2009-11-27 / Columnists

Notes On Consumer Affairs

Commentary By Assemblywoman Audrey Pheffer

AUDREY PHEFFER AUDREY PHEFFER In today's depressed economy, an increasing number of consumers are struggling to meet their financial obligations. Unexpected events, such as job loss and medical emergencies, can force those in a financially weakened condition into making tough choices. Credit constrained consumers in immediate need of cash who have exhausted low- or no-cost options for short term borrowing, such as borrowing money from friends and family or requesting a pay advance from an employer, may turn to entities that offer collateral loans, more commonly known as pawnbrokers, for a short term loan. Fortunately, federal and state laws regulate pawnbrokers and provide consumers who take out a collateral loan with several important rights.

Pawnbrokers make loans to consumers with items of value, such as electronics, collectibles, or jewelry, used as collateral. A consumer who uses an item as collateral receives a ticket or memorandum that can be used to later recover the item within a certain time period. Under State law (Article 5 of the General Business Law), pawnbrokers may only charge four percent interest per month. The law also limits service charges to between four and ten dollars per month depending on the size of the loan and provides that the maximum period for a loan is fifteen months with a one-time extension of an additional fifteen months if both parties consent to such extension. Collateral loans also are subject to the federal Truth-in-Lending Act, which mandates clear disclosure of all material terms and conditions of the loan and all fees and rates. Furthermore, pawnbrokers must be licensed by the municipality in which their businesses are located.

In addition to governing loan terms and costs and requiring licensure, the law includes several provisions aimed at ensuring fairness in collateral loan transactions. First, and foremost, the consumer has a right to recover his or her property upon full payment of the loan within the time frame specified in the agreement. Pawn brok - ers must retain an item in their possession for at least four months before selling it. They must also notify the consumer of their intention to sell an item by written notice mailed at least thirty days preceding the date of sale. Lastly, the law provides consumers with a five business day cooling off period during which the transaction may be canceled, provided that the consumer pays the full loan amount and a cancellation fee of between four and ten dollars.

For more information about protections for consumers who enter into collateral loan arrangements, you may visit the Consumer Protection Board's website on the subject at: For more information about the services offered by pawnbrokers, you may want to visit the National Pawn brokers Association website at:

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