History of pawnbroking

Overview

Pawnbroking, lending money on portable security, began in ancient history. The practice was widespread in many parts of the world, from ancient Greece to medieval China and medieval Europe.

Mosaic law

Mosaic law precluded pawnbroking as it forbade the acceptance of interest from a poor borrower, and Jews were forbidden to lend money at interest to each other, although they could charge interest to non-Jews. Until the Reformation, Christians were also forbidden to lend to each other for interest.

China

The earliest Chinese pawnbrokers, in the 5th century, were established, owned, and operated by Buddhist monasteries; only later were they more widely seen. They were known by a number of names. Changshengku (长生库, long-life treasuries) originally referred to Buddhist monasteries in general. Other terms included jifupu (seen in Tang texts), didangku (Song period), and jiedianku (Yuan period). During the Southern Song dynasty, wealthy lay people sometimes formed partnerships with Buddhist monasteries and opened pawnshops (avoiding property taxes from which monasteries were exempt). A 1202 document records ten people forming a ju (局), which would support the establishment of a pawnshop in a monastery. In the late Qing and Republican China era (1840-1949), Chinese pawnbrokers employed flexible strategies to extend their business to a wide range of social members. Various measures such as relationship building, strategic philanthropy, and social value advancement were adopted to improve pawnbroking industry's and pawnbrokers' social image.

Ancient Greece and Rome

Pawning was common in Ancient Greece and Rome; most contemporary law on the subject is derived from Roman sources. Many pawnbrokers were professional or semi-professional and operated from private shops. Under Roman law, certain items (such as wearing apparel, furniture, and instruments of tillage) could not be pledged. The emperor Augustus converted the proceeds from property confiscated from criminals into a fund from which the state lent money without interest to those who pledged valuables equal to double the amount borrowed.

Medieval Europe

Jewish and Christian pawnbrokers and money-lenders, the latter often referred to as Cahorsins and Lombards, were common in medieval Europe, where they were often tolerated by authorities, despite opposition from the Catholic Church. Pawnbroking spread to England with the Norman conquest. Many pawnbrokers in England were Jewish, and despite services rendered (often to the Crown), they were often unpopular, prompting greater restrictions and eventually the Expulsion of Jews from England in 1290. The expulsion of Jewish pawnbrokers enabled Lombard merchants to settle in England. Edward III pawned his jewels to the Lombards to raise money for his war with France in 1338, and Henry V did the same in 1415. In medieval Italy, the pledge system arose which became almost universal in Europe. The system was benevolent, with early "mounts of piety" established in the 15th century, lending money to the poor without interest if the money was covered by the value of the pledges. Similar systems began at Freising in Bavaria in 1198 and at Salins in Franche-Comté in 1350 (which charged 7.5% interest) and in London in 1361, where Michael Northburgh, Bishop of London, bequeathed 1000 silver marks for the establishment of a free pawnshop. These early efforts, like the later Italian ones, failed. The Vatican, therefore, allowed the Sacri monti di pietà to charge sufficient interest to cover their expenses. A controversy arose about the legality of charging interest, which was settled by Pope Leo X. At the tenth sitting of the First Council of the Lateran, Leo declared that the pawnshop was a lawful and valuable institution and threatened dissenters with excommunication. The Council of Trent confirmed his decision, and Charles Borromeo later suggested the establishment of state or municipal pawnshops. These gradually replaced the private licensed pawnbrokers throughout much of Europe. Long before this, however, monti di pietà commonly charged interest for loans in Italy. They were established by 1464, when the earliest recorded monti (at Orvieto) was confirmed by Pius II. Three years later, another was opened in Perugia by the Franciscans Barnabus Interamnensis and Fortunatus de Copolis. They amassed the necessary capital by preaching, and the Perugian pawnshop earned a substantial profit at the end of its first year. After Barnabus' death in 1474, they were supported by Bernandino di Feltre (another Franciscan). Monti di pietà were opened in Assisi, Mantua, Parma, Lucca, Piacenza, Padua, Vicenza, Pavia and a number of smaller towns. The Dominicans unsuccessfully denounced pawnshops. Viterbo opened one in 1469, and Sixtus IV confirmed another in his native town in Savona a decade later. In Florence, the municipality and the Jews opposed Bernandino. Savonarola, a Dominican, established the first Florentine pawnshop after local theologians declared that charging interest was not a sin. Despite papal acceptance, the first pawnshop in Rome was only opened (by a Franciscan) in 1539.

Europe

From Italy, pawnshops gradually spread across Europe. Augsburg adopted the system in 1591, Nuremberg copied the Augsburg regulations in 1618, and by 1622 pawnshops were open in Amsterdam, Brussels, Antwerp and Ghent. Madrid followed suit in 1705, when a priest opened a charitable pawnshop with five pence from his poor box. The institution was very slow in obtaining a footing in France. It was adopted at Avignon in 1577, and at Arras in 1624. The doctors of the once powerful Sorbonne could not reconcile themselves to the lawfulness of interest, and when a pawnshop was opened in Paris in 1626, it had to be closed within a year. Then it was that Jean Boucher published his Défense des monts de piété in favor of pawnbroking. Marseille obtained one in 1695, but it was not until 1777 that the first mont de pit was founded in Paris by royal patent. Statistics for the first few years of its existence show that in the twelve years between 1777 and the Revolution, the average value of the pledges was 42 francs 50 centimes, which is double the present average. The interest charged was 10% per annum, and large profits were made upon the 16 million livres that were lent every year. Borrowing money, secured by deposited goods, was first regulated in the Low Countries in 1600. Albert VII and his wife Isabella, governors of the Spanish Netherlands under Philip III, lowered the interest rate from 32+3⁄4 to 21+3⁄4 percent. They introduced the monte de piedad in 1618, and in a dozen years the institution was established in nearly all large Belgian towns. Interest was fixed at 15 percent before it was reduced and restored to almost the original rate. Some towns also had charitable funds for interest-free loans. Shortly after the monte de piedad was introduced in the Spanish provinces, prince-bishop of Liège Ferdinand of Bavaria followed the archdukes' example. The original rate was 15 percent, when the Lombard money-lenders had been charging 43 percent. The prince-bishop's montes de piedad were so successful that their interest rate did not exceed five percent until 1788, when it was increased by one-half percent.

Britain and Ireland

The Lombards were unpopular, and Henry VII harassed them. The Act Against Brokers 1603 (1 Jas. 1. c. 21) was passed in 1604, and remained in force until 1872. It was aimed at counterfeit brokers, of whom there were many in London. This type of broker was considered a receiver of stolen goods; the act provided that no sale (or pawn) of stolen jewels, plate or other goods to a pawnbroker in Under Charles I, another act of Parliament asserted that a pawnbroker was not a respectable (or trustworthy) person; however, it was planned to set Charles up in the business. The Civil War was approaching; supplies were badly needed, and a Royalist proposed the establishment of a state pawnshop. According to the proposal, "The intolerable injuries done to the poore subjects by brokers and usurers that take 30, 40, 50, 60, and more in the hundredth, may be remedied and redressed, the poor thereby greatly relieved and eased, and His Majestie much benefited". The king would receive two-thirds of the profits, and the working capital (£100,000) would be provided by the city of London. Reform of what Shakespeare called "broking pawn" was in the air at the time, and in the early days of the Commonwealth of England a mont de pieté was proposed in Observations manifesting the Conveniency and Commodity of Mount Pieteyes, or Public Bancks for Relief of the Poor or Others in Distress, upon Pawns (a 1651 pamphlet). According to A Short History of the Bank of England, published in 1695, the directors of the early Bank of England intended to help the poor by establishing pawnshops at an interest rate of one penny per pound per month (five percent per year). Suspicion of pawnbrokers continued during the 18th century, when the Sale of Spirits Act 1750 (24 Geo. 2. c. 40) ended the custom of publicans lending money on pledges so their customers could drink. Their reputation was also harmed by the Charitable Corporation, which demonstrated that pawnbroking encouraged dishonesty by giving thieves an opportunity to sell stolen goods and allowed a person planning bankruptcy to purchase goods on credit and dispose of them for cash (defrauding their creditors). The Pawnbrokers Act 1785 (25 Geo. 3. c. 48) licensed pawnbrokers for £10 in London and £5 in the country; the interest rate was set at 1⁄2 percent per month, and the length of loans was confined to one year.

1800–1872

Modern pawnbroking legislation began with the Pawnbrokers Act 1800 (39 & 40 Geo. 3. c. 99). Lord Eldon, who admitted that he had used pawnshops in his youth, was influential in its passage. The pawnbrokers were grateful, and for many years after Lord Eldon's death they toasted him at their dinners. The act increased the interest rate to 1+2⁄3 percent per month (20 percent per year, unless unpaid interest increased the debt). Loans could be granted for a year, but pledges might be redeemed up to 15 months; the first week of the second month would not count for interest. During its 72-year history, the act was amended three times:

By the Stamp Act 1815, licence fees were raised to £15 in London and £7 10s in the countryside. In 1840, an act of Parliament abolished rewards to informers for reporting illegal rates of interest. By the Pawnbrokers Act 1860 (23 & 24 Vict. c. 21), pawnbrokers were allowed to charge a halfpenny for a pawn ticket when a loan was under five shillings. The chief provisions of the act were unpopular, and the Pawnbrokers' National Association and the Pawnbrokers' Defence Association worked to obtain its liberalization. It was argued that the usury laws had been abolished for the entire community except for pawnbrokers who loaned less than £10, who were prevented from lending money on bulky articles requiring large storage space. In 1870 the House of Commons appointed a select committee on pawnbrokers, which heard testimony that during the previous year 207,780,000 pledges were lodged (30–40 million in London). The average value of pledges was about four shillings, and the number of articles pawned dishonestly was reportedly one in 14,000. Later, official statistics indicate that of forfeited pledges sold in London, less than 20 per million were claimed by the police.

Pawnbrokers Act 1872

The result of the select committee's work was the Pawnbrokers Act 1872 (35 & 36 Vict. c. 93), which repealed, altered and consolidated all previous legislation and continues to regulates the relationship between the public and pawnbrokers. Based on an Irish law passed by Parliament, it removed restrictions and reduced the licence fee in London from £15 to the £7 10s paid in the provinces. According to the act (which does not affect loans above £10),

A pledge is redeemable within one year, with a seven-day grace period. Pledges pawned for 10s or less and not redeemed in time become the property of the pawnbroker. Pledges above 10s are redeemable until sale, which must be by public auction. In addition to one halfpenny for the pawn ticket (sometimes not charged for very small pawns), the pawnbroker is entitled to charge interest one halfpenny per month on every 2s (or part of 2s) lent if the loan is under £2 and on every 2s 6d if the loan is above £2. Special contracts may be made for loans over £2, at a rate of interest agreed on between lender and borrower. The following are summary offences: Unlawful pawning of goods not the property of the pawner. Taking an article from a person under age twelve or intoxicated. Taking linen, apparel or unfinished goods or materials. A new pawnbroker must produce a magistrate's certificate to be licensed. A licence cannot be refused if the applicant presents sufficient evidence of good character. The word "pawnbroker" must be inscribed in large letters over the shop door. Provisions in the act safeguard the interests of borrowers whose unredeemed pledges are sold. Sales (by auction) take place only on the first Monday of January, April, July and October, and on the following days if needed. Pawnbroking spread in popularity in Britain as a result of the Industrial Revolution, and the National Pawnbrokers Association was founded in 1892 to represent the industry. Annual interest on loans of 2s. had been increased by successive acts of Parliament from six percent in 1784 to 25 percent in 1800 and 27 percent in 1860. An English mont de piété was once proposed by the Salvation Army and in 1894 the London County Council considered a municipal effort, but neither came to fruition.

Scotland and Ireland

During the early 19th century, there was only one pawnbroker in Ireland; in 1833, there were 52, rising to 312 by 1865. Glasgow and Edinburgh probably contained nearly as many. In Ireland, the interest rates for loans are nearly identical to those charged in England, but a penny (instead of a halfpenny) is charged for the ticket. Articles pledged for less than IR£1 must be redeemed within six months, but nine months are allowed for amounts between 30s and £2. For sums over £2 the period is a year, as in England. In Ireland, a fraction of a month is calculated as a full month for interest; in England, fortnights are recognized after the first month. In 1838, there was an effort to establish monts de piété in Ireland; in 1841, the eight charitable pawnshops had a negative balance of £5,340. By 1847, only three were left, which also eventually collapsed.

United States

Pawnbrokers are strictly regulated. Each pawnbroker must have a criminal background check. Those pawning items must present a photo ID and are often asked for a thumbprint. Criminals know to avoid pawnshops since the items purchased or pawned are reported to the police each day. Many crimes are solved when pawnshop owners turn in a list of the items pawned or purchased when the match up with a stolen item on a police database. Each state has its own regulations, with those of New York and Massachusetts fairly representative. Pawnbrokers are usually licensed by the mayor or by the mayor and aldermen; in Boston, however, they are licensed by the police commissioner. In New York, permits are renewable annually and a pawnbroker must file a surety bond with the state. Business is conducted on much the same lines as in England. Loans are made for four months, with an additional 30-day grace period. Exceeding the interest rate is a misdemeanor. Unredeemed pledges may be sold at any time after the loan expires. New York has one pawnshop for every 12,000 residents. In Massachusetts, unredeemed pledges may be sold four months after the date of deposit. The licensing authority fixes the interest rate, which may vary for different amounts. In Boston, every pawnbroker must submit a daily list of pledges taken (including the time and amount lent) to the police. Pawnshop chains include Cash America International and First Cash Financial Services, both headquartered in Texas.

Europe

The fact that on the continent of Europe monts de piété are almost invariably either a state or a municipal monopoly necessarily places them upon an entirely different footing from the British and American pawnshop. Compared with the English system, the customary European system is elaborate and cumbersome; slow in its operation, and based upon the supposition that the borrower carries in his pockets papers testifying to his identity. On the other hand, European custom limits the interest on large loans, where in the English system the rate of interest on a "special contract" of £2 or more may be high, and often is. The pawning system of loans is, to be fair to both systems, always expensive, either in actual interest or in collateral disadvantages; this remains true whether the lender is a for-profit pawnbroker or a government mont de pit.