serves to limit the hours of competition in a highly competitive trade. Pawnbrokers object when 28 55 American Law Reports 249. the hour restrictions become too drastic. Greatly I restricted hours have a twofold effect. First, they tend to encourage bars, restaurants, and groceries to perform the pawnbroking function during the hours the pawnshop j ; is closed. Second, such drastic restrictions interfere i i with the pawnbroker acting as a source of funds during I I hours when other lending institutions are closed. Many ;persons are not sufficiently well known in the locality to get a personal check cashed after banking hours. The ’pawnshop is a source of funds when banking facilities are !not open. The pawnshop is often the bank of the itinerant. \ Restrictions on labeled property. At times laws which actually prove harmful result from efforts to pro tect the public. One such ordinance made it unlawful to receive property as a pledge when such property was dis- tinctly and plainly marked as the property of any firm or corporation. The party offering the property for sale was required to show satisfactory evidence that he was the owner. On the surface this seemed like a reasonable pre caution and was designed to protect the public from theft. The courts, however, found this ordinance to be unreasonable, discriminatory, and prohibitory.^ The court t I interpreted the practical effect of such an ordinance to i be as follows: The party seeking to pledge a radio, watch,* } l I camera, etc., would be required to seek out the original j : manufacturer and receive permission to pledge the property. ; This presented an extreme problem when the possession of | the article was obtained from anyone other than the manufacturer. The requirement of a minimum pledge period. Some i i ordinances require that property once pledged must remain I | | in the pawnbroker’s possession a minimum period. This , ! minimum period is usually of twenty-four hours duration. i It is designed to give the police department sufficient I time to check for stolen property, using the reporting and | j i I checking system previously described. Pawnbrokers object to this provision. They point out that it would indeed be a rare person who would knowingly pledge stolen property and then, after going through the risk of converting the property into cash, 29gx parte Goldburg, 82 Texas Criminal Reports 475 (1918). r ~ ~ " ......................................... ""..............." .7 2 .i j turn around and seek to redeem the pledge. Furthermore, } ! this provision prevents the operation of one of the most j lucrative practices of pawnbroking. The most profitable j loan a pawnbroker can make is the one that is held for j | j the shortest period. Often a customer needs ten dollars ! on his watch at 8 A.M. Monday morning and then redeems 1 the pledge when the bank opens at 10 A.M. When the holding ! i period is merely several hours or overnight, the pawn- i broker realizes the greatest return on his investment. A twenty-four hour minimum holding period does not allow ; such quick loans to occur. ! i ( In one of the rare outbursts of eloquence found in ! : legal reporting, the court of the District of Columbia ruled as follows: j The purpose of these regulations is the protec tion of the community against the numerous larcenies and robberies that are the disgrace of our civiliza tion, and are of too frequent occurrence in our midst, and which are unfortunately too often pro moted by the connivance conscious or unconscious of persons engaged in the classes of business which it has sought to subject to these regulations. The moral sense of the community will sanction any regulations, however severe, that have for their legitimate object the destruction of the nefarious business of receiving stolen goods. But in the attempt to protect property we should not impair the right of property. In the effort to reach the thief and the receiver of stolen property we have no right to prevent the lawful owner of the property 73 from exercising over it all the lawful right of ownership. Older than the Constitution, older than the Magna Carta, older than the Ten Tables, as old as civilization, and coeval with the first organiza tion of human society, is that provision of the law of nature, that no one should be deprived of life, liberty or property without due process of law. Antagonistic to this primary principle, which with us has become a constitutional guaranty, is all attempted regulation, however laudable its purpose, that deprives a man of the right to use that of which he is the unquestioned owner; and whether the privation is for 24 hours or for 24 years can make no difference in principle. It ought not to be impossible to impound for a limited time property around which there is a suspicion of guilt. But in the search for goods to deprive a lawful owner of the lawful use of property that unquestionably belongs to him, is to do evil in order that good may come of it; and no code of political morality that is entitled to the consideration of honest men can tolerate any such maxim as that. Despite the eloquence of the court of the District of Columbia, the same legislation providing for a twenty- four hour minimum pledge period was upheld by the courts of the State of Illinois.^ The use of fingerprinting. In modern times some communities have resorted to the use of fingerprinting of pawn customers. An ordinance requiring that thumb prints ^ Fulton v. District of Columbia, 2 Appeal Cases-- District of Columbia 436 (1894). 1 o-l American Law Reports, loc. cit. i be taken of all persons from whom the pawnbroker receives j chattels is not invalid as an interference with personal j liberty.^2 jt would seem that this type of regulation is i reasonable since experience has demonstrated that hand- I writing may be subject to forgery but fingerprints are j not. Those who favor such a law make the following points When property is stolen for the purpose of exchanging it !for cash, the guilty party can find many methods of evading and avoiding detection and arrest. For the sake of property owners and for the enforcement of criminal I law, those whose business naturally and of necessity !includes transactions with such lawless persons should be required to take fingerprints. It has previously been stated that bright thieves avoided pawnshops. With the wide application of fingerprinting, all but the most reck less of thieves could be dissuaded from patronizing the pawnbroker. This is the point at which the two theories of the best way to serve society through regulation clash. With the use of fingerprinting, an effective method has been ~^Ibid., p. 601. found to stop thieves from using pawnshops. Is society ( better off using the fingerprinting ordinance, thereby j forcing the thief to use underground channels? Does society gain more by not using the fingerprinting ordi nance? Without fingerprinting, pawnbrokers can serve ; society as a source of recovery of stolen property and a 1 method of apprehending thieves. Although fingerprinting of pawn customers has been recognized as an unquestioned legal procedure since 1921, its adoption by police enforcement agencies has been exceedingly s l o w . 33 j n California only the community of San Jose utilizes fingerprinting. The reason for the slow spread of fingerprinting is that most police officials feel that more property is recovered and more criminals are apprehended without fingerprinting than with it. When the regulation requiring fingerprinting is used, the result is not a decrease in thefts. What happen is merely a transference by thieves to another method of cashing in stolen property. Since the individuals now receiving stolen property do not operate openly as 33yjchita v. Wolkow, 110 Kansas Reports 127 (1921) pawnshops do, the property that gets into their hands is not subject to recovery. In recognition of this state of t affairs it has been the practice of insurance companies | to fully compensate the pawnbroker. Not only do insurance companies pay the amount of the loan plus the interest due, j but they also offer additional rewards. This is done in j | the hope that the pawnbroker will be motivated to take ■ any questionable article in pawn. Insurance companies t have found that such a policy is sound business. The recovery price, even including the additional reward, is I substantially lower than the replacement cost for which j i the insurance company is liable. I j Some police departments encourage pawnbrokers to I accept doubtful pledges. As previously stated, the prop erty is the medium for solving crimes. Since the policy of the police department is to encourage the taking of doubtful pledges, it is also their policy to actively seek to limit the pawnbroker’s loss due to the handling of 34 jsuch items. This is done by explaining to the victim the pawnbroker's position as an aid to the police through i ^Robert Wallace, "A Regular Roosting Place," Life, XXV (September 14, 1953), 143. voluntarily recovering stolen property. After such an explanation, people who are fortunate enough to find their ! property in pawnshops are willing to get it back at little[ relative cost. Also, many cases of burglary and larceny j i are, due in great part to the negligence on the part of I the claimant. One actual example may serve to emphasize this point. A pawnbroker was asked to make a loan on a j set of golf clubs. He noticed that the clubs were left- handed. The person making the loan wrote with his left hand. Upon completion of the loan the pawnbroker obtained i t I from the borrower his driver's license. He noted the i number upon the pledge and gave the borrower his money. i i He reported the pledge on his daily report sheet. A theft i report was filed on this same set of golf clubs. The : victim stated that he had left the clubs in the back seat of his car. His car was parked on the street across from his place of business. His business was located in a semi slum neighborhood. The car had not been locked. According to the letter of the law the victim could recover his property without payment to the pawnbroker. The police department pointed out the care exercised by the pawnbroker, and the neglect on the part of the victim. As a result of ! this discussion, the victim reimbursed the pawnbroker. j The police had an excellent record to apprehend the thief. I The repossession of stolen property. Some police • i departments have adopted a strict "hands-off" policy con cerning the repossession of stolen property. In Los Angeles once a stolen article is located in a pavnishop ; the rightful owner is given a slip, a copy of which is |shown in Figure 5. It is understandable that a person who has been victimized by theft would object to paying anything to 1 recover his property. This is especially true when he is given three choices without any further explanation. To a pawnbroker, losses from the repossession of stolen property are a business risk. It is, therefore, :also understandable that a pawnbroker would take every care to minimize that loss by avoiding any pledge of a questionable nature. This is especially true when the jpawnbroker realizes that he will suffer an additional loss :of time due to serving as a witness when the criminal is apprehended. Under the "hands-off" policy, those who receive their property without cost tend to benefit. However, they LEGAL ASPECTS OF RECLAIMING PROPERTY ; I The City Attorney advises that where an owner loses property or property has been taken by criminal means, and such property is later found in a pawnshop or secondhand store, the owner may pursue any of the following procedures in seeking the recovery of such property: I |1. Pay the pawnbroker or secondhand dealer the amount loaned on the article. i 2. Make demand on the pawnbroker or secondhand dealer for return of the article. In the event the article is not delivered as demanded, the owner may apply to the Police Commission, Room 51, City Hall, for a j hearing, and request the Board of Police Commissioners to order the pawnbroker or secondhand dealer to return the property to him. 3. File a civil lawsuit. i iIf additional information is needed, contact the Public Defender, Michigan 5211, Ext. 693. i ___________________________________________________________________________________ _ _ _ _ __ ___ __ ____ _ Name of firm holding property Business Address AUTHORIZATION TO RELEASE POLICE HOLD Victim Loan No. Dr. No. Date of Release Description of Property: Officer authorizing release (Name, Serial No., Division) Page 1 FIGURE 5 FORM FOR RECLAIMING PROPERTY r 80 ACKNOWLEDGMENT OF INFORMATION REGARDING i i RECLAIMING PROPERTY I f ! I have been informed of the location of the property 1 I listed below, and also of the City Attorney's instructions' I concerning the legal aspect of regaining possession of 1 said property. Signature of Owner i Name of Firm holding property Business Address ! Victim i_________________________________________________________________________ Loan No. Dr. No. Date of Release Description of Property: Officer authorizing release (Name, Serial No., Division) Page 2 FIGURE 5 (continued) FORM FOR RECLAIMING PROPERTY benefit at the expense of others whose property might also j . < j have been recovered if a more realistic policy, such as j that adopted by the insurance companies, had been followed] They also benefit at the expense of the police force and the rest of the community who could have utilized the pawnshop to a far greater extent as an excellent means of J apprehending thieves. \ | A pawnbroker may refuse to return property that j he has in his possession. If this occurs, the owner must i take one of two actions. He may take his claim before the board of police commissioners for a ruling. Since I | this does not result in any expense to the owner it is ! the usual course of action. This same board is also the J judge of the pawnbroker's fitness to be licensed. It is i quite evident that the pawnbroker avoids such hearings ; i whenever possible. This commission acts because it has the power to determine title to personal property without ! notice to claimant by virtue of local ordinances.^5 The natural reluctance of the pawnbroker to appear ! • i before the board of police commissioners and question the . . . , j ^Wellar Quinn> 4 California Appellate Reports, ; I Second Series 663 (1935). ! recovery of property reported as stolen has resulted in { his being victimized. There is nothing to prevent two j ; persons from entering into a conspiracy to defraud. One j would pledge an article while the other would make a i report to the police claiming the same article as stolen 3 6 ! property. Such frauds have been perpetrated. There are various other kinds of claims that come up from time to time involving not only conspiracy and fraud, but.family and lovers' quarrels. In such cases the individuals concerned spare no time or trouble in trying ' to take advantage of the lender.37 i If the claimant wishes, he may take court action i rather than police commission action. One of the expenses incurred by the pawnbroker is legal defense when he is ■ involved in litigation. Actually, the number of civil suits is comparatively light in this field. People are often secretive and sensitive about their dealings with pawnbrokers. However, at other times a claimant may use every court available. The following example was ■^Bulletin of the National Federation of Remedial Loan Associations, September, 1923, p. 23. 37Ibid., p. 22. experienced by a nonprofit charitable loan association: l j A woman filed a ring theft claim with the police sdepartment. Fortunately for the Remedial Loan Society * i and the defendant, the pawn records showed that the ring i was pledged five months prior to the time the victim | claimed the ring was presented to her. The criminal case was dismissed. Two weeks later the woman filed a writ of replevin in civil court. The judge, after hearing the evidence, dismissed the case. The woman then filed OO another suit in Circuit Court which was dismissed. Regardless of its comparative importance to the ;amount of business done, stolen goods represent to the |pawnbroker and to the public the most unsavory portion of the pawnshop industry. Of much greater interest to the pawnbroker and the public are those regulations which affect the profitability of operating a pawnshop. Basically, these are the length of the holding period, the rate of interest, and the method of disposal of unclaimed pledges. It must be remembered that no uniformity has been 38Ibid., p. 23. r 84 achieved throughout the United States on any particular i I regulations concerning the technical operation of the pawnbroking business. These topics are much less contro versial than those dealt with in the next two chapters. i ! It is understandable that regulation of interest, holding I | period, and disposal of unclaimed pledges are subject to j the most varied of regulation. The result of this is t confusion in the minds of the general public. This con fusion is the source of most of the friction between pawnbroker and pawn customer. In Chapter IV a study is made of the redemption rates of an individual pawnshop. i This should provide some insight into the actual facts of redemption practices. CHAPTER IV j THE REGULATION OF THE HOLDING PERIOD OF COLLATERAL LOANS Of all the regulations imposed upon the pawnbroker the most important are those which affect his ability to earn a profit. One of the main factors that determine the profitability of pawnbroking is the length of time j that the pawnbroker is required to keep an article that is I |pledged. The amount of capital needed to operate a pawn shop is dependent upon this factor. The Period of Time Pledged Articles Must Be Held by the Pawnbroker The aim of any regulation requiring a maximum time period that pledges must be held is to allow sufficient time for the borrower to readjust his finances. It is hoped that the borrower will be able to repay the loan without undo stress if he is given a sufficient period of time. In this manner the borrower could enjoy the maximum satisfaction possible from making the loan. He would have j borrowed when in difficulty; he would have repaid when he j ; was financially able. The main question is how long a period is needed to safeguard the borrower. Differences in the required holding periods, j Regulation has vacillated aimlessly with regard to the desirable maximum length of time that pledges should be held in pawn. A brief review of the legislative action ; in California will serve to point this out. The original j pawnbroker's act of 1861 required a maximum holding period : of six months.^ In 1935 the holding period was changed to one year.^ This law was in force until 1939 when the i legislators reversed their position and adopted the former six months holding period.3 The final action to date upon this matter was the legislative adoption of 1955. This lstatute requires a nine month holding period. This legis- ;lation is the first to recognize that all pledged articles cannot be treated in the same manner. Excepted from the ;nine month requirement are articles of a perishable nature. i • ^Statutes of California, 1861, 184. 2Ibid., 1935, 1613. 3Ibid., 1939, 2667. This generally means clothing and furs. These articles i 4 are to be held for six months. Judgment as to the proper holding period for pledges varies throughout the states of the union. Nevada i ; requires a ninety day holding period, which is the lowest | of any state.^ New York still requires a one year period, j This has been and is the highest required of the pawn- I broker.** Police interest in establishing a specific holding period. In determining the best possible holding period |many variables have to be considered. The length of the i holding period beyond the first thirty days has no real value to the police force. On the articles bought out- , right by secondhand stores the police department only requires a twenty-one day holding period before the owner may dispose of the merchandise. The recovery of stolen 4Ibid., 1955, 766. ^State of California, "Before the Senate Interim Committee on Pawnbrokers," August 24, 1956, p. 40. (Transcript of hearing.) ^Caroline Bird, "The Providential Provident," Colliers Magazine, CXXI (February 7, 1948), 18. property will have been accomplished within that time period. There are no serious objections to a reduction ' in the length of time pledges are held as far as most police departments are concerned.^ Advantages of an extended holding period. The greatest advantage of an extended period is that the loan i may be repaid by smaller deductions from weekly income, j In this manner the longer period allows the borrower to : readjust his financial position. A shorter period would | mean that the borrower would either lose his pledge or :would have to borrow again from another source to meet the 1 obligation he had incurred by pawning. The basis of all the above arguments is the ability of the borrower to budget and save in order to liquidate his debt. To the :extent that the borrower has the ability to budget and save, a longer holding period can facilitate the redemption of pledged articles. What is the actual time that a loan will remain in pawn before it is redeemed? The average loan is redeemed ^State of California, "Before the Senate Interim Committee on Pawnbrokers," May 11, 1946, p. 30. (Trans cript of hearing.) o in a period of from two to four months. Disadvantages of an extended holding period. The I initial disadvantage pointed out by most pawnbrokers is i I that patrons of pawnshops are usually there because of ! lack of ability to save and to budget. An extended time ;period has no benefit to this type of individual. In actual practice the value of the longer holding j period is dependent to a great extent upon the size of the I loan. In dealing with small loans, which the pawnbroker does, the accumulation of interest charges over an extended I - ! I period can have a very definite effect. It may become inadvisable for the borrower to redeem his pledge due to such accumulation. The small loan plus the interest charges may exceed the replacement cost. To avoid this possibility pawnbrokers have adopted the policy of accepting periodic interest payments on loans. This has the effect of making the contract an open-ended agreement. Extension of the time period of the contract becomes unlimited as long as interest payments are continued. This practice has two advantages for the - ^Ibid., p. 83. borrower. First, the time period may be extended as long I as the borrower has need of the original loan and can .make the interest payments. Second, the accumulation of interest is prevented by keeping interest payments up to date. * ' i The adoption of the open-end pledge agreement i !by legislators would enable them to enact legislation wherein the required holding period could be reduced. What are some of the advantages of a shorter holding period? j | Advantages of a shorter holding period. A person !borrowing on a pledge that has a long holding period requirement must pay for the unpredictability of future events. He receives less money than would normally be tendered to him if the holding period were shorter. This itime discount causes the most notable advantage realized from a reduction of the required holding period. Another advantage of a shorter holding period is the reduction in storage space. Pledges which will eventually be disposed of must be stored until the ^Ibid., p. 69. required time is over. The longer the holding period the greater the physical facilities for storage that must be provided. The pawnbroker knows that a certain percentage i of pledges will not be redeemed but he does not know which i i particular pledges they will be. He must, therefore, j judge all loans as unredeemed. In his appraisal he must ; subtract storage costs from the future disposal value of i all pledges. A continual problem for the pawnbroker is the necessity of keeping his capital liquid. With a short ! holding period the pawnbroker can dispose of those pledges I which are not redeemed. This returns his capital to a i : liquid form. Using this returned capital he can continue to make more loans. With a longer holding period more and more of his cash is in frozen merchandise. This consists of pledges that the pawnbroker cannot dispose of until the time period has expired. Therefore, it can be seen that time is of vital importance to the pawnbroker. He cannot afford to be lenient in this matter. When the pledge has expired, the merchandise is converted back to cash as I 92 1 quickly as possible.^ The longer the time period, the ' greater the amount of capital necessary to operate a i pawnshop.^ It was estimated that when the California I [ law was changed from a six month period to a twelve month holding period the capital outlay and the storage space 12 requirements increased considerably. The length of the holding period is a vital point to be considered when appraising merchandise. A shorter 1 holding period protects the pawnbroker from great value ; fluctuation in the market where he must dispose of his | pledges. A shorter holding period also protects the pawn- ' broker from the danger of rapid style changes. With perishable merchandise the shorter holding period protects the pawnbroker from the natural deterioration of the jarticles being held as collateral. This is especially !true when these articles are of a perishable nature, as clothing or furs. An example of such difficulties is contained in the l^W. R. Titterton, "A London Uncle," Living Age I Magazine, CCC (January 18, 1919), 179 . ^"Before the Senate Interim Committee on Pawn brokers," og. cit., p. 11. 12Ibid., August 24, 1956, p. 70. petition by the pawnbrokers of Shanghai. In 1934 they requested a reduction in the time limit that pledges must be held. They stated that fashions changed so rapidly thah | the market for the disposal of unredeemed pledges was j ;lost.13 Even the nonprofit pawnbroking organizations have expressed doubts as to the wisdom of a long holding period. They point out that such requirements make it necessary for the pawnbroker to exact more severe terms from the borrower. Because of this, the longer time period really !operates to the disadvantage of the borrower who intends ! to redeem his pledge.^ j What has been the actual record of redemptions in pawnbroking establishments? The record of redemption of pledges. The per- Icentage of redemptions of pledged articles will depend largely upon two factors. First is the type of operation the pawnbroker conducts. If the pawnbroker stresses volume 13New York Times, October 28, 1934, Section IV, p.L ^Bulletin of the National Federation of Remedial Loan Associations, August, 1922, p. 4. j even at a greater risk, the percentage of redemptions will j be less than if the pawnbroker has a few handpicked loans. j The second factor is the size of the loans being made. j In Remedial Loan Associations, where the pledges j are of a large nature, the percentage redeemed is extremely ( high. Provident Loan Society's loan average of $23 was ! the lowest of any of the nonprofit remedial loan agencies, j During 1948, Provident lent money to 284,000 persons in 378,000 transactions. Only 1 per cent of the pledges and i 1/2 per cent in dollar value was unredeemed or not j 15 renewed. i Kaskel’s is a privately operated pawnshop. It ; i does business in New York and, as previously mentioned, competes with Provident in supplying funds on collateral of greater value. Kaskel reports that 95 per cent of the pawned articles are redeemed. Kaskel's percentage has undoubtedly been affected by its more lenient appraisal policies. They accept greater risk. As a result, they have a poorer record of redemptions than the Provident ! ^ New York Times, February 15, 1949, p. 16. ; ...... ~......... 95 Loan Association. j j As the size of the average loan decreases, the j i percentage of unredeemed pledges increases. Around the j ten dollar average loan level the percentage is 85 per | 17 cent redemptions. ' The large percentage of pledges redeemed should surprise most critics of pawnshops. Critics have assumed the unredeemed percentage to be a large one. Without any factual basis other than this assumption, they con- IQ elude that many of the articles pawned are stolen. The extended holding period acts as the greatest ! deterrent to handling stolen property. Once pledged, an article must be held for the required time period. A person handling stolen merchandise would be foolish to take that merchandise in pawn. The logical move would be i to buy the merchandise and hold it for the required twenty-: one day period. This is the area that can successfully Lowell Brentano, "Everybody's Uncle," Nations Business Magazine, XXIX (November, 1941), 22. ^Mildred Hardinburgh, "At the Sign of the Three ! Golden Balls," American Magazine, CII (October, 1926), 43. | 18"A National Menace," Photo Era, XXXIV (June, 1915), 277. ! handle the greatest amount of stolen merchandise. Unfor tunately, pawnshops are also required to obtain a general secondhand dealer's license in order to dispose of unclaimed pledges. It is this intermingling of the pawn- : broker business and the secondhand dealer's business that can result in a pawnbroker's establishment becoming involved in stolen property disposal. A careful pawn broker rarely uses his privilege to buy articles under the secondhand dealer's license that he must obtain. The ! extent to which he uses his buy book generally indicates the care that he is taking to avoid becoming involved with i thieves. Abuse of an extended holding period. The effort to assure to the borrower a sufficient length of time to ;redeem his property has also allowed other persons to use :the pawnshop as a place of storage. People take advantage of the pawnbroker since he can make no extra charges for !storage. During the early summer months thousands of !dollars worth of furs and overcoats are pawned for ridicu lously small sums. Thus, for the minimum interest charge safe and careful storage is obtained, besides the use of the money borrowed. In New York it is theoretically possible to pawn a fine fur coat for $2.00 in June and | | JQ j redeem it for $2.10 in November. In practice, the pawn- ; broker would refuse to make such an obvious storage loan. In China, throughout centuries the pawnshop has j served as a safe depository for the gentleman's or lady's | furs in the summertime. In winter months garments of thin, i j delicate silk could be successfully housed in the same ; storage.20 In Paris, the cheapest way to get a car parked for 21 j the winter is to put it in pawn. ! Private pawnbrokers complain about this lack of i storage charges. In California a pawnbroker making a i ;$25 loan on a television set receives fifty cents per ; month total return. The charge for storing that same 22 television set is $3 per month at a regular storage house. 1 9 Albert Bigelow Paine, "A Visit to the Pawnbroker Auctions of New York City," Century Magazine, LXIX (January, 1905), 367. 20 I Eva Saxl, "About Pawnshops in China," American Mercury Magazine, LXXVII (October, 1953), 129. 2%ew York Times, March 11, 1935, Section IV, p. 3. 22gtate of California, "Before the Senate Interim Committee on Pawnbrokers," August 24, 1956, p. 60. (Trans cript of hearing.) j “ ' ‘ ........ ' .' " ......... 98 " The policy of using pawnshops for storage is well | known to the police forces. Often the investigation of j valuable property pawned for trifling amounts reveals that > I no theft has occurred. The owner had simply left it in a f pawnshop to assure safe storage while he was away on a 23 vacation trip. i Pawnbrokers try to discourage this type of busi ness. On every pawn ticket conditions are clearly printed I limiting the pawnbroker's liability. Such limitations will jbe sustained if reasonable.^ Pawnbrokers are not liable for loss or damage by theft, fire, or other happenings s which could not have been avoided by exercise of reasonable care or diligence.^5 Pawnbrokers usually carry only enough insurance to jcover their capital outlay on pledges. It is up to the borrower to carry his own insurance to cover his investment in the pawned article. The ordinary insurance coverage of personal effects will usually serve this purpose. The 23lbid.t May 11, 1946, p. 142. 2^Schwartz v. Chicago State Pawners Society, 195 Reports of Cases at Law and in Chancery, Supreme Court of Illinois 93. ^^Seider v. Stern, 159 New York State Reports 88. r _ . . . . . . . ;. . “ '. . . . . . . . . 9 9 ! i I distinction to be noticed is that although the pawnbroker j does furnish assurance of careful and protected storage, j he does not offer complete insurance. ! A case study to determine the length of time pledges are left in pawn. Only fragmentary statistics | are available to judge a proper time limit requirement. | The author was fortunate in having access to the register | books of a small local pawnbroker, for the entire year of :1956. The California law requires that clothing and other i :perishables be kept seven months, nonperishables ten months. This particular pawnshop specializes in the j extremely low loans. It is located in the heart of skid row. The average loan is $5. Because of the difference in time requirements under California laws, this particular jestablishment kept two sets of registers. In the clothing category a total of 17,637 loans were made during the entire year. Of this total 3,031, or 17.16 per cent, were not redeemed. This meant that 82.83 per cent was redeemed of all clothing loans. When it is remembered that non profit organizations will not risk lending on this type of ^merchandise the rate of redemption is very good. Of the ;14,602 clothing loans that were redeemed, 61.68 per cent f j 100 was redeemed in the first month; 79.53 per cent by the j end of the second month; and 87.02 per cent by the end of ! the third month. The required holding period in Cali fornia is seven months. Of the original 17,633 loans, ; I only 5,926 were still on hand at the end of three months. Fifty-one per cent of these remaining loans would never be picked up. The pawnbroker, because of regulation, must keep these pledges another four months. In making his i appraisal, the pawnbroker must treat every loan as a I potential lost pledge. The 87 per cent who redeemed their j loans in three months had received smaller loans because i of the extended loan period which proved of no advantage j j as far as they were concerned. Jewelry and nonperishable goods are considered ! safer in this particular establishment. Jewelry in this loan category consists of the less valuable rings and watches. The small loan pawn customer places great emphasis upon his outward appearance. As a result, he i considers clothing to be his chief asset and jewelry as I expendable. Finally, this particular pawnshop specializes I in clothing loans, as can be seen by the ratio of 17,633 I clothing loans to 5,249 jewelry loans. A ratio of more than I three to one. In compiling the figures on the percentage of redemption, the loans were also separated into dollar categories. It was anticipated that as the amount loaned 1 increased so would the percentage of redemptions increase. This did not prove to be the case, as illustrated by a redemption rate of 79 per cent for $5 jewelry loans, 88 per cent for $10 jewelry loans, 85 per cent for $15 jewelry |loans, and 84 per cent for $20 jewelry loans. There appeared to be no specific connection between amount of :loan and percentage of redemption in the nonperishable jewelry and tools loans. For the clothing loans there was a definite relation- ship of value to redemption rate, as illustrated by a rate of 85 per cent for $5 clothing loans, 88 per cent for $10 clothing loans, 95 per cent for $15 clothing loans, and 100 per cent for $20 clothing loans. The explanation of the discrepancy between the two categories lies in the possible range of real value in the merchandise. A $5 change of valuation in clothing loans has a real signifi cance. The author would assume that a similar result would be attained by comparing jewelry loans at $25 j intervals. This was not possible with the figures available. j i i Another surprising fact was the 70 per cent ; ! redemption rate in the $1 category. This 70 per cent rate was the same for both perishable and nonperishable items. One dollar loans are generally sentiment or courtesy ■ I loans to regular customers who have nothing of value left 1 i i to pawn. The collateral is of value only to the customer. j It is evident that the extended time period causes | i (the pawnbroker to keep pledges of which the majority would j |not be redeemed. A shorter redemption period would result |in a higher redemption rate. It would also result in more j [capital being available for loans, since the capital j frozen in pledges awaiting expiration date would be | ; I reduced. It would also result in more competition among i i pawnbrokers, since the original capital outlay to enter the business would be reduced. The reduction of market [deterioration risk due to an extended holding period would benefit both the pawnbroker and the pawnee. Tables I through XXXII illustrate the extent to iwhich the requirement for an extended time period is 1 i harmful to both the pawnbroker and the pawn customer. j Fortunately for the pawnbroker, the amount of unclaimed i r ............... '.............................' ' '............."............. ........ . 103 j ; pledges is much smaller than popularly supposed. Figures i | from our case study show that 80.29 per cent of the non- | perishable jewelry and tools loans was redeemed, and 82.83 per cent of the perishable clothing loans was redeemed. i ; The higher percentage for clothing can be attributed to I the size of loan and type of customer. i 104 TABLE I PERCENTAGES OF TOTAL CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 17,633 cent of 14,602 14,602 Months of loans 17,633 loans loans held loans made loans made redeemed redeemed 1 9,007 50.99 50.99 61.68 61.68 2 2,607 14.76 65.75 17.85 79.53 3 1,093 6.59 71.94 7.49 87.02 4 646 3.66 75.60 4.49 91.51 5 476 2.69 78.29 3.30 94.81 6 331 1.87 80.16 2.30 97.11 7 178 1.01 81.17 1.24 98.35 Over 7 294 1.66 82.83 2.04 100.39 Not redeemed 3,031 17.16 99.99 Total 17,633 99.99 | TABLE II PERCENTAGES OF ONE DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 899 cent of 638 '638 Months of loans 899 loans loans loans held loans made made redeemed redeemed 1 488 54 54 76 76 2 84 9 63 14 90 3 28 3 66 4 94 4 10 1 67 2 96 5 15 2 69 2 98 i 6 8 1 70 1 99 7 4 0 70 1 100 Over 7 1 0 70 0 100 Not redeemed 261 30 100 i Total 899 100 • 100 TABLE III PERCENTAGES OF TWO DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 2,966 cent of 2,248 2,248 Months of loans 2,966 loans loans held loans made loans made redeemed redeemed 1 1,624 55 55 72 72 2 345 12 67 16 88 3 110 4 71 5 93 4 78 2 73 • 4 97 5 46 2 75 2 99 6 30 1 76 1 100 7 10 0 76 0 100 Over 7 5 0 76 0 100 Not redeemed 718 24 100 Total 2,966 100 100 TABLE IV PERCENTAGES OF THREE DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 3,098 cent of 2,510 2,510 Months of loans 3,098 loans loans held loans made loans made redeemed redeemed 1 1,696 55 55 68 68 2 428 14 69 17 85 3 159 5 74 6 91 4 83 3 77 3 94 5 64 2 79 3 97 6 35 1 80 1 98 7 24 1 81 1 99 Over 7 21 1 82 1 100 Not redeemed 588 18 100 Total 3,098 100 100 TABLE V PERCENTAGES OF FOUR DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 2,060 cent of 1,672 1,672 Months ' of loans 2,060 loans loans held loans made loans made redeemed redeemed 1 1,030 50 50 62 62 2 296 14 64 18 80 3 134 6 70 8 88 4 70 3 73 4 92 5 57 3 76 3 95 6 39 2 78 2 97 7 27 1 79 2 99 Over 7 19 1 80 1 100 Not redeemed 388 20 100 Total 2,060 100 100 l PERCENTAGES OF TABLE VI FIVE DOLLAR CLOTHING LOANS MADE IN 1956 Months held Total number of loans Per cent of 2,216 loans made Accumu lated per cent of 2,216 made Per cent of 1,890 loans redeemed Accumulated per cent of 1,890 loans redeemed 1 1,163 53 53 61 61 2 329 15 68 18 79 3 139 6 74 7 86 4 96 4 78 5 91 5 50 2 80 3 94 6 49 2 82 3 97 7 25 1 83 1 98 Over 7 39 2 85 2 100 Not redeemed 326 15 100 Total 2,216 100 100 107 TABLE VII i PERCENTAGES OF SIX DOLLAR CLOTHING LOANS MADE IN 1956 ' 1 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 921 cent of 807 807 Months of loans 921 loans loans loans held loans made made redeemed redeemed 1 492 53 53 61 61 2 148 16 69 18 79 3 55 6 75 7 86 4 38 4 79 5 91 5 29 3 82 4 95 6 15 2 84 2 97 7 11 1 85 1 98 Over 7 19 2 87 2 100 Not redeemed 114 13 100 Total 921 100 100 | i PERCENTAGES OF SEVEN TABLE VIII DOLLAR CLOTHING LOANS MADE IN 1956 Months held Total number of loans Per cent 945 loans made Accumu- of lated per cent of 945 loans made Per cent of 821 loans redeemed Accumulated per cent of 821 loans redeemed 1 467 50 50 57 57 2 156 17 67 20 77 3 64 7 74 8 85 4 38 4 78 4 89 5 30 3 81 4 93 6 32 4 85 4 97 7 12 1 86 1 98 Over 7 20 1 87 2 100 Not redeemed 124 13 100 Total 945 100 100 108 TABLE IX PERCENTAGES OF EIGHT DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 1,077 cent of 922 922 Months of loans 1,077 loans loans held loans made loans made redeemed redeemed 1 468 44 44 50 50 2 196 18 62 21 71 3 90 9 71 10 81 4 62 6 77 7 88 .5 36 3 80 4 92 6 31 3 83 3 95 7 15 1 84 2 97 Over 7 24 2 86 3 100 Not redeemed 155 14 100 Total 1,077 100 100 i I ! TABLE X I PERCENTAGES OF NINE DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu- Per Accumulated Total cent of lated per cent of per cent of number 499 cent of 449 449 Months of loans 499 loans loans loans held loans made made redeemed redeemed 1 262 52 52 58 58 2 64 13 65 14 72 3 49 10 75 11 83 4 25 5 80 6 89 5 24 5 85 6 95 6 10 2 87 2 97 7 4 1 88 1 98 Over 7 11 2 90 2 100 Not redeemed 50 10 100 Total 499 100 100 109 ; TABLE XI i PERCENTAGES OF TEN DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 1,574 cent of 1,382 1,382 Months of loans 1,574 loans loans held loans made loans made redeemed redeemed 1 699 44 44 50 50 2 292 18 62 21 71 3 131 8 70 9 30 4 91 6 76 7 87 5 72 5 81 6 93 6 40 3 84 3 96 7 32 2 86 2 98 Over 7 25 2 88 2 100 Not redeemed 192 12 100 Total 1,574 . 100 100 I TABLE XII PERCENTAGES OF ELEVEN, TWELVE, THIRTEEN FOURTEEN DOLLAR CLOTHING LOANS MADE IN , AND 1956 Months held Total number of loans Per cent of 992 loans made Accumu lated per cent of 992 loans made Per cent of 896 loans redeemed Accumulated per cent of 896 loans redeemed 1 451 45 45 50 50 2 196 20 65 22 72 3 104 10 75 12 84 4 42 4 79 5 89 5 37 4 83 4 93 6 34 4 87 4 97 7 10 1 88 1 98 Over 7 22 2 90 2 100 Not redeemed 96 10 100 Total 992 100 100 110 TABLE XIII ! ! PERCENTAGES OF FIFTEEN DOLLAR CLOTHING LOANS MADE IN 1956 : Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 329 cent of 312 312 Months of loans 329 loans loans loans held loans made made redeemed redeemed 1 110 33 33 35 35 2 60 18 51 19 54 3 24 7 58 8 62 4 11 3 61 4 66 5 13 4 65 4 70 6 7 2 67 2 72 7 3 1 68 1 73 Over 7 84 27 95 27 100 Not redeemed 17 5 100 Total 329 100 100 I i $ i TABLE XIV i PERCENTAGES OF SIXTEEN, SEVENTEEN, EIGHTEEN, AND NINETEEN DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu 'Per..... Accumulated Total cent of lated per cent of per cent of number 66 cent of 64 64 Months of loans 66 loans loans loans held loans made made redeemed redeemed 1 41 62 62 64 64 2 12 18 80 19 83 3 5 8 88 8 91 4 1 2 90 2 93 5 3 5 95 5 98 6 0 0 95 0 98 7 1 1 96 1 99 Over 7 1 1 97 1 100 Not redeemed 2 3 100 ! Total 66 100 100 Ill TABLE XV PERCENTAGES OF TWENTY DOLLAR CLOTHING LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 20 cent of 20 20 Months of loans 20 loans loans loans held loans made made redeemed redeemed 1 16 77 77 77 77 2 0 0 77 0 77 3 1 6 83 6 83 4 1 6 89 6 89 5 0 0 89 0 89 6 0 0 89 0 89 7 0 0 89 0 89 Over 7 2 11 100 11 100 Not redeemed 0 0 100 0 Total 20 100 100 I PERCENTAGES TABLE XVI OF TOTAL JEWELRY LOANS MADE IN 1956 l iMonths held Total number of loans Per cent of 5,249 loans made Accumu lated per cent of 5,249 loans made Per cent of 4,222 loans redeemed Accumulated per cent of 4,222 loans redeemed 1 2,250 42.82 42.82 53.57 53.57 2 653 12.42 55.24 15.55 68.12 3 350 6.66 61.90 8.33 77.45 4 216 4.11 66.01 5.14 82.59 5 176 3.35 69.36 4.19 86.78 6 117 2.23 71.59 2.79 89.57 7 72 1.37 72.96 1.71 91.28 Over 7 388 7.33 80.29 9.24 100.52 Not redeemed 1,027 19.54 99.83 Total 5,249 99.83 100.52 r ~ ■ ~ ~ ■ ■ ■■■ . . . . . 1 1 2 i TABLE XVII PERCENTAGES OF ONE DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu Per 1 Accumulated Total cent of lated per cent of per cent of number 175 cent of 122 122 ! Months of loans 175 loans loans loans * held loans made made redeemed redeemed 1 94 54 54 78 78 2 14 9 63 12 90 3 4 2 65 3 93 4 4 2 67 3 96 5 2 1 68 2 98 6 4 2 70 2 100 7 0 0 70 0 Over 7 0 0 70 0 Not redeemed 53 30 100 Total 175 100 100 » PERCENTAGES OF TWO TABLE XVIII DOLLAR JEWELRY LOANS MADE IN 1956 Months held Total number of loans Per cent 464 loans made Accumu- of lated per cent of 464 loans made Per cent of 337 loans redeemed Accumulated per cent of 337 loans redeemed 1 251 54 54 74 74 2 49 11 65 15 89 3 11 2 67 3 92 4 12 2 69 3 95 5 3 1 70 1 96 6 5 1 71 2 98 7 4 1 72 2 100 Over 7 2 0 72 Not redeemed 127 28 100 Total 464 100 i 100 113 TABLE XIX PERCENTAGES OF THREE DOLLAR JEWELRY LOANS MADE IN 1956 Months held Total number of loans Per cent of 586 loans made Accumu lated per cent of 586 loans made Per cent of 472 loans redeemed Accumulated per cent of 472 loans redeemed 1 320 55 55 70 70 2 83 14 69 17 87 3 27 5 74 6 93 4 14 2 76 3 96 5 10 2 78 3 99 6 7 1 79 1 100 7 2 0 79 Over 7 9 1 80 Not redeemed 114 20 100 Total 586 100 100 TABLE XX PERCENTAGES OF FOUR DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 470 cent of 344 344 Months of loans 470 loans loans loans held loans made made redeemed redeemed 1 229 49 49 67 67 2 49 10 59 14 81 3 32 7 66 9 90 4 11 2 68 3 93 5 7 1 69 2 95 6 3 1 70 1 96 7 5 1 71 2 98 Over 7 8 2 73 2 100 Not redeemed 126 27 100 Total 470 100 i 100 114 TABLE XXI PERCENTAGES OF FIVE DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu- Per Accumulated Total cent of lated per cent of per cent of number 738 cent of 582 582 Months of loans 738 loans loans loans held loans made made redeemed redeemed 1 1 318 43 43 55 55 2 99 13 56 17 72 3 68 10 66 12 84 4 24 3 69 4 88 5 27 4 73 4 92 6 15 2 75 3 95 7 6 1 76 1 96 Over 7 25 3 79 4 100 Not - redeemed 156 21 100 Total 738 100 100 TABLE XXII PERCENTAGES OF SIX DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu- Per Accumulated Total cent of lated per cent of per cent of number 305 cent of 249 249 Months of loans 305 Loans loans loans held loans made made redeemed redeemed 1 136 45 45 54 54 2 46 15 60 18 72 3 25 9 69 10 82 4 14 5 74 6 88 5 ' 5 1 75 2 90 6 8 2 77 3 93 7 1 0 77 0 0 Over 7 14 4 81 7 100 Not redeemed 56 19 100 Total 305 100 100 115 TABLE XXIII I PERCENTAGES OF SEVEN DOLLAR JEWELRY LOANS MADE IN 1956 I Months held Total number of loans Per cent of 384 loans made Accumu lated per cent of 384 loans made Per cent of 293 loans redeemed Accumulated per cent of 293 loans redeemed 1 162 42 42 56 56 2 52 13 55 18 74 3 24 6 61 8 82 4 10 3 64 3 85 5 21 6 70 6 91 6 6 1 71 2 93 7 4 1 72 2 95 Over 7 14 4 76 5 100 Not redeemed 91 24 100 Total 384 100 100 ) PERCENTAGES OF EIGHT TABLE XXIV DOLLAR JEWELRY LOANS MADE IN 1956 Months held Total number of loans Per cent 335 loans made Accumu- of lated per cent of 335 loans made Per cent of 261 loans redeemed Accumulated per cent of 261 loans redeemed 1 122 36 36 47 47 2 42 13 49 16 63 3 29 9 58 11 74 4 20 6 64 8 87 5 18 5 69 7 89 6 5 1 70 2 91 7 9 2 72 3 94 Over 7 16 6 78 6 100 Not redeemed 74 22 100 Total 335 100 100 " 116 TABLE XXV ! PERCENTAGES OF NINE DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 169 cent of 149 149 Months of loans 169 loans loans loans held loans made made redeemed redeemed 1 74 44 44 50 50 2 28 16 60 19 69 3 12 7 67 8 77 4 5 3 70 3 80 5 9 6 76 6 86 6 4 2 78 3 89 7 5 3 81 3 92 Over 7 12 7 88 8 100 Not redeemed 20 12 100 Total 169 100 100 PERCENTAGES OF TABLE XXVI TEN DOLLAR JEWELRY LOANS MADE IN 1956 Months 1 held Total number of loans Per cent 621 loans made Accumu- of lated per cent of 621 loans made Per cent of 543 loans redeemed Accumulated per cent of 543 loans redeemed 1 267 43 43 50 50 2 78 13 56 15 65 3 59 10 66 10 75 4 39 6 72 7 82 ! 5 33 5 77 6 88 6 24 4 81 4 92 7 16 3 84 3 95 !Over 7 27 4 88 5 100 i Not redeemed 78 12 100 Total 621 100 100 ' "....... “....... 117 ' TABLE XXVII PERCENTAGES OF ELEVEN, TWELVE, THIRTEEN, AND FOURTEEN DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 260 cent of 219 219 Months of loans 260 loans loans loans held loans made made redeemed redeemed 1 91 35 35 42 42 2 50 19 54 23 65 3 14 5 59 6 71 4 11 4 63 5 76 5 13 5 68 6 82 6 5 2 70. 2 84 7 6 2 72 3 87 Over 7 29 11 83 13 100 Not redeemed 41 17 100 Total 260 100 100 i PERCENTAGES OF TABLE XXVIII FIFTEEN DOLLAR JEWELRY LOANS MADE IN 1956 Months held Total number of loans Per cent of 212 loans made Accumu lated per cent of 212 loans made Per cent of 180 loans redeemed Accumulated per cent of 180 loans redeemed 1 81 40 40 45 45 2 16 7 47 9 54 3 14 6 53 8 62 4 11 5 58 6 68 5 8 4 62 4 72 6 8 4 66 4 76 7 5 2 68 3 79 Over 7 37 17 85 21 100 Not redeemed 32 15 100 Total 212 100 100 " 118 TABLE XXIX PERCENTAGES OF SIXTEEN, SEVENTEEN, EIGHTEEN, AND NINETEEN DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 138 cent of 128 128 Months of loans 138 loans loans loans held loans made made redeemed redeemed 1 21 15 15 16 16 2 10 7 22 8 24 3 4 3 25 3 27 4 8 6 31 6 33 5 2 1 32 2 35 6 3 2 34 2 37 7 2 1 35 2 39 Over 7 78 58 93 61 100 Not redeemed 10 7 100 Total 138 100 100 I PERCENTAGES OF TWENTY TABLE XXX DOLLAR JEWELRY LOANS MADE IN 1956 i i Months held Total number of loans Per cent of 107 loans made Accumu lated per cent of 107 loans made Per cent of 90 loans redeemed Accumulated per cent of 90 loans redeemed 1 20 20 20 22 22 2 13 12 32 14 36 3 12 11 43 13 49 4 7 6 49 8 57 5 3 3 52 4 61 6 4 4 56 4 65 7 7 6 62 8 73 Over 7 24 22 84 2 7 100 Not redeemed 17 16 100 Total 107 100 100 119 PERCENTAGES OF TWENTY-ONE, TWENTY-TWO, TWENTY-THREE, TWENTY-FOUR, AND TWENTY-FIVE DOLLAR JEWELRY LOANS MADE IN 1956 Per Accumu Per Accumulated Total cent of lated per cent of per cent of number 138 cent of 122 122 Months of loans 138 loans loans loans held loans made made redeemed redeemed 1 35 26 26 29 29 2 10 7 33 8 37 3 6 4 37 5 42 4 3 2 39 2 44 5 6 4 43 5 49 6 8 6 49 7 56 7 2 1 50 2 58 Over 7 52 38 88 42 100 Not redeemed 16 12 100 Total 138 100 100 TABLE XXXII PERCENTAGES OF JEWELRY LOANS OVER TWENTY-FIVE DOLLARS MADE IN 1956 Months held Total number of loans Per cent of 121 loans made Accumu lated per cent of 121 loans made Per cent of 105 loans redeemed Accumulated per cent of 105 loans redeemed 1 31 26 26 30 30 2 14 12 38 13 43 3 10 8 46 10 53 4 1 1 47 1 54 5 5 4 51 5 59 6 3 2 53 3 62 7 0 0 53 0 62 Over 7 41 34 87 38 100 Not redeemed 16 13 100 Total 121 100 100 i CHAPTER V THE REGULATION OF INTEREST RATES AND THE DISPOSAL OF UNCLAIMED PLEDGES These two very important factors, along with the holding period, are the determiners of the profitability j of pawnshops. \ !The Effectiveness of Usury Laws Historically, economists have been unable to agree upon the initial advisability of usury laws.^ Jeremy j Bentham, author of Letters in Defense of Usury, so effec tively silenced all arguments in favor of statutory maxi- mums for interest rates that usury acts were repealed in 2 England and generally on the continent. * ! Usury laws are enacted to remedy evils in the lending of money. These laws are futile because they are ■1-See F. W. Ryan, Usury and Usury Laws (Boston: Houghton Mifflin Company, 1924), pp. 57, 63 et seq. for ;a review of the prevailing economic theories. 2Ibid. based upon the false assumption that it costs the same to make all loans. They ignore the differences in kinds of loans, risks involved, duration of loan, size of loan, and i other factors. By ignoring these differences, usury laws I are unable to effect the ends which prompted their i enactment. ! J The arguments against usury laws are based upon i the interplay through freedom of contract which allows supply and demand in the open market to effectively adjust interest charges. This contention is true where the bor- | rower and the lender are on an equal footing in a situa- j ; tion of pure and perfect competition. Unfortunately, the | |ideal of pure and perfect competition does not exist. Furthermore, the borrower and lender in a pawning trans action are not on an equal footing. People driven by the necessity of their situation to resort to pawning in order to raise cash are not particular about the rate of interest they are charged. The important thing at the moment is to get the cash. When the time comes to repay the loan, ;the borrower then becomes very much aware of the amount of ;interest charged. At this point, however; he is confronted 3Ibid., p. 143. J with a completed contract whose terms can no longer be i I altered. Important limitations upon the free operation of competitive forces are the ignorance and poor bargain- | ing power of the borrower. Because of these limitations, j legislators have deemed it wise to limit the rates of interest which a pawnbroker may legally charge. What are these limitations upon the pawnbroker i with respect to the rate of interest? Interest rates of different types of pawnbrokers. ! Interest rates are one of the first factors determined in f ' ‘ j regulating private pawnbrokers. A just interest rate could j be obtained by examining the charges that nonprofit organ izations and government monopolies have found it necessary to charge. To this base an additional allowance for the ! risk of private enterprise should be added. The result •would be a fair and equitable interest rate. The Italian official pawnbrokery is the Banco-di- |Napoli. It acts as a government monopoly. Despite its I nonprofit operation it requires a payment of 20 per cent 1 interest per annum on every loan.^ ^Gunnar D. Kumlein, "Misery that Pays," Common wealth Magazine, LIII (December 1, 1950), 194. In Mexico the nonprofit charitable National Pawn- j ! ; shop is held in very high esteem by Mexicans of all classes. Its policy is to charge lower interest rates ( than the commercial pawnbrokers. The current rate charged ; by the National Pawnshop is 2 per cent per month, or 24 per cent per annum. ^ The Provident Loan Society in New York City has j maintained a low interest rate of 1 per cent per month, i or 12 per cent per annum. This low rate has attracted j pawnbroking business from cities all over the United I States as well as from China, India, South America, and : i jEurope. The low rate has proved a great enough attraction j to overcome the low appraisal policies of this Society.** Furthermore, Provident, by attracting large loans, has :been able to offer this same low interest rate on all small jloans. The large loans which are profitable at the 12 per cent rate serve to make it possible to make small loans which are unprofitable at 12 per cent. The foregoing discussion of interest rates makes ^Samuel Kaplan, "People's Pawnshop," Americas Magazine, VI (October, 1954), 13. 6 Bird, o£. cit., p. 19. !it quite evident that even nonprofit organizations require | ja rate which is far beyond that usually considered in ordinary usury laws. In order to attract private capital !to pawnbroking, interest rates must also permit a margin ! for profit. Therefore, rates for private pawnbrokers should be higher than those just discussed. Regulating the interest rates of private pawn brokers . Those countries which allow the private pawn broker to exist have found it necessary to regulate the interest rates which he could charge. In England loans are calculated to yield 25 per cent per year. This rate * appears to be unconscionably high to the uninformed. It has not been high enough to prevent a third of all England's pawnbrokers from going out of business in the last six !years.^ The most difficult task which faces legislators in |the regulation of small loans is that of fixing a rate of (interest. It is necessary to find a rate that will, at one and the same time, give borrowers a maximum of ^"Hard Times for Pawnbrokers," The Economist, CLXXXII (March 2, 1956), 706. H ' .. " ".~....' .... ". ' ....... ' .. 125. j j I protection and still attract a flow of capital to the loan j | I i 1 jbusiness. This flow of capital must be sufficient to meet ! I : I the demand for loans. An extremely low rate will virtu- j jally eliminate legal lending in small loans. Strict enforcement of such a law would make it impossible for most of the borrowers of such loans to obtain them. Nothiig short of a complete change in our economic system would (eliminate the need for such loans. Illegal loans which would result from such oppressive legislation would be extremely costly. The risk and the stigma attached to such an illegal business would add to the borrower's cost. Thiss j is the situation which has been found to exist in those ' | (countries where pawnbroking is a government monopoly, and yet the needs of those who would resort to the use of pledge borrowing are not met. Justifications for a higher pawnbroker interest rate. Some legislatures have fixed a special rate of (interest for pawnbrokers, which is considerably higher 8 than is permitted by the ordinary usury laws. The ®R. Cornelius Raby, The Regulation of Pawnbroking (New York: Russell Sage Foundation, 1924), p. 6. r ........................ . ............................. *....................■ " ~ ~ .......... 1 2 6 ......; ! justification for this is manifold. Even nonprofit or ! ' ! !state operated pawnshops cannot operate within the ordi- j I ; I nary usury limits as evidenced by the examination of the ; j interest rates which they charge. j Unlike deposit bankers,, pawnbrokers do not work ! / mainly with the money of someone else. They depend largely on their own resources. The money lent by a pawnbroker has to earn interest plus a trader’s profit. Pawnbrokers make their living out of moneylending. Consequently, they j should be entitled to compensation for their time and services in addition to a fair return on their investment.^ The range of rates which does attract capital to the busi- j ness of lending money in sums of $300 or less begins with approximately 2 1/2 per cent per month, or 30 per cent per annum. The ordinary usury law is so phrased that interest must include all charges paid by the borrower. This makes it impossible to separate the return on the monetary 9 Raymond DeRover, "Money, Banking, and Credit in Mediaeval Bruges,” p. 117. ^L. N. Robinson and R. Nugent, Regulation of the Snail Loan Business (New York: Russell Sage Foundation, 1935), p. 265. f ..... ~ ... .~ ~ ... — .— ■ ..." ....' .....— ...“.... " ....” 127 j investment, which is true interest, from the return for professional services rendered, which is really salary or an entrepreneur's profit. Pawnbrokers have the additional expense of storing articles for extended periods of time which, according to law, must also be covered by the interest rate. For the small loan pawnbroker, the exist- j ence of a minimum loan charge has been especially effective j in keeping him in business. The Russell Sage Foundation undertook a study in j1924 of the pawnbroking industry. The findings of its i j experts led to the recommendation of a rate of 3 1/2 per I cent per month, or 42 per cent per annum, on loans under I H j one hundred dollars. Another study in 1939, by Robert E. Stone and Jack IE. Thomas, of the University of California School of Jurisprudence, reached this conclusion: The available evidence appeared to indicate that 2 1/2 per cent per month applying to all contracts would be the lowest rate which would be effective under the most favorable condi tions. This is 30 per cent per annum simple interest. ^Raby, loc. cit. This rate would undoubtedly be too low to be effective ! 12 |in most states. | With such recommendations by impartial examiners of the situation, what has been the consequent action of 1 the legislators? 1 Variations in interest rates. Varied as interest rate regulation appears to be, there are three general i systems that can be distinguished: (1) the same rate is charged on all loans without regard to the character of the pawn or the amount of the loan, (2) the rate can be based upon the type of collateral offered, and (3) the (rate is based on a sliding scale depending upon the amount of the loan.^ In the United States the third system of basing interest rates is the one generally used. This serves to acknowledge that there are certain irreducible costs in processing every loan. Without special consideration, the small loan may not yield sufficient return to cover the • ^California Law Review 292. 13 W. R. Patterson, Pawnbroking in Europe and the United States, United States Bureau of Labor Bulletin No. :21 (Washington: Government Printing Office), p. 20. fixed cost of making the loan. California’s legislative action on interest rates for pawnbrokers should serve to point out the aimless shifting forward and backward of statutory interest rates in response to public pressures or the whim of legislators. j Interest rates in California. No American usury law was in force in California in January, 1850. Mexican j laws which had not been abolished by new legislation pre vailed. As a general rule, the laws of a conquered or 1 ceded territory remain in force until changed by the new sovereign. In California, under Spanish law, two kinds of interest were established. First was the legal interest rate of 6 per cent. This rate was fixed by law and applied !to contracts where the parties had not agreed upon the rate of interest to be charged. Second was the conventional or customary interest rate. This term was applied to the interest rate in general use through custom at a given time or place. This conventional interest rate could be (greater or less than the legal interest rate. If the conventional rate was less than the legal rate, to exceed the legal rate was usury. If the conventional rate was greater than the legal rate, usury was not recognized F ‘ ~..'...‘ '. ~.■ . '.. 130 i until the conventional rate was exceeded. California pawnbrokers were governed by this law until 1861, when the legislature provided for an interest rate not to exceed 4 per cent per month.^ In 1881 the law was amended, i 15 |reducing the interest rate to 2 per cent per month. On November 6, 1934, a California constitutional amendment was passed exempting pawnbrokers and certain other classes I • - of lenders from the operation of the usury law. Provision, however, was made for any future action which the legisla ture might care to take. For a period of several months pawnbrokers could legally charge whatever interest rates they could obtain from the borrowers. On September 15, 1935, restrictions were again enacted, fixing the interest rate at 3 per cent per month on loans of less than three I hundred dollars. This statute also provided for a minimum 1 6 charge of fifty cents per month on all loans. The Senate defeated Assembly Bill 63 in 1937, which would have ilimited the maximum rate permitted pawnbrokers to 10 per ^Statutes of California, 1861, 184. 15Ibid., 1881, 75. I 16Ibid., 1935, 1613. r ' ......... _ ~.. ...... ■■■...■ ... 131 i cent per year. In 1951 the legislature again reduced the i I jinterest rate, changing it to 2 per cent per month on all jloans under one hundred dollars and a maximum of 1 per jcent per month on all loans above this amount. The minimum j Irate of fifty cents per month was maintained.U To date i this is the interest law under which pawnbrokers operate, j The changes in the California law at least show (that legislators are aware that interest rates may require adjustment to insure the continuation of a legal pawn- !brokerage industry. In New York State the rate of interest !allowed pawnbrokers has not changed since 1883. It allows i ! a maximum charge of 3 per cent per month. New York pawn- i brokers contend that the law makes it impossible for them 18 I to cover the costs of operation in 1957. i The most lenient law is to be found in the state of Nevada. Nevada allows a 10 per cent per month, or 120 19 per cent per annum, interest rate for pawnbrokers. This interest rate appears to be beyond all possibility of -^Statutes of California 1131 (1951). ^New York Times, April 14, 1957, Part III, p. 1. ^"Before the Senate Interim Committee on Pawn brokers," op. cit., p. 40. j .........~........... .' .. ~.."" " ' 132 ! j ■ ! defense. If this were pure interest, such, indeed, would I be the case. For the pawnbroker, the term interest covers ; a multitude of other charges, because under ordinary usury j i laws interest includes all charges for discounts, commis- i sion, brokerage, wasting, and all and every charge related to the making of a loan. From interest charges the pawn broker must cover a reasonable return on his capital jinvestment, his fixed overhead costs, his personal salary, I the appraisal or examination fees, all bookkeeping, and ;any storage costs. The proof that the statutory rate of interest is not high enough to bear the burden of all these other expenses lies in the fact that pawnbroking is not a flourishing business, even in Nevada. The pawnbroker has found it necessary to find either some legal loophole, or cease to function in a legal manner. Pawnbrokers have been particularly adept at finding legal loopholes in their struggle for existence under inadequate interest rates. It is to the interest of the borrower, as well as the pawn broker, that rates of interest be fixed high enough to 20 yield a proper return. What are some of the ways and means by which pawnbrokers supplement their earnings ^ORaby, loc. cit. r ~ ...... ”■ ~ ._ ~..”. 133 i beyond legal interest rates? ! Legal methods of making pawnbroking more I profitable. Pawnbrokers usually have two main methods of | | increasing the return of their operation beyond the inter est rate. The first, and most widely used, is to offer the public some other service in addition to the lending i service. Extra charges on loans have been sustained by | the courts if they have been charged for specific extra services requested by the borrower. The vast majority of jpawnshops depend upon these tie-in services in order to i I continue in business. i In practice, a pawnbroker, when approached for a loan, will first determine the extra specific services ;that the borrower requires before committing himself to i 'accept the pledge. In jewelry, the service of cleaning and polishing is used to increase revenue. When clothing is pawned, a cleaning and pressing service is provided by the pawnbroker. Pawn customers soon find that the appraisal of their property is greatly affected by their desire for additional services. The second method of supplementing the return from normal interest rates arises from the existence of the minimum charge fee permitted under most statutes. Pawn- | brokers generally lend small amounts of money. In Cali- j fornia any loan of $25 or less has a minimum fee of fifty (cents. Some shops take advantage of this by pawning an i (item on two tickets when possible. Thus, a watch on ! which the borrower receives $25 will yield to the pawn broker fifty cents, if listed on one ticket. It will, (however, yield the pawnbroker one dollar, if the watch itself is appraised at $24 on one pawn ticket and the band is appraised at one dollar on another pawn ticket-- j the return from each ticket being the minimum charge of I fifty cents. As legislation becomes more oppressive the greater becomes the use of such tie-in or evasive tactics. Pawn brokers who disdain from using some device to supplement their income are soon forced out of business. This (reduces competition and forces the borrower to accept whatever device the remaining pawnbrokers wish to impose. ;If legislators were also successful in eliminating all [means of legally increasing the pawnbroker's income, still more of the legitimate pawnbrokers would be forced out of business. This would leave the industry entirely in the ’ hands of persons willing to supply the pawnbroking function i iby illegal means. Once this stage were reached, legisla tors would no longer be in a position to offer the borrower any protection what-so-ever. i If legislation is passed fixing interest rates so jthat pawnbrokers are permitted a reasonable return, more I pawnshops compete for the borrower's business. Such com- jpetition educates the customer. It discourages the use of devious devices to increase profits. In this manner the pawnshops industry polices itself. There is no better !assurance that the lowest possible real rate is being charged in return for the highest possible loan than the existence of many pawnbrokers competing among themselves for the trade of the pledge borrower. Some communities do not allow pawnbrokers to exist iat all. Borrowers then find that they must patronize a j i secondhand store. These stores ostensibly purchase mer chandise outright. When legal pawnbrokers are not per mitted, secondhand stores often use a purchase and resale device to provide pawnbroking services. Under such a device a secondhand store makes an outright purchase of the merchandise. At the same time he gives the seller verbal j '...'...._................ ".~... ...... 136 i I assurance that he may buy the same article back at an i agreed upon price. It is evident that the only regulation on this business transaction is the conscience of the merchant. I In Holland such establishments are recognized. I . I There is an advantage of such recognition to the customer. The merchant can now legally give the customer a contract j stating the period of time the article will be held and ! the repurchase price at which the customer may obtain his { merchandise.21 I If authorities are successful in stamping out both pawnbrokers and secondhand dealers, those who must borrow i money are at the mercy of the community itself. Every gas ;station, grocery store, and other retailer is implored to hold some valuable as security for future payment. When funds for necessities cannot be attained in this manner, the only action left for the individual is to resort to public relief or to illegal methods such as robbery and ;burglary. 21patterson, loc. cit. I ! The Regulation of the Disposal of Unredeemed Pledges There is still one more facet of the regulation of pawnbrokers which has a tremendous affect upon his ability i to conduct a business successfully. This is the provision I j made for the disposal of unredeemed pledges. When society attempts to regulate the pawnbroker it is with the intention of providing a reasonable service | for those who do not wish to sell their possessions but merely wish to pledge them as collateral for a loan. Unfortunately for the pawnbroker and the borrower ! who wishes to redeem his property, there are other persons I : who use pawnshops to dispose of their property. There is nothing a pawnbroker can do to force the borrower to redeem | his pledge.22 j In California it can be proved that persons use pawnshops who really are only interested in selling their property. A California statute, passed in 1955, provides that the borrower be notified by registered letter before 23 his pledge is disposed of. These registered letters are 22gtate Qf California, "Before the Senate Interim Committee on Pawnbrokers," May 11, 1946, p. 131. 23statutes of California, 1955, 166. H....... ‘ ~ ' ... "...“ . " ...... 138. 1 I only sent out at the end of the holding period to those persons who have not redeemed their pledges. | A reported sampling of one hundred such registered j letters sent to delinquent pawn customers revealed that i forty-eight were returned to the sender. Another nine pledges were reclaimed by the borrowers after receipt of the registered letter. The remaining forty-three delinquents out of one hundred delinquents must have received their registered letters but did not care to redeem their merchandise.2^- Why did these persons choose to pawn articles i ! which they obviously intended to sell? Pawning versus selling. A person wanting to sell a diamond can only receive one third to one fourth of the (price he paid. In some instances they receive a great !deal less when credit enters the picture and they have 25 (been buying credit instead of jewelry. Ordinarily, a (pawnbroker will endeavor to lend below this level. People ^"Before the Senate Interim Committee on Pawn brokers,** August 24, 1956, pp. 67-68. 25Ibid., May 11, 1956, p. 49. 1 who pawn occasionally would often be wise to sell rather j than pawn their article, thus raising the full value at once.^ However, persons who frequent pawnshops find that j by professing an unwillingness to sell they can receive I [more in pawn than through outright sale. This is occa- [ sioned by the extra risk pawnbrokers are willing to take I on a pledged article. The result is that pawnbrokers, [because of their own willingness to take risks, often are taken advantage of by persons whose original intent was [the disposal, not the pawning, of the article. This is !especially true when pawnbrokers have their own retail | [outlets. It is still possible to realize the capital invested in badly appraised loans, if the articles that are unredeemed can be sold at retail secondhand prices. The pawnbroker must keep his capital liquid. What [can be done with unredeemed pledges is one of the greatest factors which have a bearing upon how expensive pledge credit will be. There are two main policies with regard to the method of disposing of pledges. The disposal of pledges by private sale. Some 26»*nard Times for Pawnbrokers,” loc. cit. ! states and some foreign countries provide that at the end ! of the pledge period and after proper notification the I I j pledge becomes the sole property of the pawnbroker. He j may then dispose of the pledge as he sees fit. England ] sets a monetary maximum limit of ten shillings on the j pledges that can be disposed of in this manner. California has at times provided for this type of disposal. The original law of 1861 provided for disposal ; by auction.2? This was changed in 1935, to provide for | automatic ownership by the pawnbroker and freedom to choose 2 8 i any method of disposal. In 1951 the auction method was s ; again r e q u i r e d ,29 atl<j in 1955 automatic ownership was 1 3 0 j reinstated. This is the condition that prevails in :California today. When the pawnbroker obtains title to pledge prop- erty he has to find some method of disposing of it and 1 renewing his liquid capital. This leads to the establish ment of the familiar sight of an array of miscellaneous ^ Statutes of California, 1861, 184. 28Ibid., 1935, 1613. 29Ibid., 1951, 1130. 30Ibid., 1955, 766. merchandise being offered for sale at the front of most I j .pawnshops. His ability to sell unredeemed pledges greatly j affects his ability to continue making loans. Some pawn- j j shops limit their loan departments to supplying the needs of their secondhand sales department. Other pawnshops depend on their loan volume for a profit. As a result of the greater volume they must sell their unredeemed pledges to other store owners or to auctioneers. The disposal of pledges through public auction. i Most legislators have been unwilling to allow the pawn broker to dispose of pledges through private sale. In (England all pledges over ten shillings pledge value must 31 be sold at public auction. California has wandered aimlessly from disposal by auction to automatic private ownership by the pawnbroker. New York has employed the 32 auction method since 1863. Invariably, when the auction method of disposal of pledge property is enacted it is accompanied by a companion statute which provides for the disposition of the proceeds 31 "Hard Times for Pawnbrokers," loc. cit. "^Bird, loc. cit. | of the auction sale. The general pattern is to allow the ! pawnbroker the amount loaned plus the legal rate of inter- i est. An additional charge to cover the expense of con ducting the auction is also permitted. Any funds received beyond this amount must be held by the pawnbroker for a i I specified time period. During this time the borrower may j I claim any additional amount that was realized by the sale ! of the pledge. In England, after a three-year waiting i period, any funds unclaimed become the property of the 33 | pawnbroker. In California, when the auction method was in i I force, all surplus moneys unclaimed by the borrower i | reverted to the pawnbroker.^ In New York State, any unclaimed surplus goes to the state.^ For the pawnbroker, this procedure of giving the unclaimed balance to the state represents a one-way street. Since he cannot obtain any deficiency judgment he must •^"Hard Times for Pawnbrokers," loc. cit. ^Statutes of California, 1861, 184. 35 Edmund Mottershead, "Pawnshops," The Annals of the American Academy, CXCVI (March, 1938), 152. r ~ ~ " ...................................... ~ .................................... " .143 i | absorb the loss if he inadvertently loans too much. If ; he does not loan enough the state gets the balance over i the loan, plus the interest. Even when two loans are made to the same customer each must stand on its own merit. He ; cannot use the profit from the sale of one loan to offset : the loss from the sale of another loan. I New York is having a difficult time administering j this law. Surplus money owed to the state by pawnbrokers i from the sale of abandoned or unredeemed property has !shrunk from $72,000 in 1952 to $27,000 in 1 9 5 5 . New York pawnbrokers have been suspected of being lax in reporting unredeemed pledged property. The New York administration, ! j i in seeking to curb this loophole, has asked for legislation requiring pawnbrokers to keep records of the name, address, signature, and description of persons redeeming pawned i 37 items. Even if regulation could successfully secure the borrower's equity on a pledge that has been sold, how effective is the public auction as a method of disposal of pledges? q f . New York Times, June 6, 1956, Section XII, p. 3. ! 37 | Ibid., January 31, 1957, p. 12. r ......... ”.... ".. "... ~.. .... 144.i j i Weaknesses of the auction method of disposal of j pledges. The fundamental detriment to the borrower of the j auction sale regulation is that the pawnbroker must ! ! appraise his loans on the basis of quick sale value. If ! I ) \ private sale is permitted, the pawnbroker may base his appraisal upon the return that can be expected from the ; sale of the pledge within a reasonable length of time. This may be either a wholesale or a retail sale. If the pawnbroker is in the position to make many retail sales, * his appraisal policy will be affected upwards due to the , ! better prices he is able to realize when selling unredeemed; l pledges. When he must resort to disposal of pledges at ! I jwholesale levels, he must base his appraisal upon prices that can be obtained from merchants who themselves have ; to resell at a profit. Another weakness of auctions is that the only bidders are pawnbrokers or persons in the secondhand trade. Merchandise is offered for sale in such quantities that the individual buyer cannot consummate a purchase. Obvi ously the professional buyers will only bid the wholesale J 3 8 price of a used article. ; ^Brentano, iQC. cit. 1 i Often combinations of traders get together for the | * ' i | purpose of bearing down prices. In this manner they can j i obtain property at bargain prices. This is one of the worst things that can happen at an auction of the pledge ! t loan company.^ In practice a combination of traders would accom- i plish this objective in a manner similar to this: The ! j j eight or ten biggest buyers would work as a unit and pool itheir resources. When there were no outsiders interested | in the particular lot being offered, one member of the ! I syndicate would make the purchase. After the purchase had * been consummated at the public auction, the members of the i ; igroup would retire to some prearranged meeting place. Here' they would conduct a private auction among themselves for jthe merchandise. The difference would be arrived at between the amount paid at public auction and the amount paid by the successful syndicate member. This difference would then be evenly divided among all the members. Thus, 1 by working together, everyone was assured of more profit than was possible if they competed against each other. 39 Bulletin of the National Federation of Remedial Loan Associations, September, 1923, p. 19. f ..“... ' .'..... ‘.." '.. 146 1 An example may serve to clarify this type of trans- | : j action. At a public auction one lot of rings was sold | for $1,000. Afterwards, at a private auction sale among j the members of the syndicate, the same lot of rings brought i $1,500 from a member of the group. The difference of ! ! $500 was divided equally among the ten members of the j l syndicate. Nine of the members made an automatic $50 t profit. The tenth member purchased the rings for $1,500 less his share of the profit. As a result, he only paid $1,450 for the same rings that he would have been willing ! to pay $1,500 for at the public auction. Once a syndicate is formed it will pool its i resources to discourage any other large buyers from making I purchases at auctions. This is done by bidding on mer- ; chandise to the point that there is no longer any real profit margin. Occasionally, the syndicate, in protecting I its grip on the auction, finds that it has made a purchase ;at a price greater than any individual member cares to pay. I Under these circumstances the difference between the auction price and the lower final price is divided among the jmembers and each one suffers a small loss. The amount of ;profit in such an operation greatly outweighs the amount jof loss. ! ..... ; ..... ‘ ".~ ‘........... 147"' j I This method of controlling public auctions occurs j * in most countries. In Italy, the auctions where pawns I from the official pawnbrokery are sold have been controlled by such a syndicate. Prices are kept below a certain level ; and no outsiders are tolerated, or if they try to bid they I are outmaneuvered.^ i 1 How does the pawnbroker protect himself from losses when forced to sell at public auctions? Pawnbrokers pay nothing if the bid is below the ; loan plus the interest. They will bid into the auction I to the point of their cost. The merchandise acquired in i I this manner can then be sold at retail in the pawnshop. I The necessity to merchandise unredeemed pledges has resulted in more and more pawnshops becoming just another retail ;store. With interest rates generally restricted, the pawnbroker has found his sales department to be his primary source of revenue. Having confidence that he can retail the unredeemed pledge, the pawnbroker, in making his appraisal can actually loan on a high basis. The result j for the borrower is higher loans. When the interest 40 Kumlein, oj>. cit., p. 195. ! ...... ”... ”.. ..... ‘ “.“...... 148 ! charges are then added to these high loans, the sum is ! approximately the "cash out" or wholesale value.^ The area in which a store is located will dictate the type of pledge the pawnbroker will prefer to handle. ! A pawnshop in an expensive location will specialize in pledges of greater value. The pawnbroker knows that if : the pledge is not redeemed he need not take a loss at i public auction. He will be able to bid in at his cost and then dispose of the pledge by retail sale in his own | establishment. The pawnbroker can set a higher initial j appraisal on the pledge because he does not have to rely j ; upon the auction sale. It is against the policy of most I remedial loan societies to bid in during an auction to prevent losses. This makes it possible for the private | pawnbroker to successfully loan 50 to 100 per cent more on a pledge than the nonprofit remedial loan societies / O who do not consummate any retail sales at all. A pawnshop in a cheap location will specialize in clothing and less expensive articles. It has a ready ^"Before the Senate Interim Committee on Pawn brokers," May 11, 1946, p. 118. ^Bird, loc. cit. retail market in its skid row location through which to I dispose of this type of unredeemed pledge. These are the j f t same articles that nonprofit organizations refuse to handle. Some pawnbrokers make it a point to specialize I < i I j in loaning on certain items such as guns, sporting goods, 1 i cameras, etc. They have developed their stores as retail j outlets for this particular type of merchandise. Often ; I these specialty pawnshops supplement their secondhand i merchandise with new merchandise. This builds up their retail sales volume. The retailing department of pawn- j brokers, as all small retailing businesses, has been ! affected by the advent of the discount house. The pawn broker cannot compete in his retail sales of new goods with the prices of the discount house. A further blow has been the growth of installment selling. Some pawn- j shops have resorted to this practice themselves in order to maintain their retail sales.^ Other difficulties of pawnbrokers are those which apply to all small retailers. In this respect, he reacts to the business cycle as any small businessman would. ^"Christmas Less Cheery for Hock Shops,” Business Week, December 22, 1956, p. 120. The pawnbroker during the business cycle. Pawn- brokers generally acknowledge that the prosperity of their , j business depends upon the careless spenders. When these careless spenders have plenty of money to throw around, ! the pawnbroker prospers. When the funds of these customers j are restricted, the pawnbroker suffers. Pawnbrokers deny I that their business slumps during times of general pros perity and thrives in the course of depressions. An official of one of the largest pawnshops states that boom times are quickly reflected in augmented activity in pawnshops.^ Further evidence that the pawnshop line does not prosper through the misfortunes of other commercial fields was demonstrated during the panic of 1907 and again ! in 1930, when many of the shops lost 25 per cent of the i amount of pledges sent to auction.^ It is true that there is an increase of new cus tomers caused by depression distress. The pawnbroker represents a poor stopgap on the road to public relief. More important to the pawnbroker's business is the fact ^New York Times, March 31, 1929, Section IX, p. 2. ^Ibid., February 15, 1949, p. 16. ...“...~ .....".......‘ "...’ ..' 151 that the depression will subdue the antics of the careless spender. Without frequent and abundant cash the number of repeat transactions is reduced. The regular customer has neither the money nor the disposition to redeem his pledges. It is the loss of this regular business that the increase of distress business cannot offset. In periods of prosperity the distress customer is rare. The pawnbroker finds his business runs smoothly without him. Regular customers will pawn whether they are earning $50 or $150 per week. The statistics available for periods of prosperity, such as February, 1929, indicate the great demand for pawnbroker services even in periods of highest prosperity. "Over 5,000 watches and 6,000 pieces of jewelry are pledged daily in New York City alone. When making loans on pledges, the probable market value of an article at some future date must be consid e r e d . ^ xn depression periods pawnbrokers suffer great losses due to the rapid deterioration of this future ^A. Strokosch, ’’ Brother to Shylock," Century Magazine, CXVII (February, 1929), 400. 47New York Times, March 31, 1929, Section IX, p. 2 I market. In prosperity pawnbrokers enjoy a gain in the j value of the collateral they hold over an extended period. This uncertainty of market value causes pawn brokers to limit their cash output regardless of value 1 j at times of great stress. An example is the bank holiday i of 1932. During this period several pawnshops had a strict $50 maximum loan limit.48 | If a pawnbroker were endowed with the ability to foresee a complete business cycle, what would be his ! reaction? During the recession stage the pawnbroker would be extremely niggardly in making loans. Recession is a ! ; time of deflation. The value of collateral depreciates i rapidly. Pawnbrokers are required to hold collateral over j an extended period of time. As a result, a recession entails a drop in the dollar value of the pawnbroker’s major investment, his pledges. Redemptions also drop in deflation due to the rising value of cash as compared to the dropping value of goods. Throughout the recession i and depression the pawnbroker attempts, by appraisal, to 48Ibid., June 15, 1932, p. 17. ' ~ ..“ .... " .. ~...‘ “.. 153.' provide his invested funds with sufficient safety to cover possible drops in market value. When depression gives way to recovery and pros perity, the pawnbroker shifts his appraisal policies. The collateral being held appreciates in market value. Redemptions rise because of the more plentiful money supply. Finally, the articles that were unclaimed bring a greater return than originally expected. Hence, an extended period of prosperity is the ideal condition under which the pawnbroker would choose to function, if he were given his choice. j CHAPTER VI | THE PLEDGEE AND THE PAWNBROKER • * i j Up to this point the discussion has centered j around the regulation of pawnshops as an industry. The jaim has been to provide the maximum service for the peopl ! with the maximum protection. This nebulous term ’’people1* must now be examined. What type of individual patronizes i s !the pawnshop? In addition to knowing more about the 1 I pledgee we must understand the pawnbroker, also. Under iwhat policies does he conduct his business? The better society knows both of these individuals, the more effec tive it can be in regulating them. I Types of Customers The popular assumption is that only spendthrifts make up the clientele of the pawnbroker. For this reason those who do business with the pawnbroker are secretive about it. It is generally considered something to be ashamed of. This feeling does not exist in all countries In China, pawnshops have existed continuously for a greater period of time than any other nation. Here this j feeling of shame is not prevalent. Chinese pawnbrokers point out that 50 per cent of their customers come from the most respectable classes. To them it is a common and honest business transaction."^ j Clientele of Remedial Loan Associations. The ! Remedial Loan Associations find that for the most part i j there is nothing unusual about their clientele. The j Provident Loan Society reports that 60 per cent of its | loans are made to women. The reason for this is simple, i The hours that most Remedial Loan Associations are open I coincide with the working hours of their male customers. Most women pledge articles that belong to their husbands or boy friends. Clientele of private large loan pawnbrokers. In private pawnshops the type of customer varies greatly with the size of the loan. If the loans are large, the ^Eva Saxl, "About Pawnshops in China," American Mercury Magazine, LXXVII (October, 1953), 129. ^"Credit by Loanmobile," Burrough1s Clearing House Magazine, XXXVII (December, 1952), 3. great majority of the patrons will be upper middle class I or well-to-do. These classes usually possess the type j of jewelry or silverplate that warrants a large loan, j The large loan pawnbroker also finds that many i professional people are his clients. Painters, poets, i (musicians, and actors whose talents do not bring them ! steady employment are likely to acquire the types of i articles that are suitable for large loans. The pawnee could also be the shoestring operator, the entrepreneur : who is straining all of his finances in some development j that has not yet shown the expected return. All of these I persons have one thing in common— they are the men and i I women with means who seek to go beyond the limits of 1 their cash resources. It is these persons who make up almost 75 per cent of the pawnbroker's patronage.^ Clientele of private small loan pawnbrokers. When looking at the pawnshop industry it must be borne in mind ( what comparisons are being made. In dollar value the 3"T a l k 0f Town," New Yorker, XXX (September | 11, 1954), 31. • 4 "Experiences of a Pawnbroker," American Magazine, 1 LXXXVII (June 18, 1919), 51. large loans predominate; in actual number of loans the smaller loans predominate. The majority, and this is by and large the great majority, of loans are in amounts under ten dollars. The pawnbroker clientele in the small loan i i bracket is entirely different than the clientele of the | large loan pawnbroker. The small loan pawnbroker has i two types of customers, which can be categorized as the j banking class and the sub-banking class. For the small loan pawnbroker, most ofthe demand comes from salaried persons or those with fixed incomes. I Many people with monthly or semimonthly paydays find it \ \ difficult to make their money last through the extended period. They resort to pawning when their finances become strained. This usually occurs a few days before the next I payday. Even persons with regular weekly paydays some times find it difficult to get through the week with the amount of money they have on hand. As a result, pawnshops ->State of California, "Before the Senate Interim I Committee on Pawnbrokers," May 11, 1956, p. 36. (Trans- I cript of hearing.) ^New York Times, February 15, 1949, p. 16. r " ~ ' ................ ~ ................"....158 have a noticeable variation during the week. The greatest amount of business is done on Monday and Saturday, with the difference being that the articles are pledged on Mondayjand redeemed on Saturday.^ Holidays have an effect i I that is even more pronounced than the increase in pledges on Monday and the increase of redemptions on Saturday. The Christmas holidays are the busiest time of the year j for the pawnbroker. The two weeks that include Christmas } and New Years result in the greatest amount of careless j spending. The person who is unable to budget is the best pawn customer among the salaried and fixed income classes. i The services of the small loan pawnbroker are i j also demanded by another class of people. This group may be termed the sub-banking class. One type of person j in this sub-banking class is the "dandy." Thrift is not | his motive as much as vanity. He spends everything he ; makes as fast as he gets it, but he puts part of his O earnings into jewelry, furs, and nice clothes. These are ^W. R. Patterson, Pawnbroking in Europe and the United States, United States Bureau of Labor Bulletin No. 21 (Washington: Government Printing Office), p. 208. ®John Mapplebeck, "The Oldest Banker--Your Uncle," Saturday Evening Post, CXCV (May 26, 1923), 49. ....“....“ ....." ... 159 items of value in pawnshops; they represent a ready source of additional cash when needed. Other types of persons in the sub-banking class j are the gambler and the individual of dubious profession. The income of these persons fluctuates rapidly, as does their residence. The pawnshop serves these persons as j a bank serves the more stable element of the community. Finally, the small loan pawnbroker has as a potential customer the person who is at or near the point ; of public relief. This type of person is usually faced with an immediate emergency. He has been living on a t \ limited income and suddenly needs what is to him a large I sum of money. As a result, he is forced to go to a pawn broker.^ This is the type of person with whom the pawn- j broker intensely dislikes doing business. This intense : dislike stems from several causes. First, the person is not a true pawn customer. He is at a stage where every dollar is important. If necessary, he is willing to sell his collateral. He hopes to avoid this sale by patron izing the pawnbroker. Invariably he does not patronize i Q ’’People and Pledges that Come to a Pawnbroker,” Literary Digest, LXIX (April 23, 1921), 48. a pawnbroker frequently. As a result, he has no idea of jpawnshop appraisal policies. He has not tried to sell his collateral yet, so he has no idea of its quick-sale value. Naturally, his first encounter with a pawnbroker is bound to be disappointing. He usually becomes bellig erent and heaps the accumulated resentment to his unfortunate circumstances upon this final unsympathetic member of society, the pawnbroker. ; The persons whose trade all pawnbrokers, large or [small, fight to keep are the careless spenders. These are ■persons who cannot budget and to whom pawning has become i |an accepted ritual. Once this type of person learns about a pawnshop, he becomes a regular customer. It gets so that to them hocking is like eating peanuts. They do not jdo it because they have to, but for sheer love of the !process. It is a habit like any other overindulgence. A bad victim of pawnshop fever has the hallucination that every trinket in his home is an uncashed check.^ Some men make a point of depositing their Sunday clothes with ^"Before the Senate Interim Committee on Pawn brokers," op. cit., p. 80. ^Caroline Bird, "The Providential Provident," Colliers Magazine, CXXI (February 7, 1948), 72. their pawnbroker every Monday throughout the year and i 12 redeeming them every Saturday night. This type of person will continue in this manner regardless of the ; income he receives. There are wealthy as well as poor i i j spendthrifts. The frequent borrowing and redemptions j of these persons is the real source of prosperity for I the pawnbroker.13 The Chief of Police of San Diego, j California, in discussing this phase of pawnbroking, testified that some items have been .recorded in and out ! of pawnshops a hundred times a year.^ I ' Reasons for Patronizing a Pawnshop j The possible customers of a pawnbroker's services are extremely varied. The reasons why these persons come to the pawnshop are even more varied. All together they ;make a curious commentary on society as a whole and the human being as an unpredictable individualist. ^Edith Sellers, "The Story of a Philanthropic Pawnshop," Municipal Affairs Magazine (1897), 381. 13 "Hard Times for Pawnbrokers," The Economist, CLXXXII (March 2, 1956), 707. ^"Before the Senate Interim Committee on Pawn brokers," op. cit., p. 25. r .... ........ .....~~..... ~~..162 Pawnshops as storage places. The pawnshop serves t a certain segment of society merely as a warehouse. This is a result of the regulation imposed by the state. This regulation governs the length of the holding period and the possible charges for pledges. Certain persons are not adverse to enjoying the possession of a heavy over- !coat during the summer in the form of ready cash while the coat stays in the care of someone who is legally obliged to care for it.^ Some pawnshops combine these two functions of storing valuables and lending money intentionally. New York City had a pawnshop for animals for almost eight years. This shop accepted wild animals j las well as all kinds of domestic animals in pawn. The establishment's true purpose was fundamentally storage [and animal care backed by a pawnbroker's legal status since loans were extended before the animals were accepted.^ Another variation of the storage customer is the itinerant. This person uses the pawnshop for safety * 1 c "Hard Times for Pawnbrokers," loc. cit. 16 Wendell Phillips Dodge, "Pawnshop for Animals," Technical World Magazine, XXII (December 14, 1933), 528. rather than the need of the money received.^ The itinerant usually lives in a boarding house. These boarding houses are located in neighborhoods that are subject to fires and burglaries. The interest that the itinerant pays is actually a burglary and fire insur- 18 ance premium. > Reasons for making large loans at pawnshops. Large ;loans are demanded by entrepreneurs and the wealthy spend thrift. When a rich man needs cash fast and no questions iasked, he usually needs it in quantities which would raise ' 1 9 eyebrows in the usual sources. The pawnbroker is best i suited to serve such persons. Often the entrepreneur will go to the pawnbroker 1 rather than the bank because of the speed of the pawn broker1 s transaction. The average pawnshop loan takes O f) only five minutes. Pride is a great factor when wealthy persons use ■^Mapplebeck, loc. cit. IQ °"Experiences of a Pawnbroker," o£. cit., p. 195. 19 Saxl, o£. cit., p. 19. ; ^^Raul Tumley, nIt*s no Crime to Pawn Your Watch," American Magazine, CLVI (November, 1953), 109. a pawnbroker’s services. Usually the air of secrecy is i I maintained by private entrances and booths. Persons who pawn sometimes do not want others to know of their plight. Many times the impersonal services of a pawnbroker at a ; fee are preferred to the available services of friends j at no fee. i Reasons for making small loans at pawnshops. Those who receive fixed, irregular, incomes use the pawnshop to I make the link between expenditure and inadequate income 21 more elastic. This is a result of being unable to i _ ibudget properly one's income. It creates a burden of !extra charges that this type of person cannot afford to pay. At a cost, he achieves the temporary feeling of being richer than he is. Redemptions are usually the jheaviest in December when these persons receive dividends, 99 bonuses, or seasonal part-time work. In the sub-banking class the dandy receives a |psychological lift from putting on a "good front." The most hardy and cheerful perennial of all pawnshop customers "Hard Times for Pawnbrokers," loc. cit. 2^New York Times, loc. cit. r ....""... ■.... '..'.... 165 is the dandy. He buys a gorgeous suit, a hat, shirt, and i j shoes from the pawnbroker on Friday. He wears them ; Saturday and Sunday for his lady friend to admire. On Monday he pawns them back again for eating money during i the rest of the week. Gamblers and persons of dubious professions go jthrough somewhat the same procedure. When they have a !great deal of money they purchase something that can be worn for aggrandizement when things are going good or pawned when they are going bad. Though they lack other jcredit, they usually have the right collateral for the :pawnbroker.^ The inadvisability of such actions greatly depends i upon the way of living to which the person has become [accustomed. The line of reasoning employed by such persons may become more understandable from a typical example: A pawnbroker will gladly sell an excellent used suit for $30. Such a suit new would cost a minimum of $60. The customer has found from experience that after he has worn the new suit several times it will also be considered as 23xumley, loc. cit. r ■ ..................... * . 1 6 6 | used merchandise by the pawnbroker. A good used suit will bring a maximum of $15 in pawn. Pawnbrokers extend larger loans on articles purchased from them. They often openly | advertise a policy of one half the purchase price back in i I loan value. There are two good reasons for such a policy. ! I First, it serves to dispose of their unclaimed pledges at j retail. Second, it creates regular customers for both the retail and the loan departments of their business. The customer also gains by patronizing the pawnshop when purchasing an article. He finds that his wardrobe invest ment is substantially reduced. Also; he finds that he has a ready source of funds at his disposal. Furthermore, i as styles change he finds that he can keep his wardrobe up to date at less expense. For these persons pawning becomes a way of life. Types of Pawnbrokers The stereotype caricature of a pawnbroker is an elderly, heavy-set individual whose facial characteristics I reflect the tight-fisted nature of the man. Physically, pawnbrokers are as varied as most other groups of indi viduals. They can be found in every size, shape, and description. Generally, the experienced pawnbroker is an older | i man. He has spent many years learning his business, and ; the effects are visible. By nature he invariably must be an understanding and yet calloused individual. His appraisals, though reflecting sentiment, must have a solid "cash out" value foundation. Finally, he must respect and understand his customer. The pawnbroker is an individualist. He depends upon his skill in lending out his capital to make his living. In the final analysis, the pawnbroker must be a combination diplomat, psychologist, detective, banker, I merchant, and finally, appraiser. ^ ! Appraisal of Merchandise The most common charge leveled at pawnbrokers by their customers is not that their rates are too high, but that they value pledges too low. J The problem of appraisal of used articles is one that is peculiar to the pawnshop business. Appraisal is probably the greatest ^^Lowell Brentano, "Everybody's Uncle," Nations Business Magazine, XXIX (November, 1941), 21 25*'Hard Times for Pawnbrokers," loc. cit. problem in the business. To continue in business, it is necessary for the pawnbroker to be acquainted with all the (countless types of merchandise offered daily as pledges.^6 [The success of a pawnbroker depends largely upon his success as an appraiser. The appraisal policy of private pawnbrokers. In order to compete with Remedial Loans Associations, the (private pawnbroker must lend more money on the same article. Unfortunately, this practice of higher appraisal encourages the patronage of persons who are seeking to dump their collateral permanently. Private pawnbrokers are willing to take this risk because they charge the maximum legal rate of interest. For a larger return a reasonable man expects to take larger risks. It is in j these higher appraisals that sentiment becomes mixed with cold cash. A nonrisk loan is appraised on the basis of original cost, the condition of the article, and the icash-out value. Using an electric razor as an example, it can be seen how this appraisal policy works. The retail t ^ E d m u n d M o t t e r s h e a d , ’’pawnshops,'1 The Annals of (the American Academy, CXCVI (March, 1938), 151. ~ .....'.... “.......'......... 169 price of most name brand electric razors is in excess of $20. On this basis, the wholesale value is in excess of $10 for a new razor. A secondhand dealer would be willing to purchase a used razor in excellent condition for $5. 'The nonrisk pawnbroker loan value on such a razor would be $2.50. As a rough rule of thumb, then the pawnbroker's j appraisal value would be 50 per cent of the used cash out value, 25 per cent of the new wholesale value, and 12 1/2 per cent of the new retail value. ! The private pawnbroker, in extending a loan, con siders other factors than the nonrisk value. Some addi tional considerations are the usefulness to the borrower, the character of the borrower, and the sentiment value of the article. The effect of competition on appraisal. Competi tion among private pawnbrokers is such as to bring about a rather liberal increase above the base nonrisk value of 27 a loan. Appraisal ultimately becomes an individual problem that each pawnbroker must meet on an individual ^"Before tj ie senate Interim Committee on Pawn brokers," op. cit., p. 84. !basis with every customer. There are instances when the I pawnbroker will loan 100 per cent of the current cash-out 28 price, or even higher. These extended loans are justi- j fied by the confidence the pawnbroker feels in his ability to judge customers. The individual, his approach, his appearance, and his sincerity are many times taken into !consideration when appraising an article. Strangely enough, sentiment also plays an important part in valua tion. Owners acquire an affection for their old belongings land want to redeem them. The legitimate pawnbroker places more confidence in secondhand articles than in new art ic l es .^ a workman's tools, a musician's instrument, 1 ia newspaperman's camera bring more in loans from the pawn broker than their resale value. If an article really means something to a customer, the pawnbroker will take this into account. The article becomes a preferred risk. ■A woman pledging her engagement ring is going to redeem it even if she gets twice the cash-out value. The success ful pawnbroker must scrutinize the pledger as much as he 28Ibid. 29 Brentano, op. cit., p. 74. r ............ '.""..... . " " " . "."....171 i does the pledge. In the final analysis no appraisal is j a bad appraisal if it is redeemed and the interest is paid, jBecause of this, appraisers will even lend money to regular |customers on a mere promise. In such cases the customer I pledges his pawn tickets as collateral for another loan. If the pawn tickets are redeemed, the pawnbroker secures his interest. If they ate not redeemed, he receives no ■collateral that he does not already possess. Such loans are accepted by the pawnbroker from regular customers who jhave all their effects deposited with the pawnbroker but !whose emergency has not yet passed. As a result of extend- i iing appraisal value beyond the cash-out value, there is i very little trafficking in pawn tickets. A pawn ticket in the United States is a negotiable instrument. It is evident that the pawnbroker, as well as the pawnee, is an adventuresome type of person. Both are persons who are not afraid to venture outside the usual circle of things. Together they help constitute an interesting segment of society. CHAPTER VII SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS The details concerning the history, the regulation and the operation of pawnshops have been presented in the previous chapters. It is the purpose of this chapter to summarize the material and to present the author's con clusions and recommendations. I. SUMMARY The problem under consideration was the rapid decline of the number of establishments fulfilling the pawnbroker function. In an attempt to understand the causes and effects of this decline, it was necessary to understand the history and operation of the industry. The pledging of an article in return for money has existed for thousands of years. In an attempt to protect the pawn customer, three methods of controlling pawnshops have developed. The first was the establishment of govern ment operated pawnshops. Second, private nonprofit organ izations have undertaken to supply funds to the pawn I customer. Third, the government has placed regulations i j upon the private pawnbroker restricting his freedom of |action. This attempt to restrict the freedom of action of I {the private pawnbroker took many forms. Restrictions were {placed upon entering the trade by licensing requirements. The law enforcement agencies were required to keep a close (check upon the daily operation of pawnshops. This was {done primarily by means of register books, daily police {report forms, daily police on-the-spot visits, restricted hours of operation, and fingerprinting of pawn customers and pawnbrokers. By legislation, the interest rate, the {holding period of pledges, and the disposal of unclaimed pledges were all regulated. All of these restrictions varied according to the opinions of the legislative and policing powers of differ ent localities. At no time did a uniform pawnbroking law (evolve, although recommendations for such a uniform law were made. Some of the difficulty in securing adequate regulation lay in the human element of the two groups affected by such regulation. Neither the pawn customer nor the pawnbroker have changed fundamentally throughout history. The range among I ..‘ ........... “ '." ' " .“.. "....... 174 pawn customers stretches from the extremely wealthy to I I jthose barely above the point of public relief. One thing j |all pawn customers have in common is the need for immediate^ I cash in return for an article which they prefer not to sell. Historically, the form of collateral has not changed either. The jewels of the wealthy and the tools and j - clothing of the poor have been pledged throughout the |centuries.. The pawnbroker today, as his predecessors were in the past, is still a highly individualistic entrepreneur. (He relies upon his skill of appraisal to lend out his |capital in such a manner that it will be returned with a i profit. However, the pawnbroker's methods of operation i have changed drastically. Gone is the rough and tumble, laissez-faire, freedom of operation he once operated under. Gradually he has had to conduct his business subject to more and more regulations. The aim of this regulation has been to provide the utmost benefit for the pawn customer. How effective has this regulation been in securing this aim? II. CONCLUSIONS Society has come to recognize and accept that its members, at times, would prefer to pledge rather than sell | their possessions. The necessity of resorting to pawn- broking is still viewed with greater disfavor than other jtypes of credit lending. The enlightened viewpoint that emptied the debtor's prisons has not filtered down to the pawnshop level. Tft, e VaIue ?1 . M gHla^£?--9.L-I?ierest Rates j Undoubtedly there must be some regulation of |interest rates in the pawnbroking field. The pawn customer j is in no position to bargain for himself. This is espe cially true of the small loan customer. As a result, he j is disposed to promise to pay any amount when contracting 1for a loan. Wise regulation of interest rates must take into account the rate of return on invested capital which will attract commercial capital to the business. Another (consideration legislators face is the risk in handling small loans. Any action they can take to reduce this risk (will result in a more plentiful supply of money being available at lower interest rates. The biggest risk factor in handling any collateral loan is deterioration of value due to the passage of time and changing market conditions. The Value of Regulation of the Holding Period Time is money. This saying is particularly 'applicable to the pawnbroker. The pawn customer must |receive a lower appraisal when the time limit is long. |With shorter time limits, market conditions are more (readily forecast and appraisal can be more generous. Any I !reduction in time limit requirements will benefit both |the pawn customer and the pawnbroker. The pawnbroker practice of open-ended pledges is the best solution to the question of the holding period. By the automatic extension of pledges through required monthly interest payments, two benefits are derived. One, the accumulation of interest is prevented. Two, the time i period may be extended to meet the needs of the particular customer. If the loans are not redeemed, they must be sold so that the capital invested may be reused. As a means of disposing of unclaimed pledges, the auction method is the least desirable. It has proved to be a drawback to nonprofit pawnbrokers. Private pawnbrokers, when required (by law to auction their unclaimed pledges, circumvent the possible losses by bidding in on their own merchandise. The final result is that the private pawnbroker, whether by auction buying or by outright forfeiture of title, 4 becomes the owner of his unclaimed pledges and must r ■ ■ - ..........................- .......... ..................................................... — ............... — .............— ..............— ..... — ...... — .......... - .........“ 177 “ i |dispose of them himself. In doing so he becomes another I of the countless number of small retail businessmen. His ' most pressing difficulties, therefore, are much like those I !that exist among all small shopkeepers. He cannot afford I i jto pay high wages. Young people will not come into the trade. New capital shies away from the restrictions which are natural to the business. The business itself is not isuitable to large scale operation. Finally, too much depends upon the personal reaction of the man behind the icounter. The natural result of all this has been the 1 gradual decline of the number of pawnbrokers. This gradual 1 decline has been accelerated in recent years by three |factors. First, the increase in the number of small loans being granted by banks, credit unions, and personal finance companies. The inroads of these institutions into what had formerly been the pawnbroker's exclusive domain help ishave the profits in the pawnbroker's loan department. Second, the advent of the discount house and installment I selling have hurt the sales in the pawnbroker's retail department. Pawnbrokers formerly have operated on a strict cash basis. Today, credit buying of items of smaller amounts is becoming more and more acceptable. The bottom must surely have been reached by the entry of the I five-and-dime stores into the credit selling field. Third,: ; the unsympathetic actions of legislatures reflecting the I unsympathetic attitude of the general public have made it j even more difficult for pawnbrokers to continue to function legally. Unrealistic interest rates and holding period j requirements have been the final blow to many pawnbrokers. i j As the economy has advanced, these antiquated regulations ;have become more and more binding. As a result of these factors, pawnshops that hope to continue to exist must find some additional method of supplementing their income. This they are endeavoring to do by providing additional services to the customers at a price. For the surviving pawnshops, as competition grows less, business conditions will improve. There is never (a dearth of borrowers. When it becomes difficult for these borrowers to compare offers of rival pawnshops they are truly at the mercy of the pawnbroker. The pawnbroker has greater leeway in restricting appraisals and expanding ’terms. Regulation is merely the forbidding of known practices. Pawnbrokers, as all others, faced with an (unqualified demand have had to invent new ways of doing business. The pawnbroker, ever adaptable, is changing his business to meet changing conditions. He adapts his services and facilities to meet the changing economic situation. Under the present condition of society it is necessary to have some institution authorized to loan on pawns. The key to how this necessity is to be fulfilled lies in regulation. Under enlightened and adequate regula tion the pawnbroker function can continue to be cared for by institutions or private individuals openly operating to supply credit upon goods left in their care. To improve present regulation the following recommendations should be considered. III. RECOMMENDATIONS FOR CHANGES IN THE REGULATION OF PAWNBROKERS First and foremost, the requirement of finger printing should be instituted. Pawnbrokerage still suffers from the implication that it is a dishonest business. Such a regulation as the taking of a thumb print will not impair the pawnbroker's business. It should serve to discourage the use of pawnshops as an unwitting means of disposal of stolen property. Perhaps with the stigma of stolen property removed, the pawnshop will be a little r *......’...............* .... ... .~ ....~ .........' ... ’ iso" ! more acceptable to the general public. This could create I ; the favorable atmosphere necfessary for the enactment of the remaining changes in regulation. Second, the pawnbroker should be required to hold pledges for thirty days with the proviso that the payment of interest charges automatically extends the time period thirty days. No limitation should be placed upon the number of times a pledge may be extended in this manner. [This would provide whatever holding period the pawn cus tomer desired and prevent the accumulation of interest. Third, the interest rate should be made separate from a storage rate. In no other form of lending is the I I supplier of funds required to store and have available I for immediate delivery the collateral against which the loan is made. A set monthly storage fee of fifty cents iper month would not be exorbitant and would serve to make the interest rate a truer reflection of return upon invested capital. Furthermore, this should reduce the abuse of pawnshops by persons desiring storage rather than lending services. The interest rate itself should be reviewed period ically by an impartial board. This could be handled in the same manner that utility rate adjustments are author ized. It would provide for a system of change when such change was clearly necessary and desirable. Fourth, the provision for automatic transfer of title should be included in all pledge transactions. This might serve to encourage more nonprofit pawnshops to retail rather than auction their pledges. As a result of j retailing, the nonprofit pawnshops might correct their low j appraisal policy and thereby offer more substantial com- ] petition to the private pawnbroker. j ] Fifth, the establishment of more nonprofit pawn- I J shops should be encouraged by special capital formation 1 provisions as well as tax provisions. Special considera tion should be given attempts to provide nonprofit service | to the small loan borrower who is at present only aceommo- j ;dated by the private pawnbroker. Sixth, legislation could allow pawnbrokers the privilege of disposing of unredeemed pledges without I obtaining a secondhand dealer’s license. This action would successfully separate the two businesses. The result would be a more legitimate pawnbroking industry. Finally, the pawn customer should be informed of his rights and his obligations. This could be done by regulation prescribing the conspicuous display of pertinent information. The form and placement should be such that the pawn customer cannot possibly avoid seeing it. The best place for this is on the pawnticket itself, in (lettering of a prescribed size. The pawn customer should be advised that he has a j (right to demand a receipt for all monies paid. He has (the right of appeal to the law enforcement agencies on any suspected irregularity. He has the obligation to read and (understand the ticket or evidence of the loan. He has the obligation to identify his property in case of dispute. With the greater understanding on the part of the 1 pawn customer, the pawnbroker and above all, the general (public, the pawnshop can in the future serve society even ; better than it has in the past. PAWNBROKERS* God bless pawnbrokers, They are quiet men. You may go once. You may go again. They do not question As a brother might. They never say What they think is right. They never hint All you ought to know. Lay your treasure down, Take your cash and go. Fold your ticket up In a secret place With your shaken pride And your shy disgrace; Take the burly world By the throat again. God bless pawnbrokers-- They are quiet men. Marguerite Wilkinson Golden Book, January, 1932, p. 73. r B I B L I O G R A P H Y BIBLIOGRAPHY A. BOOKS i DeRover, Raymond. Honey, Banking and Credit in Mediaeval Bruges. Cambridge, Massachusetts: The Mediaeval Academy of America, 1948. Gallert, David Jacque, Walter S. Hilborn, and Geoffrey May. Small Loan Legislation. New York: Russell Sage Foundation, 1932. j Raby, R. Cornelius. The Regulation of Pawnbroking. New York: Russell Sage Foundation, 1924. Robinson, N., and R. Nugent. Regulation of the Small i Loan Business. New York: Russell Sage Foundation, 1935. i i Ryan, F. W. Usury and Usury Laws. Boston: Houghton Mifflin Company, 1924. B. PERIODICALS "A National Menace," Photo Era. XXXIV (June, 1915), 277. HA Pawnbroker Who Has Passed the Three-ball Limit in Advertising," Printer*s Ink. CXXI (October 19, 1922), 110. Baldwin, Elbert. "Pawnbroking in Various Countries," The Outlook Magazine, LIT (August, 1895). Bird, Caroline. "The.Providential Provident," Colliers Magazine, CXXI (February 7, 1948), 73. Brentano, Lowell. “Everybody*s Uncle," Nations Business Magazine. XXIX (November, 1941), 22. "Christmas Less Cheery for Hock Shops," Business Week. December 22, 1956, p. 70. Comer, Mary Elizabeth. "Cops and Robbers in a Pawnshop," Reader's Digest. LIX (December, 1951), 131. "Credit by Loanrnobile," Burrough's Clearing House Magazine. XXXII (December, 1952), 4. !Dodge, Wendell Phillips. "Pawnshop for Animals," Technical World Magazine. XXII (December 14, 1933), 528. "Experiences of a Pawnbroker," American Magazine, LXXXVII (June 18, 1919), 51. t jHardinburgh, Mildred. "At the Sign of the Three Golden i Balls," American Magazine, CII (October, 1926), 43. i "Hard Times for Pawnbrokers," The Economist, CLXXXII (March 2, 1956), 706. Kaplan, Samuel. "People's Pawnshop," American Magazine, VI (October, 1954), 13. Kumlein, Gunnar D. "Misery that Pays," Commonwealth Magazine, LIII (December 1, 1950), 194. Mackprang, Margaret. "Java Pawnshop Treasures," Asia Magazine, XXXII (December, 1932), 606. :Mapplebeck, John. "The Oldest Banker— Your Uncle," Saturday Evening Post. CXCV (May 26, 1923), 48. Moffett, Cleveland. "Paris Pawnshops," Century Magazine, LXV (January, 1903), 331. Mottershead, Edmund. "Pawnshops," The Annals of the American Academy, CXCVI (March, 1938), 149. r " . . . . . . . . . . . . ~ ~ _ . . . . . . . . . . . . . . ". ~ . . . . . . . . . ~ . . . 1 8 7 ■ Municipal Affairs, II (December, 1898), 747. Paine, Albert Bigelow. "A Visit to the Pawnbroker Auctions of New York City," Century Magazine. LXIX (January, 1905), 367. ! "Pawnshop Deluxe," Fortune Magazine. L (October, 1954), I 234. "People and Pledges that Come to a Pawnbroker," Literary Digest. LXIX (April 23, 1921), 48. i ! Saxl, Eva. "About Pawnshops in China," American Mercury Magazine. LXXVII (October, 1953), 129. Sellers, Edith. "The Story of a Philanthropic Pawnshop," Municipal Affairs Magazine (1897), 381. ;Smith, Katherine L. "Municipal Pawn Shops," Current Literature, XXIX (October, 1900), 427. ISparks, Boyden. "Is Your Watch at Simpsons?" Saturday Evening Post, CCIX (February 27, 1937), 314. i !Strokosch, A. "Brother to Shylock," Century Magazine, CXVII (March, 1938), 149. "Talk of the Town," New Yorker, XXX (September 11, 1954), 31. Titterton, W. R. "A London Uncle," Living Age Magazine, CCC (January 18, 1919), 179. Tumley, Raul. "It's No Crime to Pawn Your Watch," American Magazine, CLVI (November, 1953), 107. t Wallace, Robert. "A Regular Roosting Place," Life, XXXV (September 14, 1953), 143. C. GOVERNMENT PUBLICATIONS i Patterson, W. R. Pawnbroking in Europe and the United j States. United States Bureau of Labor Bulletin No. 21. Washington: Government Printing Office, 1899. i j State of California, "Before the Senate Interim Committee on Pawnbrokers," May 11, 1956. I . August 24, 1956. D. BUSINESS ASSOCIATION PUBLICATIONS i Bulletin of the National Federation of Remedial Loan Associations, August, 1922; September, 1923; September, 1924. National Federation of Remedial Loan Associations, i "Work of the Remedial Loan Societies 1927-1928," p. 8. E. JUDICIAL RULINGS American Law Reports, Vols. 55, 125. Rochester, New York: Lawyers Co-operative Publishing Company, 1928. Askura v. Seattle, 122 Washington Reports 81 (1922). California Law Review, Vol. 27. School of Jurisprudence. Berkeley, California: University of California Press, 1939. California Reports, Vols. 29, 67. San Francisco, California: Bancroft Whitney Company, 1887, _______ . Vol. 148. San Francisco, California: Bancroft Whitney Company, 1906. Ex parte Goldburg, 82 Texas Criminal Reports 476 (1918). Ex parte Lichenstein, 67 California Reports 359. Fulton v. District of Columbia, 2 Appeal Cases— District of Columbia 436 (1894). Jackson v. Shawl. 29 California Reports 267 (1865). Launder v. Chicago, 111 Illinois Reports 291 (1912). Schwartz v. Chicago State Pawners Society, 195 Reports of Cases at Law and in Chancery, Supreme Court of Illinois 93. Seider v_j_ Stern. 159 New York State Reports 88. Weller v. Quinn. 4 California Appellate Reports, Second Series 663 (1935). Wichita v. Wolkow, 110 Kansas Reports 127 )1921). Zevansky v. Police Commission, 61 California Appellate Reports, Second Series 450 (1943). F. STATUTES Statutes of California, 1861; 1881; 1935; 1939; 1951; and 1955. G. NEWSPAPERS New York Times, January 9, 1926; February 26, 1928; March 31, 1929; June 15, 1932; March 11, 1934; October 28, 1934; July 9, 1943; February 15, 1949; April 10, 1955; January 31, 1956; June 6, 1956; and April 14, 1957. ItSftlvefsitv of S o u th ern C alifonsS i

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Creator Shocket, Sol (author)

Core Title Pawnbrokerage in California

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

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Advisor Phillips, E. Bryant (committee chair), Garis, Roy L. (committee member), Pollard, Spencer D. (committee member)

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