By PHILLIP LEE
Vigilance will be of the utmost importance for pawnbrokers this legislative year, as a bill introduced in the Senate has the possibility of devastating the industry.
The legislation, S500, also known as the Protecting Consumers from Unreasonable Credit Rates Act of 2009, would cap loans at 36 percent interest, including fees. It reads: “Protecting Consumers from Unreasonable Credit Rates Act of 2009 – Amends the Truth in Lending Act to prohibit a creditor from extending credit to a consumer under an open end consumer credit plan (credit card) for which the fee and interest rate exceeds 36 percent.”
The definition of creditor has not been amended or changed. “The term ‘creditor’ means any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.”
The bill was introduced by Sen. Richard Durbin of Illinois in February and at press time had three co-sponsors: Barbara Boxer of California, Christopher Dodd of Connecticut and Sheldon Whitehouse of Rhode Island.
While the legislation doesn’t specifically mention pawnbrokers, the language is vague enough that the assumption is that they would be included.
As Dave Adelman, president of the National Pawnbrokers Association puts it, “With bills that are run through in Washington, if you’re not specifically excluded, then you’re meant to be included.”
But he points out that most legislators don’t have a problem with the pawn industry.
While there is a great deal of concern, there’s definitely no panic. “Are we running scared?” Adelman says. “No.”
But he adds that carving out an exemption would be the best thing for pawnbrokers. A key to obtaining that exemption is getting the word out to Congress.
Adelman says that a grassroots effort is vital and that pawnbrokers need to talk to their legislators. He stresses that it’s important for pawnbrokers to meet with their legislators just to get acquainted with them and not just go to them cold when they need something.
Even if they haven’t laid the groundwork, Adelman urges pawnbrokers not not to be intimidated by members of Congress.
“Most pawnbrokers who have not been involved with their legislator — whether it be local, state or federal — sometimes tend to shy away from thinking they can talk to them,” he says. “These people get dressed every morning just like the rest of us. They want to hear from their constituents. Those are the people who put them there.”
The effort does pay off. When Adelman returned from a recent trip to Washington, he had messages from senators with their positions.
“They see what pawn is and what good it does,” he says.
One of the main obstacles pawnbrokers have faced with legislators has always been the image. But Adelman believes it is imperative to emphasize how the industry has changed.
“We’re always fighting the image,” he says. “Like a couple of our board members say, ‘This isn’t your father’s pawn industry.’ This industry has come a long way in the last 10 years. I think we’ve really turned it around.
“We’ve worked hard at the state and federal level so that people know about the pawn industry,” Adelman says. “Does everybody know? No. But it’s coming around. We’ve worked very hard telling our story on Capitol Hill and we’re starting to see results.”
The following is an excerpt from S500:
(a) In General- Notwithstanding any other provision of law, no creditor may make an extension of credit to a consumer with respect to which the fee and interest rate, as defined in subsection (b), exceeds 36 percent.
(b) Fee and Interest Rate Defined-
(1) IN GENERAL- For purposes of this section, the fee and interest rate includes all charges payable, directly or indirectly, incident to, ancillary to, or as a condition of the extension of credit, including–
(A) any payment compensating a creditor or prospective creditor for–
(i) an extension of credit or making available a line of credit, such as fees connected with credit extension or availability such as numerical periodic rates, annual fees, cash advance fees, and membership fees; or
(ii) any fees for default or breach by a borrower of a condition upon which credit was extended, such as late fees, creditor-imposed not sufficient funds fees charged when a borrower tenders payment on a debt with a check drawn on insufficient funds, overdraft fees, and over limit fees;
(B) all fees which constitute a finance charge, as defined by rules of the Board in accordance with this title;
(C) credit insurance premiums, whether optional or required; and
(D) all charges and costs for ancillary products sold in connection with or incidental to the credit transaction.
Here’s the full text of the bill.