A pawnbroker lends money against an item left as security. Where the loan is a regulated agreement, sections 114 to 121 of the Consumer Credit Act 1974 give the borrower specific protections. The legislation marks these sections as applying across the United Kingdom, while the Citizens Advice guidance quoted below is written for England.
What a pawn is and the pawn receipt
Citizens Advice describes a pawnbroker as someone who lends money according to the value of goods left with them, known as being pledged. Section 114 requires anyone who takes an article in pawn under a regulated agreement to give the person handing it over a receipt in the prescribed form, called a pawn-receipt, at the time the article is received. Taking an article in pawn from a person the pawnbroker knows, or who appears and is, a minor is an offence. Citizens Advice says the pawnbroker gives a ticket, and that a separate pawn receipt is usually provided unless the ticket is part of the credit agreement.
The redemption period
Under section 116, a pawn is redeemable at any time within six months after it was taken. The period agreed between the parties for the credit can be longer, and section 116(3) says that if the item is not redeemed by the end of the redemption period it remains redeemable until the pawnbroker realises it, except where ownership has already passed to the pawnbroker under the small-loan rule. Section 116(4) adds that no special charge may be made for redeeming after the redemption period, and safekeeping charges cannot rise at that point.
Citizens Advice adds that the pawnbroker must keep the goods for at least six months, that the item can be reclaimed at any time by repaying the loan plus interest, and that the period can be extended by paying the interest only and re-pledging the goods.
Redeeming an item
Section 117 requires the pawnbroker, on surrender of the pawn-receipt and payment of the amount owing, to deliver the pawn to the person holding the receipt. That duty does not apply where the pawnbroker knows, or has reasonable cause to suspect, that the bearer is neither the owner nor authorised by the owner. The pawnbroker is not liable in tort for delivering, or for refusing to deliver, in the circumstances the section describes.
Citizens Advice covers the case of a lost ticket. For a loan of £75 or less, the pawnbroker can provide a standard form declaring that the ticket is lost and the goods are the borrower’s, although it might refuse if it doubts ownership. Above that, or if the form is refused, a magistrate or commissioner for oaths must be asked to witness a sworn statement in England and Wales, which involves a fee; the borrower then either reclaims the goods or makes a new six-month agreement.
If the item is not redeemed
Section 120 draws a line at £75. If the redemption period is six months, the pawn secures fixed-sum credit not exceeding £75 or running-account credit with a limit not exceeding £75, and certain conditions about earlier part-repayment are met, ownership of the pawn passes to the pawnbroker at the end of the redemption period. In any other case the pawn merely becomes realisable, meaning the pawnbroker may sell it. Where a borrower could apply for a time order, the five days after the redemption period are added before the consequences take effect.
How a sale works
Section 121 allows the pawnbroker to sell a realisable pawn after giving the borrower the prescribed period of notice, with the asking price and other prescribed particulars, subject to exceptions set by regulations. Afterwards the pawnbroker must give the borrower prescribed written information about the sale, its proceeds and its expenses.
If the net proceeds cover what would have been payable to redeem the pawn on the sale date, the debt is discharged and any surplus belongs to the borrower. If they fall short, the debt becomes the shortfall. Where the borrower says the price was below true market value, the pawnbroker must prove that reasonable care was used to obtain it or the calculation uses true market value, and the pawnbroker must likewise prove that the sale expenses were reasonable.
FAQs
How long does a pawn loan usually last?
A pawn must be redeemable for at least six months, and section 116 allows the parties to agree a longer period.
Does a borrower need the ticket to get an item back?
The pawnbroker delivers on surrender of the pawn-receipt and payment, and Citizens Advice describes the procedure for a lost ticket.
Does the £75 rule mean the item is simply kept?
For a qualifying small pawn with a six-month redemption period, section 120 says ownership passes to the pawnbroker at the end of the period; larger pawns become realisable and must be sold with the surplus returned.
Bottom line
Under the Consumer Credit Act 1974, a regulated pawn comes with a receipt, a redemption period of at least six months, a delivery duty on repayment and, for larger loans, a sale process that credits any surplus to the borrower. Small pawns of £75 or less can pass to the pawnbroker if the item is not redeemed. This is general information, not financial advice; the pawn agreement itself sets the amounts and dates.
Sources
- legislation.gov.uk, “Consumer Credit Act 1974, section 114: Pawn-receipts”
- legislation.gov.uk, “Consumer Credit Act 1974, section 116: Redemption period”
- legislation.gov.uk, “Consumer Credit Act 1974, section 117: Redemption procedure”
- legislation.gov.uk, “Consumer Credit Act 1974, section 120: Consequence of failure to redeem”
- legislation.gov.uk, “Consumer Credit Act 1974, section 121: Realisation of pawn”
- Citizens Advice, “Pawnbrokers”