16 Mar 2010

Do Not “Pawn” Your Rights!

Legal, National Credit Act (NCA) No Comments

By Trishika Veeragudu (Attorney) @ Lucid Living

“With the economic downturn weighing heavily on consumers, most unregistered pawnbrokers were making a killing out of vulnerable consumers because most of them were not registered or regulated” according to Thami Bolani, chairman of the National Credit Forum.

What is the business of a pawnbroker?
Pawnbrokers advance money to the consumer, in exchange for their movable goods, which the pawnbroker holds as security for the money advanced. The consumer has a pre-determined period of time to reclaim their goods, by re-paying the money advanced. If the consumer fails to do so, they forfeit their goods. At this point, ownership in and to the goods pass to the pawnbroker, who is at liberty to deal with the goods as he sees fit. In most instances the goods are sold as second hand goods.

Are consumer disadvantaged if they pawn their goods?
The pawnbroker offers an amount far less than the market value of the goods being pawned.
The consumer generally accepts the unreasonable offer because –

  • They are in a financially desperate situation;
  • They need “quick cash” and this is the fastest option; and
  • They anticipate reclaiming the goods.

According to Mr. Du Plessis a local pawnbroker in Newlands (Johannesburg) “the reality is that 9/10 times, the consumer fails to come up with the cash to repay the pawnbroker and subsequently loses the goods”.
Du Plessis goes on to point out, “we then sell the goods for more than double the value we paid the person who pawned it”.

What does the law say?
“Pawnbrokers fall within the National Credit Act (NCA) definition of a credit provider as they are in the business of providing credit and lending” says Peter Setou from the National Credit Regulator (NCR). Pawn transactions are classified as ‘small’ credit agreements (either short-term or ‘other’) under the NCA, and interest rates charged are regulated, as are pre-agreement statements and quotations. Accordingly fees and interest must be within maximum prescribed limits.

Pawnbrokers that have at least 100 agreements on their books, or a total outstanding
principal debt owed to them under pawn agreements exceeding R500 000, must
register with the NCR. Failure to comply with the NCA could result in the pawnbroker being fined R100 000-00 or imprisonment of up to 10 years.

According to the NCR, there are some 15,000 pawnbrokers on the Second Hand Dealers and Pawn Board, but only 258 are registered with the NCR. This means that the majority of pawnbrokers are unregistered and operating illegally.

How will an unregistered pawnbroker affect you (the consumer)?
If a pawnbroker is not registered with the NCR, they are not required to comply with the NCA. This means that all the consumer rights that the NCA advances will be circumvented. The pawnbroker will not be accountable to the NCR and therefore operates in an unregulated environment – that means they can pretty much do as they please. Most importantly, if the pawnbroker is unregistered you have limited recourse to enforce unlawful conduct. This opens the already vulnerable consumer to greater risk and abuse.

8 Step Guide to protect yourself when dealing with pawnbrokers:

  1. Ensure that the pawnbroker is registered with the NCR.  If registered they are required to display their registration certificate at their premises;
  2. The pawnbroker must present you with a  pre-agreement statement/quotation (setting out all relevant costs), valid for five days;
  3. The pawnbroker must present you with a  written credit agreement set out in plain and understandable terms;
  4. A pawnbroker who enters into an agreement with you must specify the date on which that agreement ends and must retain, at their risk, the goods you delivered as security under the pawn transaction, until the end of the agreement. If you pay back the money you owe at any time up to and including the date on which the agreements end, the pawnbroker must deliver the goods back to you;
  5. Where your property has for example, been destroyed in a fire, or is lost due to circumstances beyond the control of the pawnbroker, you are entitled to be refunded a fair market value of the property less any outstanding settlement amount;
  6. If failure to return your goods is due to a reason under the control of the pawnbroker, for example the goods have been sold, you are entitled to claim double the fair market value minus any outstanding settlement value;
  7. The provisions of the NCA regarding financial affordability assessments do not apply, and you will not be able to claim that the pawnbroker engaged in reckless lending when concluding that transaction; and
  8. You have the right to recourse. If the pawnbroker does not comply with the requirements of the NCA, you may file a complaint with the NCR.
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