Pawn Shop Ripped You Off?
If you need a loan in Pennsylvania and have nowhere else to turn, you might consider a pawnshop. Pawnshops are allowed to make loans at up to 36% annual percentage rate, which is high, but not nearly as high as the rates charged by payday and auto title lenders. But pawn loans are still predatory. They are typically payable in a lump sum balloon payment. To pay off the loan, the borrower needs to be able to pay the full amount of the principal and interest in one payment at the end of the loan. Because balloon payments are hard to afford, it is easy for borrowers to lose their collateral for less than it is worth.
Pawnshops in Pennsylvania are regulated under the Pawnbrokers Licensing Act. Under this act, pawnshops are prohibited from charging interest at a rate greater than 6% per annum or service charges at a rate greater 30%. Together, if the borrower agrees to pay both interest and service charges, the maximum annual rate at which these charges can be assessed is capped at 36%.
If a pawn shop charges more than the maximum, the act says the loan is forfeited, and the shop must return the collateral without payment of principal or interest. If a loan goes into default, the pawnshop cannot sell the collateral before the end of the 90 days, and the act caps the accumulation of interest at six months after the loan first comes due.
The act requires the pawnshop and borrower to agree on a minimum sale price for the collateral should the loan go into default. The pawnshop is then allowed to sell the property at a private sale for an amount that is not less than the agreed upon price. If there is no agreement or the pawnshop is not able to sell the collateral at the agreed price, the pawnshop can sell the collateral at an auction. A pawnshop may not apply a surplus on one pawn loan to a deficit on another pawn loan.
Pawnshops may try to cheat borrowers by demanding excessive interest, fees, and costs or short-changing borrowers on the amount of the surplus left over after collateral is sold.