Obviously the majority of items that haven’t been paid on belong to the store and would be handled like any other asset. But what happens to the stuff that was pawned and the owners are still paying interest on?
Let’s say that Al is the pawnbroker and Bob pawned a diamond ring for $200. Bob owes Al a monthly interest payment of $20 to retain ownership of the ring or he can pay Al the $200 and get his ring back.
Al’s planning on closing his shop next month and he presumedly contacts all the people like Bob who have items they own in the shop.
Scenario 1 - Al tries to contact Bob but can’t reach him. Al closes his store on schedule. Bob shows up a few days later to make his monthly payment and there’s no shop there to make the payment at. Al therefore doesn’t get the payment and because of that, he now owns the ring. Or can Bob claim that the ring is still his? He had a contract with Al and it’s not his fault Al wasn’t there to receive his monthly payment like he was supposed to. Al doesn’t get ownership of the ring because he wasn’t there to accept the monthly payment.
Scenario 2 - Al does contact Bob and tells him about the impending closing. Bob shows up. He has the regular twenty dollars monthly payment but says he doesn’t have the full two hundred and won’t have it in the near future. Does Al get to keep the ring or does he have to give it back to Bob?
That is not true, at least not everywhere. Many jurisdictions do not permit a kind of pledge or pawn where, upon default on the loan, the pledged asset is forfeited to the creditor; instead, in these jurisdictions all the creditor gets when the asset is pledged to him is the right to sell the asset to third parties on default and keep the amount owed to him, disbursing the remainder of the proceeds to the debtor. Neither the pledge nor the default transfers, in these jurisdictions, the title to the asset to the creditor.
Are you sure about that? That goes against what I’ve heard about how pawnshops work.
If I go in and pawn a ring for $100 and don’t return to pick it up and make the interest payments, the pawnshop will put it up for sale. But if they sell if for $500, as far as I know they keep the entire sum. They don’t just keep the $100 they loaned plus the $20 interest and send me a check for the other $380.
It seems hard to imagine running a pawnshop on that basis. They loaned me the original $100 so all they’d get out of this transaction would be the twenty dollars of interest. That’s a very narrow margin to run a business on.
I’ve always heard that they make their money on the markup. They’ll loan you $100 and then if you don’t pay, they sell the ring for $500 and keep the $400 as their profit.
It depends on the length of time the original pawn was contracted for. Each subsequent interest payment is essentially a new contract. If you pawn an item and don’t redeem it within the contract period, it belongs to the pawnshop. Of course they don’t mind renewing the contract at the effective exhorbitant interest they charge.
Well, as I said, it depends. Having studied law in Germany, I am quite sure this is the way pawnshops work in Germany. German law does not have the concept of a forfeiture pledge, the pledge (“Pfand”) in German only serves as a security.
Well, they’re lending institutions. Money lenders typically make their money on interest, not on buying and selling assets - that’s a different industry. Of course profit margins might be higher if markup were part of the pawnshop’s profit, but such as system has a severe disadvantage: It requires the pawnbroker to make at least a roughly accurate assessment of the value of the asset pledged: Low enough to preserve the security and profit margin of the pawnbroker (you wouldn’t want to overvalue assets), but still high enough to be acceptable to the debtor, since such a system would be very close to a sale. In a non-forfeiture system, severele undervaluing an asset would not be much of a problem - the pawnbroker would sell the asset at a higher value than the loan secured, plus interest, and pay the remainder to the debtor.
I assume a lot of jurisdictions have the concept of a forfeiture pledge, where the property passes to the creditor upon default and the creditor may sell the item and pocket the entire proceeds. This may very well be how pawnshops work in these countries. Your mileage may vary depending on jurisdiction.
Umm, anyone notice that nobody has answered the OP? This has descended into a debate about collateral forfeiture law. So, what DOES happen when the pawnshop goes under?
Actually I think the Flying Dutchman’s post covered it. It’s a series of renewable contracts, not an open-ended transaction. So if the pawnshop closed and a customer didn’t show up, at some point the current contract would end and if the customer still didn’t show up to sign a new contract (or retrieve the item) then the item belongs to the pawnbroker.
I think the OP’s question is about what happens if the customer shows up in time to renew the contract or get his item out of pawn and the store is closed. In other words, if a pawn shop decides to close, what happens to all the open contracts.
This happened in San Jose a while ago, such goods were transferred to another Pawn shop, a sign was in the window directing debtors where they could reclaim their goods, make payments, etc.
I’d guess normally, a pawnbroker would make plans for closing a few months ahead of time and begin not renewing contracts as they expired so that by the time he closed the shop there would be no active contracts.
If for some reason a pawnbroker had to close while there were still current contracts, I suppose he’d have to store the times in question for a few months until the contracts ran out.