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HMRC internal manual

Money Laundering Regulations: Compliance

Legislation: Pawn Broking

Pawn broking is the most common consumer credit activity carried out within MSBs and is usually provided alongside cheque cashing. Pawn brokers provide short term loans for those in need of immediate cash. Typical loans offered by pawn brokers are short-term in the region of £100-£1,000,000 secured against watches, jewellery, gold, antiques, fine art, cars and other valuable items. The pawn broker will value the goods to be pledged and agree the value with the customer.

If the customer decides to go ahead with the transaction he then signs an agreement which includes the terms and conditions of the loan. The customer also receives a pawn-receipt for presentation when redeeming the goods. The items pledged are safely stored usually at the premises of the pawn broker, fully insured and remain the customer’s for the duration of their loan The consumer credit agreement will be for a minimum period of six months and the customer is entitled to redeem property by repaying the original loan plus the monthly amount due at any time during the contract period.

When the loan and the interest are paid, the goods are returned to the customer. If the customer has not repaid the loan during this time and the loan was over £75 he will receive notice that the property is due to be sold giving him a further statutory period of 14 days in which to redeem (the customer will normally however have the option at the end of the contract to renew the loan by the payment of interest only and the rewriting of a fresh agreement). If the customer does not renew or respond to the notice served, the pawnbroker may dispose of the goods.

Advantages are that no credit checks are required.

Disadvantages are that for short-term pawnbroker loans over £1000, the charges can be in the region of 4%- 5% simple interest per month (53.8%APR - 69%), and for loans of less than £1000 charges in the region of 6% simple interest per month (85.0%APR). However, these pawn loan rates can be extremely attractive when compared to alternatives such as payday loans or unplanned overdrafts.