Pawnshops Face New Rules for Short-Term Credit

A bill in congress aims at capping the APR rate at 36% on fees and interest charged by a lender. There are some people who think that the rates are often hidden and that they hurt individuals who can't afford it.

Pawn Shops Today fears that this rate cap could be the ruin of most pawnshops. At 35% APR, the maximum a lender could charge would be $0.10 a day for every $100 loaned. Keep in mind that the average pawnshop loan is usually less than $100. Thus a $100 loan paid 20 days later would recoup only $2 in interest and fees. With such tiny profits, most pawnshops would be forced to go out of business, leaving entire communities without the lenders they need.

It is ironic that politicians complain about the interest rates charged by pawnshops when the IRS can charge about 182.5% APR for failure to file, loans secured by expected tax refunds range between 50% to 500% APR, credit card fees can be as high as 50% APR, and if you drive a car in California and are late renewing your vehicle registration, you might have to pay 365% APR.

Consider the story of a grandmother who wanted to visit her daughter's family more than 400 miles away. She didn't have the cash for that unexpected expense but thanks to a pawnshop, she was able to get cash for a gold ring and be with her family when they needed her. It seems a shame that a politician would try to tell a grandmother how to live her life and what kind of lending choices she can make.

The reality is that pawnshops serve all kinds of people, even the rich! Some pawnshop customers arrive in BMWs and Cadillacs. Some seek flat screen televisions, state-of-the-art electronics, fancy golf clubs, and even construction equipment. Poor or rich, we all deserve to have a wide variety of lending choices with the least government interference.

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