FLORIDA PAWNBROKING: AN INDUSTRY IN TRANSITION

JARRET C. OELTJEN[*]

Copyright © 1996 Florida State University Law Review

I. INTRODUCTION
II. AND THEN THERE WERE PAWNSHOPS
III. PAWNBROKING SUFFERS AN IDENTITY CRISIS
IV. PAWNBROKERS: IMPORTANT PLAYERS IN THE CONSUMER CREDIT ECONOMY
V. OVERVIEW OF FLORIDA PAWNSHOPS
VI. GOVERNMENTAL REGULATION OF FLORIDA PAWNBROKING
A. An Historical Perspective
B. Pawnbrokers, Here Comes the Judge
VII. LOAN VS. BUY- SELL AGREEMENTS: A PRIMER
IX. THE LOCAL SCENE: EVEN MORE REGULATION
X. HOW MUCH CAN IT COST?
A. The Price Is Right
B. Money Isn't Everything: Nonrate Factors
1. Licensing
2. State Bond Requirements
3. Capital and Net Worth Requirements
4. Sales Surplus
5. Summary
XI. PROPERTY, PAWNBROKERS, AND POLICE
A. Taking Care of Business: The Record-Keeping Function
B. Search and Seizure: Pawnbrokers Are Persons Too
XII. TRANSITION

I. INTRODUCTION

Pawnbroking is a profession frequently misunderstood. While the majority of today's pawnshops are clean, attractively maintained establishments, the industry has difficulty shaking the "pawnbroker stigma." The composite image of the pawnbroker is that of a shady, unkempt, overweight character working out of a filthy, run-down, back street hock shop with barred windows—a person who is involved in morally questionable practices, such as providing continuing support to "druggies" and other "low lifes" in exchange for pawns of stolen goods. Even the words "pawnshop" and "pawnbroking" are frequently associated with such concepts as "fenced property," "sleaziness," "shylocking," and "usury." Many a consumer has considered visiting a pawnshop but then hesitated to do so because of this pervasive stereotype. While public perception may continue to identify pawnbrokers with the antiquated image of sleazy accomplices to criminal activity, industry data show that less than one-tenth of one percent of all pawned property turns out to be stolen.[1] The risk of buying stolen property from a pawnbroker has been nearly eliminated through strict reporting requirements and other laws governing stolen property, as well as through the cooperative determination of members of the pawnbroking profession to upgrade their image.[2]

This Article is an attempt to inform the reader about the rejuvenated and changing pawnbroking industry, its regulation, its problems and concerns, and the continuing controversies that surround it, through presentation of anecdotes, data, legislative history, and statutory and case law. In particular, Florida pawnbroking is highlighted.

II. AND THEN THERE WERE PAWNSHOPS

Historically, pawnbroking is one of the oldest methods of lending money. No recorded time in history exists when a loan of money on a pledge has not been available.[3] Its prevalence and importance is underscored by the assertion that "[i]f Queen Isabella of Spain had not 'hocked' her jewels in 1492, it is unlikely that Columbus would have made his historic voyage to discover America."[4]

By definition, a "pledge" and a "pawn" are virtually identical: a bailment of personal property as security for payment of a debt for which the holders of the property have an implied power of sale on default.[5] In common business practice, the main differences are that "pawns" are limited to tangible personal property, i.e., goods;[6] whereas "pledges" may be either tangible or intangible personal property, e.g., goods or commercial paper and securities. On default, if the proceeds from the sale of a pledge are not equal to the debt, the pledgee (creditor) may recover the sales deficiency from the pledgor (debtor); if there is a sales surplus, the pledgor may recover that from the pledgee.[7] By contrast, a pawner is neither liable for any deficiency nor entitled to any surplus.[8]

The universal symbol representing a pawnshop, that of three golden globes (or brass balls, depending on one's outlook), is of debated origin,[9] but the word "pawn" is derived from the French "pan," which means the skirt of a gown.[10] Pan, in turn, is derived from the Latin word for cloth, "pannum."[11] In fact, it has been reported that as recently as 1828, more than one-half of the pawns in New York City were of articles of clothing.[12] Based on casual personal surveys, most pawnshops today would seem to have little relation to their lexicographical namesake. "Times have changed," according to a fourth-generation pawnbroker, "the on-premises tailors have been long replaced by jewelers, gemologists and watchmakers. All of the clothes are gone . . . ."[13] The uniquely Floridian exception would be the several pawnshops in the Daytona Beach area which, during the spring of each year, are reputed to be loaded with pawned "biker" regalia such as the "requisite" black leather motorcycle jackets.[14]

Although philanthropically inclined individuals have long pooled their funds to operate successful charitable pawnshops,[15] most pawnshops are operated with a profit motive in mind, even if it does not always work out that way. Among the "for profits," "ma and pa" pawnshop ownership is the model, but this model is being challenged by the publicly held pawnshop chains. Of the four publicly traded pawnshop companies, Cash America International[16] is the industry's pioneer and leader. As of June 30, 1995, Cash America operated a total of 369 pawnshops: 325 in 14 states of the U.S., 34 in the United Kingdom, and 10 in Sweden.[17] The second largest pawnshop chain, EZCorp, has approximately 250 shops in nine states.[18] Another, Super Pawn, has become the first foreign (non-Mexican) pawnshop to receive permission to set up shop in Mexico.[19]

With modernization of business practices[20] and organizations, pawn shops have become a growth industry, especially in the southern United States.[21] Contemporary estimates are that as many as one of every ten adult Americans borrows money from a pawnshop each year.[22]

III. PAWNBROKING SUFFERS AN IDENTITY CRISIS

Pawnbroking has long suffered from the negative image pictured in literature, the movies, and the media.[23] Without a pictorial history or other survey of a diverse sample of pawnbroking outlets, one is left with the less than savory images generated from the various anecdotal accounts. The only positive accounts are those that feature relieved pawners redeeming their pawns from bondage after their personal crises have passed. There are no images of pawners who are pleased that they have an instant source of credit, nor of buyers reveling in the bargains they have found among forfeited goods. Images of happy, well-adjusted pawnbrokers interacting with their families have yet to be portrayed.[24]

Contemporary industry literature, such as Today's Pawnbroker,[2]5 National Pawnbroker,[26] and various state association journals,[27] stresses the advantages of, and necessity for, positive public relations[28] to help achieve recognition of industry respectability[29] and to shed the negative stereotype. To improve the pawnbroking image, much energy is being spent by the state and national pawnbroking associations as well as the national chains and the local stores. Numerous articles in trade association journals discuss ideas and proffer recommendations for improvement: working with the local media to foster understanding;[30] taking an active role in community affairs;[31] creating a local business advisory board[32] or a newsletter;[33] upscaling store image with improved lighting,[34] attractive interior[35] and exterior[36] signs, and an absence of bars.[37] For at least one pawnbroker, these lessons paid off; Pacific Pawnbrokers was named 1993 Business of the Year by the Sparks, Nevada Chamber of Commerce.[38]

Yet, in spite of extensive public relations efforts, the negative portrait lingers; pawnshops continue to be cast as "nuisance businesses,"[39] in the company of tattoo shops and massage parlors,[40] and somewhere in rank between liquor stores and houses of prostitution.[41] A recent Eleventh Circuit case reported that "pawnshops do facilitate the disposition of stolen property . . . ."[42] An Aurora, Colorado City Council bill relating to the location and licensing of pawnbrokers presents this summation: pawnshops " 'have deleterious or blighting effects which pose a danger to the public health, safety and welfare. . . .' "[43]

Pawnshops also continue to fall prey to local development and zoning authorities.[44] Limitation of proliferation is a common ordinance theme from Las Vegas to Baltimore.[45] The justification, when made, often rests on the burden that pawnshops are said to place on law enforcement.[46] In addition to density limits, pawnshops are often zoned out of upscale neighborhoods[47] or areas frequented by people the regulators fear may be victimized by pawnbrokers, e.g., gamblers in the vicinity of casinos.[48]

Contemporary "service" expansions may continue to taint the public's perceptions of pawnshops. Two recent entrepreneurial variations on existing themes, designed to increase customers and profitability, bring new controversy to pawnbroking: automobile title pawns[49] and advancing money on personal checks under the guise of check cashing.[50] Much of the industry eschews these "innovations" and the revenues and ill will they generate.[51]

Title loans have been prohibited in a few states[52] and authorized in others.[53] In Florida, where such loans have recently been authorized,[54] pawnbrokers have actively sought to divorce themselves from the title "pawn lenders"[55] and with good cause; a recent newspaper article commented, "Like a B-movie monster, car-title lenders just won't go away."[56] Automobile title loans are just that: loans secured by possession of the automobile title and not the automobile.[57] Two clarifications need to be made. First, there can be, and still is, a true auto pawn, in which possession of a vehicle is delivered to a pawnbroker;[58] in fact, some pawnshops are specializing in automobiles.[59] Second, in many respects, a title loan is virtually indistinguishable from a more traditional loan using an automobile as collateral, i.e., a "secured transaction."[60] In the traditional setting, as in the title loan arena, the customer/borrower retains possession, and the lender notes its security interest on the title and retains possession of that title.[61] However, these two forms of the same type of title transaction are also very different in cost to the borrower and degree of protection of the borrower's interest.[62]

A conventional loan using an automobile as collateral would be subject to the Florida usury law and its eighteen percent per annum interest ceiling.[63] A title loan is subject to a twenty-two ceiling, that is, twenty-two percent per month.[64]

If the debtor defaults on either its secured loan or on its title loan, the respective lender has repossession of the collateral as an available remedy.[65] But here the similarity ends. First, the repossession of secured loan collateral is expressly subject to the "no breach of the peace rule,"[66] which the repossession of title loan collateral is not.[67] Second, the secured loan collateral can be sold only at a commercially reasonable sale after reasonable notification to the debtor,[68] while the only restriction on the sale of title loan collateral is that it be sold through a licensed motor vehicle dealer,[69] an illusory protection at best.[70] Finally, upon sale of secured loan collateral, the debtor is entitled to any surplus of the sales proceeds over the loan balance plus expenses of sale and reposses sion, but the debtor is also liable for any deficiency.[71] After repossession of title loan collateral, the debtor is neither entitled to a sales surplus nor liable for a sales deficiency.[72]

An additional relationship that is not likely to earn positive "points" in a public relations game is that which the pawn industry has with the gun industry. "There are more than 15,000 pawnshops in the United States (of these, more than 12,000 are federal firearms licensees)."[73]

Still, standard check-cashing services[74] and new ventures, such as electronic tax filing and the ancillary refund anticipation loan,[75] have significant earning potential for the pawnbroker,[76] and they are viewed as valuable consumer services that pose little, if any, downside public relations risk.

IV. PAWNBROKERS: IMPORTANT PLAYERS IN THE CONSUMER CREDIT ECONOMY[77]

Pawnshops usually offer small, secured loans that average sixty dollars and have a short maturation period; the customer's personal property serves as the collateral.[78] Pawnshops provide a vital service to an increasingly growing segment of the population: those whose questionable credit histories exclude them from such mainstream credit institutions as banks and credit unions. Most pawnshop customers do not have the option to acquire instant cash advances from the ATM machine with their credit cards, checking account overdraft loans from banks or credit unions, or loans from a consumer finance company.

But, while pawnshops have typically been the "bankers" for lower-income individuals, they are now offering assistance to an increasing number of middle-class customers. These "new" customers, perhaps hard hit by recession-related layoffs, bankruptcies, and foreclosures, have found pawnshops to be very convenient "lender[s] of last resort."[79] Pawnbrokers state that their customers feel compelled to tell them why they are pawning their possessions and that, instead of borrowing to finance luxuries such as vacations, "[t]hey're borrowing $500 for food on the table"[80] or "to satisfy an unexpected need, pay bills or buy groceries."[81] Another pawnbroker commented, "We have a lot of people come in here with sick kids and they need a prescription or food or Pampers, and where are they going to get it?"[82]

In addition, a minority of pawnshops across the country cater to high-income clients who hold high status jobs and good credit ratings, but who need an immediate (and, many times, discreet) infusion of cash.[83] A Texas pawnbroker testifies, "Most of my customers are real estate people, oilmen, retailers, restaurant owners. . . . I'm dealing with a businessman who needs cash flow for say, ten days. . . ."[84] As a Nashville lender further explains, "When they need extra cash—it may be for just a week or a month or two months—but the last guy they want to have know is their banker. They don't want him frightened."[85]

The pledged goods are as diverse as the reasons for the loan. As one roams the aisles of a pawnshop and gazes at the variety of articles, it takes little creativity to imagine the life stories represented there. O.J. Simpson's trophies from his years with the Buffalo Bills,[86] oriental car pets,[87] a gold bracelet owned by the pawnbroker's wife,[88] an automobile trunk lid,[89] and a Virginia country-cured ham[90] are among the many props for interesting stories about items that have been presented as pawns.

V. OVERVIEW OF FLORIDA PAWNSHOPS

It was recently estimated that Florida had 1270 pawnshops.[91] In January 1996, the Florida counties with the highest number of pawnshop dealers registered with the Florida Department of Revenue were Broward, Pinellas, Hillsborough, Duval, and Palm Beach, with eighty-eight, seventy, sixty-six, fifty-nine, and fifty respectively.[92]

Since 1985, Florida pawnshops have enjoyed a steady and, in some years, impressive increase in gross sales.[93] The sales revenue generated through pawnshops provided Florida with a total of $5,116,002 in state sales taxes and local option taxes just for calendar year 1994.[94] From 1990 through 1994, the total amount was $18,824,948.[95]

The viability and resulting number of pawnshops in a particular state is directly related to economic factors such as interest rates, pawnshop operating costs, and the regulations governing pawnbrokers in that state.[96] The economic growth of the Florida pawn industry, as illustrated by the sales tax base of the pawnbroking industry, can be attributed, in part, to the nature of Florida's state pawnbroking regulations.[97]

VI. GOVERNMENTAL REGULATION OF FLORIDA PAWNBROKING

A. An Historical Perspective

The United States has never had either nationally operated pawnshops or national regulation of pawnbrokers. It was not until the early 1880s that the first state legislation specifically regulating pawnbrokers was enacted.[98]

Pawnbroking has a rather lengthy legislative history in Florida. The common thread running through the myriad of pawnshop regulations is nonimpedence of the conduct of pawnshop businesses. This is especially apparent when Florida pawnbrokers are compared to other Florida lenders.[99] Early Florida legislation focused on registration, crime prevention, and the raising of revenue.[100] These statutes mandated state licensure (merely registration) and established procedures for documenting pawn transactions to assist law enforcement officials in tracing stolen property.[101] This regulatory focus remains unchanged. Current statutory provisions still regulate pawnbrokers little beyond the extent necessary to assist law enforcement in recovering stolen property and in solving other theft-related crimes.[102] Florida has never had legislation expressly limiting interest rates or other charges on pawn transactions. In contrast to many other states and the District of Columbia,[103] Florida does not im pose economically significant state licensing requirements[104] on operating pawnshops.[105]

To date, the Florida Legislature has allowed pawnshops to operate without intrusive and burdening restrictions and has thereby helped foster the economic growth of this important—yet still questioned and maligned—business.[106] Recently, however, some federal and Florida court deci sions, industry innovations and expansion, and local regulations have somewhat unsettled placid waters. Perhaps the time for the Florida Legislature to consider a comprehensive regulatory scheme has arrived.

At the time Florida adopted the common law of England, the common law included regulations that required pawnbrokers both to record the identity of the goods pledged, the amount loaned, and the name and address of the pledgor and also to give the pledgor a copy of the record.[107]

The first Florida statute specifically addressing pawnbrokers was chapter 5106, Laws of Florida, enacted in 1903.[108] It appears to have been modeled after the common law. The statute required pawnbrokers to keep "a complete and true record of all their transactions" and to make these records available for inspection by law enforcement personnel.[109] Each pawnbroker was required to pay a license tax of $100 to the state for each place of business.[110] A penalty of one to six months' imprisonment was imposed for violation of the law.[111]

In 1913, the Legislature increased the license fee to $150 for those pawnbrokers in cities with populations of 10,000 or more. The record-keeping requirements for all pawnbrokers were amended to require data "showing from whom each article of their stock was purchased and the date of purchase, and the date and to whom each article was sold."[112]

In 1941, the 1913 provisions, with minor changes in the amount and structure of the licensure requirements, were recodified under the chapter regulating license taxes.[113]

In 1957, the Florida Legislature enacted legislation that expressly gave the pawnbroker the right to sell the pawn if no principal or interest were paid within six months of the pledge; the sale terminated all liability of the pawnbroker to the pledgor, and all rights and interests of both the pawnbroker and pledgor vested in the purchaser at sale.[114] These provisions, which had to be printed on the pawn ticket, constituted notice of intent to sell and consent by the pledgor.[115] No penalty was created for violation of this statute.

In 1959, the Legislature imposed on the pawnbroker an affirmative duty to make monthly reports to the local sheriff of all pawn transactions recorded pursuant to statute.[116]

In 1971, the statute was slightly modified to reflect a change in criminal penalties for violation of the licensure statute.[117] Also, under a larceny statute, pawnbrokers were required to keep records of all merchan dise bought and sold and to make these records available to law enforcement personnel.[118]

The state licensure provisions underwent major surgery in 1972 when most of the occupational licensing sections were repealed.[119] State licensure of many businesses was abolished and local governments were granted the authority to issue occupational licenses.[120] The language specifically regulating pawnbrokers was repealed, including the requirements to keep transaction records and to report these to local sheriffs. This revision, when coupled with the deletion of pawnbrokers from the larceny statute in 1975,[121] meant that by the end of 1975, the only Florida statute governing pawnbrokers controlled the redemption period and sale of the pawn.[122] There were no licensing or record-keeping requirements, nor were there any penalties for violation of the remaining redemption/sale provisions.

In 1979, the void was partially filled with legislative reinstatement of the record-keeping requirements.[123] The required records had to be available to police personnel upon request.[124] The statute articulated that a lawful owner of stolen property, upon furnishing proof of ownership, was entitled to recover that property through police processes[125] at no personal expense (that is, without either judicial process or reimbursement of the pawnbroker for the loan), unless the pawnbroker could produce evidence that the pledgor had provided proof of ownership of the pawn.[126]

Currently, Florida pawnbroking is governed by chapter 538, as enacted in 1989. The main impetus behind the law was to confront the problem of property theft and drug-related crimes by facilitating recovery of stolen goods and apprehending those criminals who may turn to secondhand dealers for cash.[127] Due to requests by the Florida Law Enforcement Recovery Unit, this comprehensive statute was enacted to group pawnbrokers and others under the category of "second-hand dealers" and to repeal all extant statutes relating to pawnbrokers, precious metals dealers, and junk dealers.[128] By carefully examining the operative terms and their definitions, one could probably construct an interesting example of effective lobbying and legislative negotiation and compromise.

The statute applies to "transactions," which means "any purchase, consignment, or pawn of secondhand goods by a secondhand dealer."[129] "Secondhand dealer" is then defined as including all those "engaged in the business of purchasing, consigning, or pawning secondhand goods or entering into title loan transactions," including "pawnbrokers, jewelers, precious metals dealers, garage sale operators, secondhand stores, and consignment shops."[130] This broad definition is subject to numerous exclusions.[131] One of the exclusions, flea markets, was the subject of an unsuccessful constitutional challenge.[132]

"Pawnbroker" is then defined as "any person, corporation, or other business organization or entity which is regularly engaged in the business of making pawns, but does not include a financial institution as defined [by statute] or any person who regularly loans money or any other thing of value on stocks, bonds, or other securities."[133] A "pawn" transaction can be either a "[l]oan of money . . . [with a] bailment of personal prop erty as security"[134] or a "[b]uy-sell agreement . . . whereby a purchaser agrees to hold property for a specified period of time to allow the seller the exclusive right to repurchase the property."[135] When the statute explicitly states that "[a] buy-sell agreement is not a loan of money,"[136] the not-so-hidden intent is that a transaction so designed should not be subject to the usury statute.[137]

The "new" statute, covering specified secondhand sales, secondhand dealers, and secondary metal recyclers, first became effective October 2, 1989,[138] and has been amended in each legislative session since its creation.[139] Although most of the subsequent amendments were minor clari fications,[140] some notable additions to chapter 538 have been enacted. One amendment made explicit the requirement that a secondhand dealer maintain actual physical possession of all secondhand goods throughout a transaction; title or any other form of security in secondhand goods could not be accepted in lieu of actual physical possession.[141] This blow to the title pawn (loan) industry was unsuccessfully challenged in the Florida Legislature in both 1993 and 1994.[142] In 1995, title loans were explicitly authorized, but the legislation divorced the "new" title loan industry from that of the pawnshops.[143]

Another statutory addition provided that if a secondhand dealer contests the identification or ownership claims of particular property in possession of the dealer, the person alleging ownership may bring an action for replevin in the county or circuit court.[144] A universally common provision in pawnbroker regulation schemes[145] (omitted from the original 1989 enactment but added in 1990)[146] is the statutory provision that mandates the minimum length of time that a pawnbroker must keep a pawned article before selling it.[147] The cutoff time distinguishes between a pawn that is "a loan of money" and a pawn that is "a buy-sell agreement."[148] If the pawn is a loan of money and the property has not been redeemed or there has been no payment on the account for a period of ninety days, the pawn is subject to sale or disposal.[149] However, a pawn that is a buy-sell agreement is subject to sale or disposal in a shorter period of time, when the property has not been repurchased from the pawnbroker or there has been no payment on the account within sixty days.[150]

The current chapter includes requirements for registration,[151] record keeping,[152] delivering copies of the records to law enforcement authori ties,[153] goods holding periods,[154] and inspection by the authorities.[155] The chapter also includes a listing of prohibited business practices;[156] procedures for the return of stolen goods to the rightful owner and for restitution to the secondhand dealer by the convicted thief;[157] penalties for violation of the Act;[158] explicit permission for local governments to enact ordinances governing the operation of pawnshops;[159] but no mandate regarding service charges, interest rates, or sale/purchase differential or similar charges. Yet, pawn transactions involving loans can still be subject to the maximum interest rates specified under Florida's usury statute, as well as other statutes.[160]

Various historical schemes illustrate the unique regulatory treatment afforded pawnbrokers. Still, pawnbrokers are heavily regulated, but many of these regulations are not strictly adhered to by the industry, in most instances because of a misunderstanding of the regulation or its applicabil ity.[161]

B. Pawnbrokers, Here Comes the Judge

Over the years, a limited number of cases involving pawnbrokers and the provisions and decisions that regulate them have found their way into the Florida supreme and other appellate courts. Some cases constitutionally challenged the statutes for vagueness of terms such as "junk or secondhand goods" and "flea markets."[162] Other constitutional challengers unsuccessfully claimed that the regulation of certain types of dealers without regulation of others was a denial of equal protection.[163] However, the Florida Supreme Court has held that "the law-making authority may, under its police power, enact regulations that are not all-embracing. It may legislate with reference to degrees of evil and to situations in which the evil is demonstrably more harmful, without denying equal protection of the law."[164]

In at least one decision, a Florida pawnbroker successfully invoked constitutional protection. In City of Miami Beach v. Mr. Samuel's, Inc.,[165] the Florida Third District Court of Appeals affirmed the trial court's finding that refusal to issue a pawnbroker license was arbitrary, unreasonable, and unjust.[166] Mr. Samuel's, Inc. applied for a license in a C-4 zone, which was a "highly concentrated business core."[167] The City argued that because the ordinance did not expressly name pawnbrokers as a lawful business in that zone, denial was justified.[168] The court rejected this argument on the ground that a fair reading of the ordinance, with respect to the businesses enumerated, showed that C-4 was a clearly applicable zone contemplating businesses such as Mr. Samuel's, Inc.[169] The City, therefore, upon receiving a valid application, had a clear legal duty to issue the pawnbroker's license.[170]

While precedent regarding pawnbrokers in Florida is comparatively sparse, the appellate courts in the First and Second Districts have recently decided cases that could greatly impact pawnbrokers in the future. In June, 1992, the Second District Court of Appeal affirmed a lower court decision finding that the pawn involved in a particular transaction was a "sale" and not a "loan."[171] The appellate court found that under Florida law,[172] the ninety-day statutory period after which a pawnbroker may sell or dispose of a pawned item applies to a "loan" from the pawnbroker to the customer, and the sixty-day statutory period applies to a customer-to-pawnbroker "sale" in which the customer retains the right to repurchase the item.[173] Because the pawn ticket referred to a "Buy-Back" and also listed the amount that the customer had to pay to get the ring back as the "Repurchase Price," the court found that "competent substantial evidence" existed from which the trial court could have determined that the pawned ring involved a sale and had not been given as security for a loan.[174] In so holding, the court implicitly held that the usury statute and its limit on interest did not apply.[175]

Additionally, both the First and Second District Courts of Appeal have recently highlighted the extent of regulation of Florida pawnbrokers. These cases focused on pawnbroker regulation with respect to two different questions: 1) whether the Department of Agriculture's Division of Consumer Services has jurisdiction to sue pawnshops/pawnbrokers or move for injunctive action for alleged statutory violations, and 2) what statutory restrictions, other than chapter 538, may apply to pawnbrokers.[176]

In Quick Cash of Clearwater, Inc. v. Department of Agriculture & Consumer Services.,[177] the Second District Court of Appeal held that the Legislature had given the Division of Consumer Services authority to seek an injunction, on three days notice, against the pawnbroker's alleged violation of the Florida Deceptive and Unfair Trade Practices Act (DUTA).[178] The Division argued that its authority went beyond the bounds of the DUTA and that, "if read literally, the statute might allow the Division to seek an emergency injunction whenever the Division 'has reason to believe . . . that the interests of the consumers of this state . . . are being damaged . . . .'"[179] Since the court found that the alleged violations came within DUTA, it never reached the expansive jurisdiction question.[180] In dicta, however, the court expressed doubt as to whether the Florida Legislature had intended to grant the Division such an "expansive grant of authority."[181]

The court carefully pointed out that its determination applied merely to the issue of whether the Division has authority to file an action to enjoin violations of DUTA and not to the issue of "whether the transactions may result in illegal usury or whether they are otherwise an appropriate subject for criminal prosecution."[182] The court found that the particular pawn agreement was a "loan of money"[183] and subject to regulation under chapter 538, it also found "nothing in [the debtor's] agreements or in the Florida Statutes that would exempt [the debtor's] agreement from laws regulating usury."[184] In dicta, the court remarked that some pawn agreements, especially those structured as buy-sell agreements, may not be loans subject to usury regulation.[185] The court also was careful to emphasize that the provisions of chapter 538, Florida Statutes, "are not a comprehensive regulation of pawnbrokers."[186] Overall, the court noted, there is confusion about which statutes are applicable in regulating pawn brokers.[187] The court then encouraged "the legislature, at its earliest opportunity, to review . . . its overall regulation of both buy-sell agreements and loan transactions by pawnbrokers."[188]

The court did hold that if the Division could prove that Quick Cash unlawfully conducted business as a consumer finance company or that Quick Cash engaged in a business method violative of criminal usury regulations, the Division could establish either an "unfair method of competition" or an "unfair or deceptive act" under the DUTA.[189] The trial court could then properly enjoin further violation.[190]

In Department of Agriculture & Consumer Services v. Quick Cash of Tallahassee, Inc.,[191] decided only a little over three months later by the First District Court of Appeal, the scope of the Division's jurisdiction was again addressed.[192] At the trial level, "[b]ecause the Division had conceded that 'the instant case does not involve [c]hapter 501,' the trial court . . . granted Quick Cash's motion for summary judgment."[193] The First District reversed the summary judgment and remanded the case.[194] Without the hesitation expressed by the Second District, the court found that the Division had standing to bring an action for injunctive relief and damages based on alleged violations of state usury laws, pawnbroker laws, consumer finance laws, motor vehicle retail sales finance laws, and motor vehicle sales laws, and that the Division was not limited to claims of unfair and deceptive trade practices.[195] In holding that the Division had jurisdiction, the court focused on the plain meaning of the words of the relevant statute and found them to be "clear and unambiguous."[196] The court concluded that the Legislature intended to empower the Division "to act as the protector of consumer interests" and "to sue on behalf of the state's consumers."[197] The court expressed no opinion as to the constitutionality of the legislative delegation because an issue had not been raised in the trial court.[198]

The court cautioned that its decision could lead to future disputes over whether the Division or some other department of the executive branch should handle a particular consumer complaint.[199] Also, those parties charged with violating laws somehow related to "consumer protection" could be investigated and subjected to legal prosecution by more than one governmental authority. The court concluded, "Whether what it has passed is wise or not is for the legislature to decide."[200]

As an epilogue, the underlying transactions in the two cases, the pawning and leaseback of automobiles, no longer present the same type of problem for the Division. By amending chapter 538 in 1993, the Legislature prohibited automobile pawn/leaseback transactions.[201] An attempt in the 1994 legislative session to legalize reinstatement of the practice was rebuffed.[202] However, during the 1995 legislative session, statutory amendments approving "title loans" were enacted.[203] The newly approved lenders are specifically outlawed from engaging in the loan/leaseback type of transaction challenged by the Department of Agriculture's Division of Consumer Services and expressly prohibited from using of the term "pawn or pawnbroker" in title loan transactions.[204] But title lenders are accorded an all-inclusive twenty-two percent per month[205] service charge/interest ceiling for such loans even though the debtor is permitted to retain possession of the automobile.[206] To alert the borrower, title loan "charges shall be fully disclosed, conspicuously in writing, and initialed by the motor vehicle owner at the initiation of the transaction."[207] Consumer complaints generated through the activities of the title loan industry continue to concern government regulators.[208]

VII. LOAN VS. BUY- SELL AGREEMENTS: A PRIMER

Though the governing statute includes, within the definition of "pawn," both buy-sell agreements and loans collateralized with pledges of personal property,[209] constructing the transaction to be one or the other can have a multitude of legal consequences. As a general rule,[210] the buy-sell agreement would be the industry-favored characterization; any transaction that would be characterized as a loan would probably have resulted from carelessness or misinformation. The main reasons to avoid loan/pledge status for pawns are that a pawn loan is subject to the technical requirements and priorities set forth in chapter 679, Florida Statutes, governing secured transactions;[211] lenders (loan/pledge) fare less well in bankruptcy;[212] and the usury statute with its interest rate limitations applies to loans but not to true buy-sell agreements.[213] In times past, further justification for the buy-sell preference could be found in the belief that buy-sell agreements were not subject to the federal Truth-in-Lending requirements[214] and in possible avoidance of the record-keeping and holding period requirements imposed on pawn loans.

Using the buy-sell agreement method rather than a pawn loan, the pawnbroker will purchase an item of personal property (the "pawn") from an individual seller (the "pawner") through an agreement that gives the seller the exclusive right to repurchase the item within a specified period of time—a minimum of sixty days in Florida. The repurchase price is, of course, higher than the original "sales" price, and a markup of twenty-five percent is not unusual.[215] But since this is a purchase and not a loan, the state usury limits should not apply.[216] There is some danger to the pawnbroker that, in a court of law, this sales agreement may be held to be a disguised loan.[217] If found to be a loan, the magnitude of the "sales price differential"[218] may subject the pawnbroker to usury or other penalties. Usually, the legal risk to the pawnbroker is minimal, both because of the way the transaction is structured and also because those utilizing pawnbroking services are concerned about maintaining their source for needed funds. If pushed too far, however, the consumer may file a complaint; a mounting number of complaints could prompt the Department of Agriculture and Consumer Services to take action.

The historical use of buy-sell agreements to reduce the necessity for record keeping and to avoid required holding periods is no longer an effective avenue; buy-sell agreements are now expressly included in the definition of Spawn."[219] That definition makes it clear that buy-sell agreements are pawn transactions subject to pawn and pawnbroker regulations.

Under the Florida Uniform Commercial Code, if a pawn is a loan, it is a secured transaction;[220] the pawnbroker would have a security interest.[221] The pawnbroker's priority vis-à-vis others who have interests in the pawned goods depends on the pawnbroker's status as a secured lender. If there were no special rules for pawn transactions that trumped the Code provisions, under chapter 679, the parties could agree for the secured party to forgo any deficiency there may be between the amount of the loan with accrued service charges and the sales proceeds of the pawn.[222] The parties, however, could not ignore, or otherwise waive,[223] the notice of sale required by chapter 679[224] and the requirement that the debtor must be paid any surplus generated by the sale of the pawn.[225]

The Code does resolve this issue; it states that the pawnbroker laws of chapter 538 "are specifically not repealed and shall take precedence over any provisions of this code which may be inconsistent or in conflict therewith."[226] Since the pawnbroker rules apply and take precedence, the pawnbroker is entitled, on the pawner's default and once the period of redemption has expired, to retain the collateral as payment in full for the debt,[227] notwithstanding the Code provisions on redemption, compulsory disposition of collateral, and sale of collateral by the secured party.[228] No notice is required except that printed on the pawn ticket.[229] No surplus is due the debtor and no deficiency is owing from the debtor.

If a pawn is a buy-sell, it is a purchase transaction. It is the pawnbroker's position as a purchaser that is the basis for the pawnbroker's rights. If the pawner does not buy back the pawn, the pawnbroker is free to sell it. Whether the pawnbroker realized from the sale more or less than the pawner received from the pawnbroker is of no relevance because the transaction was characterized as a sale with an option to repurchase, which option has expired.[230]

Since the restrictions and requirements imposed on pawnbroking increase the pawnbroker's cost for each transaction, pawnbrokers have attempted simply to purchase the items and sell them at retail, becoming dealers in secondhand goods. Under the current Florida regulatory scheme, this dodge would not be entirely successful. Dealers in second hand goods are governed by many of the same regulations that "guide" pawnbrokers.[231] Pawnshops usually engage in both pawnbroking and general retailing of both used and new goods.

IX. THE LOCAL SCENE: EVEN MORE REGULATION

Nothing in this chapter shall preclude political subdivisions of the state and municipalities from enacting laws more restrictive than the provisions of this chapter.[232]
This Florida statute and similar ones in other jurisdictions[233] declare on pawnbrokers open season, free from requirements of sportsmanship by the local regulators. Nor should pawnbrokers expect any favorable judicial intervention, especially in light of judicial attitudes such as the fol lowing:

[L]imiting the number of hours that pawnshops are open may make the police surveillance of pawnshop operations easier. Limiting the operation to the normal working day [8 a.m. to 5 p.m.] may also make the operation of the pawnshop more easily observed as more police may be available at that time. In addition, police observation may be more effective during the daylight hours and arguably less detectable because more people are on the streets. For these reasons, the Ordinance could conceivably serve to chill the use of the pawnshop as a means to dispose of stolen goods.[234]
On appeal, the trial court decision from which the above is quoted was upheld and the Eleventh Circuit Court of Appeals clarified the tenuous position in which pawnbrokers are placed when local regulators are given what appears to be nearly free rein. As the appellate court pointed out:

Business regulations such as these are reviewed under the rational basis test. . . . This test is generally easily met. A searching inquiry into the validity of legislative judgments concerning economic regulation is not required . . . . To put it another way, the legislation must be sustained if there is any conceivable basis for the legislature to believe that the means they have selected will tend to accomplish the desired end. Even if the court is convinced that the political branch has made an improvident, ill-advised, or unnecessary decision, it must uphold the act if it bears a rational relation to a legitimate governmental purpose.[235]
To further understand how a problem arises from legislative encouragement of local regulation, note several findings that the appellate court espoused or endorsed:
The Dade County Commission concluded that despite pervasive regulation of the pawnshop industry, such businesses continued to serve as a viable outlet for stolen property.[236]
. . . The county commission . . . is not required to support its conclusions with empirical data as long as the assumptions its [sic] makes are logical.[237]
. . . .
. . . [T]he county admitted that the amount of stolen property discovered through these means [reviewing pawnshop transactions] represented less than one percent of the property stolen within the county.[238]
. . . Even if the admission by the County accurately reflects the amount of stolen goods discoverable through this method of record keeping, it by no means suggests that this is the actual percentage of stolen goods which pass through pawnshops.[239]
. . . .
. . . The question is not whether the legislation will in fact accomplish its goals, but whether the legislative body could rationally have concluded that it would.[240]
To bolster its position and the logic behind the ordinance and the trial decision, the appellate court retreated into the case law.

The only three cases to address this precise issue [citing a 1943 Tennessee state court case, a 1913 Kentucky state court case, and a 1904 Montana state court case] have all determined that municipal efforts to curb the hours of operation for pawnshops are a rational means of attempting to limit the sale of stolen goods. The fact that other similar statutes [regulating adult bookstores, massage parlors, and bars] have been adopted and sustained supports the finding that this ordinance is reasonable.[241]
Because of this ubiquitous assumption that pawnshops are one of the mainstays of crime and immorality, it is no small wonder that Dade County pawnshops were given cause to celebrate when, in 1994, their mandatory closing hour was extended from 5 p.m. to 7 p.m.[242]

It is not only the hours that are of "grave" local concern but the location of pawnshops and their number and density as well. Local governments attempt to regulate these concerns with license requirements and zoning regulations. By scanning news items from the past few years, it was found that: when officials in Baltimore, Maryland, limited the number of pawnshops in the city to forty-two (the extant number),[243] Baltimore County officials became concerned that the suburbs would be overrun with pawnshops so they were attempting to limit density in the county area surrounding the city of Baltimore;[244] the City Council of Fairfax, Virginia, voted to limit the number of pawnshops to one;[245] New Orleans was attempting to exclude new pawnshops from the tourist areas of the city;[246] in Marborough, Missouri, a pawnbroker withdrew his business license application after it was tabled by the village Board of Trustees because the Board was opposed to the business (there was no ordinance banning pawnshops) and, at about the same time, the Breckenridge Hills, Missouri City Council refused to remove pawn shops from its list of prohibited businesses;[247] Philadelphia had begun more aggressively to enforce zoning laws to crack down on "nuisance businesses" such as pawnshops;[248] in the wake of growth in the number of pawnshops, a near doubling in three years, the Aurora, Colorado City Council imposed a six-month moratorium on new pawnbroker licenses[249] and then draft ed an ordinance that would prevent any new pawnshop from opening within a two-mile radius of an existing shop.[250] Assuredly, such local decisions hamper, if not destroy, local competition and thereby encourage monopoly practices. The local citizens are not well served by such regulation.

Capital or asset requirements, bond and license fee impositions, and demonstration of either a showing of need or of "convenience and advantage" are the various methods used by local governments to restrict pawnshop numbers. Contemporary examples abound. Baltimore's new pawnshop ordinance increased the bond requirement from $10,000 to $50,000 ;[251] Jacksonville, Florida pawnbrokers ask "Why does the occupational license for pawnbrokers cost 8 to 10 times more then [sic] nearly every other occupational license in Jacksonville?";[252] Wheat Ridge, Colorado city officials and pawnbrokers compromised on licensing and transaction fees.[25]3 The compromise fees will cost the city's two pawnshops about $38,000.[254] And on the international scene, in the wake of rapid growth in the number of pawnshops, officials in Windsor, Ontario, Canada, sought to have the pawnshop license fee raised from $100 to $3,000, security bonds raised from $2,000 to $50,000, and photographs and thumbprints required of all pawnshop customers.[255]

X. HOW MUCH CAN IT COST?[256]

A. The Price Is Right

In most sectors of our economy, we instinctively reject price controls, but not with the price of credit. Early justifications for such price controls were based both on moral and religious grounds and the general theory that capital is nonproductive.[257] Modern justifications for price controls are more reactive; when articulated, they focus on concepts such as "fairness," "conscionability," "bargaining disparity," or "paternalism." One legal commentator emphasizes that "[o]ther loan hybrids . . . often charge similarly outrageous rates . . . . Freed from usury controls . . . rates for more traditional loans have spiraled out of control . . . . These astounding rates evidence that free market control offers borrowers scant protection . . . ."[258] And, as a U.S. Senator thoughtfully asked, "At what point does a rate become so high that society expresses the judgment that it is unconscionable and that the individual must do without the credit rather than pay the unconscionably high rates?"[259] Factors such as the costs of providing the credit, the effects on competition among credit providers, and the resulting credit rationing often get lost in the emotional melee.

Modern "free market" scholars may well suggest that it would be unwise to set any upper limit. But even if it could be agreed that regardless of the economic consequences, beyond some point the rate of charge is "unconscionable" and should be disallowed, much debate would be needed to determine the magic tipping point. From English and colonial law arose a "six percent myth" that has long affected consumers' expectations and legislators' speeches.[260] Past attempts to set realistic limits have run into severe criticism. On occasion, even social reformers have endorsed a high rate of interest. "[It's] unbelievable . . . that the Russell Sage Foundation was able to sell many legislatures in the United States [as part of the Uniform Small Loan Act proposal] an interest rate of 3 1/2% per month, or 42% per annum, as a reasonable rate of interest."[261] A somewhat lower interest rate drew outrage from one judge: "To give persons a right to charge 36 percent-plus interest [or finance charge] shocks at least my conscience and I do not believe that I am unduly sensitive."[262]

Largely ignored is the fact that pawnbrokers must charge high rates in order to survive in the business. The rates charged cannot be assumed invariably to create profits. As in any risky, market-driven business, pawnbroking profits are dependent on a variety of factors, many of which are out of the control of the pawnshop owner. The high security-related costs as well as insurance coverage prevent pawnshops from making exorbitant profits.[263] Also, the pawnbroker's inventory of goods is susceptible to obsolescence and consequent loss of demand; this is especially true for high-tech electronic devices. Such unpredictability in market demand only contributes to the risk a pawnbroker takes in accepting pawned items. Furthermore, pawnshops can flourish only when customer demand increases.

Under some circumstances, economic justification for price regulation might be argued. Two plausible economic rationales for controls on the price of credit are that (1) the credit market is sufficiently imperfect that consumers seldom pay a negotiated (bargain-generated) price for their use of credit; and (2) within a given credit market, suppliers may have monopoly power such that, even with perfect knowledge, borrowers may be charged excessive fees for their use of credit.

One of the more troublesome market imperfections is that many consumers do not perceive that they can effectively shop for credit. This misperception is based on ignorance of the variety of alternatives, including lack of knowledge regarding other pawnshops where the rate may be lower, the value of the pawn higher, and the terms less onerous. There may also be other viable alternatives to pawnshop credit. These market imperfections seem not to be influenced by disclosure provisions, such as those required by Truth-in-Lending.[264] Disclosure may raise the consciousness of the debtor, and the information gained may discourage the borrower, but, in general, studies have tended to indicate that consumers have a high degree of insensitivity to the level of credit charges.[265] Disclosure only makes apparent what you are paying, not what you might have paid, had you shopped elsewhere. Even if you shop, you may not be shopping for the price of credit.

Interestingly, pawnbrokers also say that most of their customers pay little attention to the interest rate or other fees on the loan. Their concern is the amount that the broker will lend on the collateral. Con sequently, brokers say that pawnshops compete among themselves more on the basis of which one will make the largest loan relative to the collateral than they do on the basis of interest rates. Brokers attribute such customer behavior to a necessity to raise a certain amount of cash to meet a particular expenditure and to careless intertemporal budgeting.[266]
Another market imperfection is the tendency of pawnshops to have, or be granted, a local monopoly.[267] For the person seeking to pawn goods, there is no national market, no state market, and, as a practical matter, probably no market outside the pawner's neighborhood.[268] If there is only one local pawnshop, then there is little or no incentive to engage in any form of competition.

There are any number of reasons why there may be a lone pawnshop: the community may be just too small to support more than one pawnshop, or the community may not generate sufficient business if the volume of transactions necessary to survive is kept artificially high by relatively low interest rate ceilings or high license fees, bonding, capital, or net worth requirements.[269] It is also possible that there may be regulatory limitations on pawnshop density or other zoning-type impediments intended to avoid a "pawnshop row." These restrictions are enacted in the name of consumer protection, crime prevention, pawnshop profitability, or neighborhood integrity. The effect is to grant existing or "winning" shops a local monopoly.[270] Solo pawnshops are especially likely to exercise monopoly power when the pawner is a relatively poor credit risk; for such persons, there are few other sources of credit.[271]

"Local monopoly, how so? There's another pawnshop in the next county, only a ten- or fifteen-minute ride away." This proffered alternative will not significantly diminish the monopoly power. The availability and cost of transportation now becomes the deterrent to competition: many of those whom the pawnshop serves may not have adequate transportation; the item to be pawned may be bulky and not easily movable even ten miles; the amount of the loan is likely very small, a factor making the relative cost of transportation quite high.[272]

If pawners have no other legitimate sources of liquidity, and they probably do not, they will be denied access to the desired credit if rates are set so low or the barriers so high that pawnshops can no longer profitably operate. Potential pawners' "needs and wants" will not be easily moralized or legislated away. It is in such an atmosphere that loan sharks flourish.[273]

If the rates are set just high enough for the pawnshops to survive but not thrive, it is predictable that pawnbrokers will reduce the pawn value, the amount they would otherwise be willing to loan on a given item of property.[274] The effects of such an adjustment are that the pawnbroker would then have a lower cost basis in each unredeemed item and could achieve a larger profit margin on resale and those persons unable to redeem would pay proportionally more for their liquidity than those who are able to redeem. Costs of a pawnbroking system that should be borne equally by all pawners are shifted to those persons who can least afford it, the pawners who are unable to redeem. Overall, the uncontrolled variable—assigned pawn value—should come into equilibrium with the regulated variable—the rate of interest—to yield an entrepreneurial return commensurate with risk and costs. This rate of return generally escapes regulation.[275]

B. Money Isn't Everything: Nonrate Factors[276]

Nonrate regulatory factors can also have a significant impact on both the cost of utilizing a pawnbroker and the availability of pawn shops. In those jurisdictions that either have fairly high or no legislative limit on the interest rates that can be charged by pawnbrokers,[27]7 most nonrate regulatory factors will have limited direct effect on the availability of pawnshop-granted credit. To the extent that such regulations increase the cost of business, these costs will be passed on to the pawners. It is un likely that these potential borrowers will be able to fulfill their credit needs or desires elsewhere because pawnbrokers tend to be lenders of last resort.[278]

There is some price that most borrowers would be unwilling to pay;[279] likewise, there is surely a level of regulation beyond which few entrepreneurs could,[280] or would be willing to, invest in a pawnbroking operation.[281] The potential irony is that the various types of regulation that would prove quite costly to the affected pawnbrokers could also be of great benefit to established pawnbrokers, when the regulations facilitate barriers to entry of their potential pawnbroking competitors. This pawnbrokers' benefit would be at pawners' expense as they encounter monopoly power.

1. Licensing[282]

Pawnbrokers may be required to be licensed by the state, by local governmental entities, or both. A majority of the states have statutes that mandate licenses, and a number of these jurisdictions require the licensing function to be carried out by local authorities.[283] Some states have stat utes that explicitly empower local agencies to license but do not mandate licensing.[284] Florida both requires state licensing (registration) and permits local licensing.[285]

To the extent that the licensing statute requires little more than notification to the governmental entity that a person is going to enter into the business of pawnbroking[286] and the payment of a small administrative fee, licensing would have little or no economic or competitive effect. Even when licensing statutes require that licenses be issued only to persons or corporations whose officers are free of felony convictions or are of good moral character,[287] the economic or competitive impact would be minimal.

Competitive impact begins when licenses are rationed by a quota system (e.g., one pawnshop per 3000 in population), a moratorium on new shops, a standard such as "convenience and advantage,"[288] or minimum capital or net worth requirements. When and if available, the license becomes much more costly, potential competitors are kept out of the market, and those with licenses have less competitive incentive.[289] Pricing and other excesses would predictably increase the clamor for rate regulation.

2. State Bond Requirements

Like onerous licensing or minimum capital requirements, excessive bonding requirements can have anticompetitive effects. An expensive bond premium may sink an otherwise marginal operation. To the extent that bonds are reasonably necessary to ensure that pawnbrokers carry out their agreements with the borrowers and provide a source of recompense if they do not, such bonding requirements might be justifiable or even desirable. But to the extent that, in purpose or amount, bond requirements bear no reasonable relation to this surety function, they would seem to be little more than arbitrary and capricious impediments to profitability or market entry; the size of the required bond is not based on the value of the pawn or other potential loss. Of the states that have bond requirements, Oregon has the highest—$25,000[290]—with New York in second place—$10,000.[291] Massachusetts has the smallest—$300.[292] Of the other jurisdictions, $1000 and $5000 bond requirements seem the most popular, with six states each.[293] Three states have bond requirements of $500 and $2000; one state requires a $3,000 bond.[294] With the exception of Oregon and New York, current state bonding requirements would not seem to be unreasonable; they would have minimal influence on the number of pawnbroking outlets. Supplementary local bond requirements could significantly affect this equation.

3. Capital and Net Worth Requirements

Appropriate capital and net worth requirements arguably insure pawnbroker responsibility and sound business practices. Pawnbrokers who can raise the specified capital or who can show the requisite net worth have proof of their creditworthiness or business acumen; arguably, they have something to lose through inappropriate conduct. A clever operator with intent to bilk can beg, borrow, or steal whatever is needed to satisfy this type of requirement. The question is, when judgment day arrives, do the pawners and other victims of the pawnbroker's wrongdoing have a source from which to receive compensation? The capital or net worth may well have vanished.[295] Capital and net worth requirements are little more than barriers to entry of new competitors. It has been recognized that "[s]uch barriers to entry are in the interests of pawnbrokers—but not in the public interest."[296] Realistic bonding requirements designed to protect the pawner/customer[297] are significantly preferable.

4. Sales Surplus

Whenever pawns are not redeemed by the end of the contract or statutory holding period, the pawnbroker is authorized to sell the pawn.[298] Absent contrary agreement, to the extent that the sales proceeds exceed the amount extended on the pawn plus service charges, the pawnbroker has received additional income. And, to the extent that the sales proceeds are less than the amount extended on the pawn, there is a deficiency that the pawnbroker must suffer because he or she cannot recover losses from the pawner.[299]

Any legislative scheme to alter this result, e.g., to require the pawnbroker to pay any surplus to the debtor,[300] would detrimentally impact the pawnbroking industry and pawners in general. For example, surplus repayment rules would interact negatively with interest rate ceilings.[301] In jurisdictions that have relatively high or no interest rate ceilings, pawnbrokers would offset the loss of such surplus repayment by charging higher rates of interest to pawners. Fewer pawners would be able to redeem their pawns, sales would proliferate, and purchasers at sales would gain windfalls at the expense of pawners. In jurisdictions with low interest rate ceilings, surplus repayment would foreclose profitability and thereby eliminate the industry; pawners would usually have no alternatives for obtaining loans. In all jurisdictions, bookkeeping, trust accounting, and location of pawners for repayment would be onerous responsibilities. In order to effect repayment with any degree of order, sales would likely take the form of auctions, rather than shop transactions. Auctions, instead of store sales, would necessarily result in lower, and even deficient, prices rather than surpluses. Any such legislative design must be rejected as destructive of the industry and nonbeneficial to borrowers.

5. Summary

Pawnshops are accepted by many as valuable financial institutions—sources of credit for those who have no legitimate credit access. For the sake of customers who avail themselves of this service, the temptation to regulate excessively should be resisted. Where pawnshop regulation is already a factor in causing anticompetitive and monopolistic behavior, regulations should be reviewed and selectively revised or repealed.[302]

XI. PROPERTY, PAWNBROKERS, AND POLICE

A. Taking Care of Business: The Record-Keeping Function

"Policing regulations" also increase the costs of pawnbroker operations. Pawnshops have proverbially been identified as natural candidates for fencing criminal "booty." This "attribute" certainly led to the policing regulations that virtually every state has enacted.[303] The basic requirement under these regulations is the transaction-recording requirement. In most states, pawnbrokers must keep records of all pawn transactions as to the date, the pawner's name and address, and a description of the pawned property.[304] Various jurisdictions require expanded information about the terms of the pawn contract and a variety of personal detail about the pawner.[305] In addition to these recording requirements, most states also have provisions authorizing inspection of the records by specified officials[306] and/or provisions requiring transmission of the records to designated officials.[307] These recording, reporting, inspecting, and transmitting requirements have become much easier as a growing percentage of the pawnshop records are computerized.[308]

These regulations seem to work. Professional thieves aware that pawnshops report receipt of goods to the police will fence elsewhere. Like wise, there is little incentive for pawnbrokers to buy "hot" items because they risk prosecution, loss of license, or at least loss of the loan proceeds plus the pawn if the property is impounded and ultimately returned to its rightful owner or sold.

To the extent that the policing regulations facilitate the identification and recovery of stolen property and serve to deter fencing operations, the reporting requirements are reasonable burdens to impose on the pawnshops and their customers. However, when the records are used as a resource for "fishing" by public authorities[309] or made accessible to the pawnbroker's competitors[310] and others, the record and reporting requirements quickly become intrusive and unreasonable. Such use should not be permitted.[311]

B. Search and Seizure: Pawnbrokers Are Persons Too

Imagine being a legitimate businessperson providing the valuable service of extending credit to individuals in the community who would not customarily receive credit. Further, imagine complying with all state laws regarding the business including a provision that requires you to maintain a detailed record noting all of the inventory of your business. Finally, suppose one day the police seize, retain, and ultimately dispose of a good portion of your inventory without providing you any compensation for the disposition. Life in the former Soviet Union or some Third World country? Unfortunately not. Events such as this are commonplace in many states; the unfortunate victims are pawnbrokers, who before the disposition had merely extended credit in the course of their business in return for taking an interest in the items which the police later seize and sell for their own benefit.[312]
Maybe in other states but surely never in Florida. Hopefully not again but there was a time. . . . In Florida Pawnbrokers and Secondhand Dealers Association, Inc. v. City of Fort Lauderdale,[313] a federal district court held unconstitutional a state statute authorizing police officers to seize, without notice and hearing, allegedly stolen property from a pawnbroker.[314] On several occasions, Fort Lauderdale police officers had seized pawn property in accordance with the challenged statute.[315] The court held that the pawnbroker's possessory interest constituted property,[316] that the police officers' actions constituted state action,[317] and that the pawnbroker was deprived of that property[318] without the procedural safeguards guaranteed by the Fourteenth Amendment.[319] Since the basic action had been brought under section 1983 of the United States Code,[320] the court not only declared the statute unconstitutional but enjoined its enforcement and gave the plaintiffs leave to file a motion for damages, attorney's fees, and costs.[321]

The Florida Legislature quickly repealed the defective statute and replaced it with a provision more likely to pass constitutional muster.[322] The "new" provision, with only clarifying modification, is still in force today.[323] There are no provisions for police seizure, and to recover his or her property, the alleged owner must bring an action in replevin.[324] Though Florida seems to have solved its "problem" in this regard, unconstitutional seizures of property from pawnbrokers are still possible in many jurisdictions.[325]

XII. TRANSITION

No one would disagree that pawnbrokers have received, and perhaps even earned, a checkered reputation, but it is hoped that those incidents of troubling behavior and attitudes that gave rise to the stereotype are a thing of the past. As pawnshops fill various needs and wants in our economy, pawnbrokers are being accepted as a valuable part of our community. In the future, their businesses should continue to earn respect and be treated by the business community on a par with other retail and financial operations. To expedite this transition, the pawnbroking industry should facilitate organized, scholarly study of the pawnbroking industry as well as discussion, promulgation, and adoption of uniform pawnbroking legislation.

There are few contemporary studies of pawnshops with regard to their legal, economic, sociological, or psychological impact.[326] All forms of reviews, critiques, commentaries, and even "complaints" are sources of valuable feedback the collection of which should be encouraged by the pawnbroking industry. Through the assimilation and analysis of such data, the pawnbroking industry can be encouraged and assisted to develop measures to invalidate the lingering negative perceptions and establish pawnbroking as an essential, consumer-friendly industry. One such measure would be the advancement of uniform legislation.

The extreme jurisdictional diversity of regulations applicable to pawn broking[327] creates an environment for enormous differences in pawnbroker economic well-being and pawnshop availability.[328] The systematic study of the varying effects of this regulatory diversity could well offer valuable guideposts for model, uniform regulation.