Pawnbroker legal issues

Though pawnbroking has been around for centuries, it has only recently come under legal regulation in the UK. Prior to 2015, there were no specific laws governing the pawnbroking industry, leading to concerns about unfair terms, exorbitant interest rates, and undisclosed fees. In response to public pressure, the government introduced the Consumer Credit Act in 2015, which placed stricter controls on pawnbrokers and other lenders, which has now brought a number of legal issues for pawnbrokers.

The Act capped interest rates at 3% per month, limited upfront fees to £20, and required lenders to provide clear information about the terms of the loan. These changes have helped to protect consumers from predatory lending practices and have made it easier for them to compare different offers and make informed decisions about borrowing. Though some challenges remain, the new regulations have helped to ensure that pawnbroking is a fair and transparent industry

Today we will be discussing the key parts of legislation that are likely to affect pawnbrokers in the UK. Read on to discover all the legal issues you need to know when running a pawnbroking business venture.

What licences does a pawnbroker need?

The licenses required for a pawnbroker in order to provide money lending services, including pawnbroking, you must have the appropriate consumer credit authority. You will need to apply for full permission from the Financial Conduct Authority (FCA). For more information, you can go to the FCA website.

You must register with HMRC as a Money Service Business if you offer money service business activities like check cashing. Pawnbroking and money service business activities will both be supervised by them. The Gov.uk website has more information. The FCA will regulate and register pawnbrokers who don’t also operate as MSBs.

There are also a few things you should know:

• Data users must register with the Information Commissioner’s Office (ICO) if they keep computerised records of customers’ personal information or use CCTV. With the introduction of the General Data Protection Regulation in May 2018, personal data will be protected in an enhanced manner.
• You’ll need a Music Licence from PPL PRS Ltd if you play background music in your outlet. On the PPL PRS website, you can pay an annual fee for this service.

Selling general insurance

You may need to be regulated by the Financial Conduct Authority (FCA) if you offer your customers insurance products, such as loan protection policies or jewellery cover. The FCA has the power to directly authorise general insurance businesses, or it can appoint representatives to represent FCA-authorised insurers. On the FCA website, you can find contact information and more information.

Licensing of second-hand dealers

Second-hand dealers in Scotland must obtain a license before they can operate. Pawnbrokers, however, are specifically excluded from this requirement. In other parts of the UK, second-hand dealers are licensed by some local authorities. Again, consumer credit-authorised businesses are generally exempt (jewellers are often specifically exempted). Contact your local authority trading standards department for guidance if you are unsure whether second-hand dealer licensing applies to your business.

Consumer credit

Regulations made under the Consumer Credit Act govern any business that offers money lending services to its customers. The pawnbroking industry is subject to several of these regulations. The Financial Conduct Authority (FCA) requires consumer credit authorisation, which you can obtain online.

The pre-contract information document must be provided to your customer before they agree to a loan, per consumer credit legislation. It is equally important that you do not create an unfair relationship between yourself and your customers through your standard terms, conditions, and procedures. Pawnbrokers are subject to specific rules in section 6.6 of the FCA Consumer Credit Sourcebook.

Consumer credit, pawnbroking, and the law are discussed on the website of the National Pawnbrokers Association (NPA). The Financial Ombudsman Service website also provides information about unfair relationships and the law.

Hallmarking

An assay office must mark all precious metal jewellery.

If you sell jewellery in your outlet, you are responsible for ensuring that it is hallmarked. ‘Dealers’ Notices’ must be displayed as well, which explain the hallmarking system. It can be downloaded on the website of the British Hallmarking Council.

Nickel content of jewellery

Jewellery’s nickel content is regulated, and you are responsible for ensuring that all items offered for sale meet those requirements.

Weights and measures

The accuracy of weighing machines for the sale of gold, silver, precious stones or jewellery must be ‘Class II’. An officer of Trading Standards must certify that weighing machines used for trade purposes are fit for use. You can find more information about trading standards at your local government agency.

Money laundering

In addition to pawnbrokers, all ‘High Value Dealers’ and Money Service Businesses (MSBs) must comply with the Money Laundering Regulations. If you provide money service business activities such as check cashing, you must register with HM Revenue & Customs (HMRC).

Retailing

To protect the interests of consumers, keep in mind that there are a wide range of fair-trading laws that apply to retailing in general, including unredeemed pawns and items such as jewellery. A clear indication of the retail price of goods is required, for example, and good descriptions must not be misleading. The quality and suitability of all goods will be your responsibility.

It is especially important to be careful when selling second-hand electrical items.

In the event that you sell second-hand electrical goods that are unsafe or incorrectly labelled and have not taken reasonable precautions to prevent this, you may be prosecuted. Compliance with the law requires that you take reasonable precautions. A qualified electrician will most likely need to check the goods.

Carrier bag charge

The charge in England is 5 pence, but small and medium-sized businesses are exempt. The gov.uk website provides detailed guidance.

Customers in Wales and Scotland must be charged at least 5 pence if they are given a single-use carrier bag. Any plastic, paper or starch-based single-use bag is subject to this rule. On the websites of Gov.Wales and Zero Waste Scotland, you can find detailed guidance.

If a customer buys a bag less than 20 pence (including reusable or single-use bags that would normally be free), retailers are required to charge a 5 pence levy.

Health & Safety, fire

Fire safety legislation and workplace health and safety regulations must be followed.

Employment legislation

Employment legislation must be followed by anyone who employs employees. In addition to recruitment, employment contracts, pay, working hours, holidays, pay increments, maternity leave, paternity leave, discrimination, discipline, grievances, dismissals, redundancies and employment tribunals, employment legislation covers a wide range of areas.

Insurance for a pawnbroker

Insurers or insurance brokers can explain what insurance coverage is required by law and what additional coverage you may need. Among them are:

• Premises, premises contents and any retail stock – including jewellery cover and customers’ repairs
• Cover for the loans you have made and the interest due on them
• Cash protection
• Business interruption
• Employer’s liability
• Public liability
• Product liability (to cover any goods sold)
• Motor insurance for business vehicles

A customer’s pledged goods are not usually insured – there is no legal requirement to do so. In the event that the customer’s pledge is permanently damaged or lost, the National Pawn insurers Association (NPA) and insurers TH March offer an insurance-backed Customer Compensation Plan. A complete description of the scheme and other relevant insurance coverage can be found on the TH March website.

Members can also seek advice from the NPA on general business insurance matters.

Conclusion

Pawnbrokers need to be aware of their responsibilities and legal requirement to be regulated under the money laundering regulations and the FCA Consumer Credit Act. Failed to do this, the business owner could be issued a fine or custodial sentence.

Read also: Sector trends for the Pawnbroking industry