What is a Texas Pawn Agreement?
A pawn agreement is a legal contract that clients in Texas enter into with pawn shops or individuals who loan money in exchange for personal property. To redeem the loaned funds, the property must be returned, usually at a later time, in an undamaged condition. A pawn agreement must specify the amount of interest that will accrue on the loaned amount to a maximum of two percent per month. The annual percentage rate can be no more than 24 percent for loans over $2,000. When the contractual terms are fully met by the pawner, the item in question is then returned to the pawner.
If a pawn goes unredeemed within the specified timeframe, the property that is being used as collateral for the loan becomes the property of the pawnbroker (the item theoretically belongs to the pawnbroker until the pawner pays back the loan and takes the item back) . The agreed-upon interest is then retained by the pawnbroker, who can then sell the previously pawned item for profit. A pawn agreement serves as a contract to protect the property of the pawner from being sold to the pawnbroker if the contractual terms are not fully met.
Most pawn agreements involve a loan between a pawnbroker and a person who wants their personal items pawned for a short period. The person pawning their items usually needs money for an unexpected expense, though this is not always the case. When a person pawns an item, they are essentially relinquishing possession of their item temporarily to a pawnbroker. The agreement will contain all of the necessary details of the transaction.
Requirements for a Valid Texas Pawn Agreement
Under Texas law, pawn agreements must be in writing. Generally, pawn agreements must be evidenced by a written "pawn ticket," or small receipt, which must be signed by the pledgor and the pawnbroker. The pawn ticket includes the terms of the underlying pawn transaction, including the description of the item(s), the terms of the loan, and the interest rate. However, the pawn ticket must also contain several disclosures. These include the total of the payments required, the total sale price if the pawn is left to stand for the contract term, the annual percentage rate, the person or entity’s pawn shop license number, a statement that the pledgor may redeem the item prior to the expiration date of the contract, a statement that the pledgor has the right of rescission within seven days after the contract date, the date on which interest begins to accrue, and a statement advising that pawn transactions are not secured loans. Additionally, pawn brokers may not determine the value of the item(s) to be pawned without making a reasonable inquiry as to the pledgor’s agreement of the value. There are no written requirements for a pawnbroker to make an appraisal of the item or a written report of the appraisal. However, it is recommended that merchants maintain a detailed written record that includes a description of the item and words of a sufficient nature to enable the item to be identified.
Common Terms of a Texas Pawn Agreement
Key Terms in Agreement : a Texas Pawn Agreement contains many terms, and is really a loan agreement. The agreement will almost always contain the note, Security Agreement, Disclosure, and other documents referred to as Addendum to Note. The Texas Finance Code Section, Chapter 371, and Title 79 of the Texas Administrative Code prescribes the mandatory terms of the agreement, and highly regulates all pawn shop transactions. The following is a list of some of the most common terms you will see in a pawn agreement. It is not a comprehensive list, and is not guaranteed to be the exact terms of your note.
- Interest rate, typically the maximum or "floor" rate. A Texas pawn shop may only charge a maximum annualized interest rate of 240% per year. The average interest rate for pawn transactions in Texas is between 25% and 35% per month.
- Loan term. This is how long the loan is good before it expires. In Texas, the lifetime is typically either 180 days (about 6 months) or 300 days (1 year).
- Repayment language, stating that the loan must be repaid in cash within the loan term to the listed location.
- Clauses stating that the property cannot be transferred or delivered without the written consent of XXX.
- Clause stating that if the customer wants to go back and pick up the property, they will have to pay XXX.
- Security for the loan, typically a lien on the items given to the pawn shop.
- Right to charge overdue fees, typically described in a separate section or as an addendum to the note.
Rights of Consumers
Consumers are afforded certain rights when entering into a pawn agreement. For example, a pawnshop must provide a written pawn loan receipt at the time the transaction is entered into, which receipt must, among other things, contain the following information:
- the names and addresses of the pawnbroker and customer;
- the date of the transaction;
- a description of the property and its retail value;
- the amount of the loan;
- the maturity date of the loan;
- the interest rate expressed as a monthly rate and an annual percentage rate; and
- a full and conspicuous statement of the terms of the loan.
If a pawn transaction violates the Texas Pawn Statutes, consumers have several remedies available to them . First, if a pawnbroker fails to deliver any money he or she is required to send to the customer by mail, or the pawnbroker violates any provision of Chapter 371 or rules adopted under Chapter 371 with respect to a pawn transaction, the consumer may recover reasonable costs and attorney’s fees from the pawnbroker. In addition, a pawn transaction is voidable at the option of the consumer if there is a violation of Section 371.183 (prohibiting certain acts by licensure applicants) or Section 371.1915 (requiring pawnbrokers to maintain certain records). Finally, Texas Pawn Statutes contemplate a number of other remedies for victims of unlawful pawn transactions, including injunctive relief and restitution, as set out in Texas Constitution Article 16, Section 50(a)(6)(C) and Article 3, Section 50(a)(6)(C) respectively.
Common Pitfalls and Consumer Tips
Consumers should be mindful of several common pitfalls when engaging in a pawn agreement. For instance, many consumers use their government-issued identification to secure a pawn agreement, which may be shared with law enforcement agencies. Not infrequently law enforcement may demand the shop provide records that include the consumer’s personal information. Although these records are kept by the shop on behalf of law enforcement, they may later become evidence against the consumer in other legal proceedings. Identity theft is also a risk when a consumer provides his or her personal information to local pawnbrokers, particularly in areas with known identity theft problems. In order to address this issue, consumers should be selective in choosing which pawn shops to use and limit the extent to which they provide personal information.
In addition, consumers are cautioned against engaging in multiple pawn agreements with different shops within a short period of time. Many consumers fail to realize that a pawn agreement at one shop may prohibit them from entering into a subsequent agreement with another shop. Providing false personal information is also a common mistake that may have adverse consequences in future criminal prosecutions.
One way to avoid such pitfalls and ensure that customers have a good experience with local pawn shops is to thoroughly investigate the reputation of shop owners and employees before deciding to enter into an agreement with them. Online reviews and word-of-mouth are often good resources for evaluating prospective locations. In addition, once a consumer decides to proceed with a pawn agreement, he or she should ensure that they are given the opportunity to carefully read the agreement. Consumers that fail to do so may miss important provisions they would otherwise object to or which could be important in subsequent interactions with law enforcement.
How to Resolve Pawn Shop Disputes
If a consumer needs to resolve a dispute with a Texas pawn shop, there are several avenues to do so. Most larger pawn shop companies are members of the National Pawnbrokers Association. The NPA has a number of resources for resolving disputes including mediation services and an ethical code for this segment of the industry. The Texas legislature set up a register for pawnbrokers in 2010 in an effort to implement some form of centralized oversight and regulation of these companies . Members of the register can find additional resources from LBPS, which again includes mediation services as well as tips on how to avoid disputes in the first place along with best practices for resolving disputes. Consumers can report unethical behavior by a member of the register and file a complaint. It is also recommended for consumers to take advantage of the mediation services offered before ever considering arbitration or litigation. Often parties can resolve their issues through the assistance of an independent registered mediator before moving on to a more formal process.