Written by Coronavirus Alerts, Legislative Updates & Alerts, Members Only, NPA News

Pawnbrokers are “Financial Institutions” under Federal Law; State Laws May Vary

March 18, 2020

NPA’s Team GRC is glad to provide guidance to Members who have asked for clarification of whether pawn stores are “financial institutions” like banks and credit unions, and whether as “financial institutions” pawnbrokers qualify as “essential businesses” that may be exempt from shelter or closure orders that some states and localities are issuing. We all know that pawnbrokers provide important, access-to-credit services for their customers.

Pawnbrokers provide essential, safety-net credit to average Americans tens of millions of times each year. Most of America’s pawn consumers do not have bank or credit union relationships. The Federal Reserve Board has estimated that 40 per cent of adult Americans do not have $400 spare to cover an emergency – such as the country is currently experiencing.

Pawnbrokers are licensed and regulated by state and local governments. Pawn transactions are also regulated by federal consumer financial protection statutes and by the federal Bank Secrecy Act, as well. 

Pawn customers need access to pawnbrokers just as much as other consumers need access to banks and credit unions. If shelter-in-place orders require or allow banks and credit unions to remain open, then state and local officials enforcing shelter-in-place orders should allow pawnbrokers to reman open as well. If banks and credit unions must restrict their operating hours, then pawnbrokers’ customers need pawnbrokers to have comparable operating hours. No state or local government should discriminate against its citizens at this difficult time when many consumers need credit to tide them over until the economy recovers.

Congress has designated pawnbrokers as “financial institutions” in two major pieces of legislation.  First, the USA PATRIOT Act, enacted in October 2001, defines “financial institution” to include pawnbrokers is codified at 31 U.S.C. § 5312(a)(2)(o). Providers of financial services in the scope of section 5312(a)(2) also include commercial banks and credit unions, among others.

Pawnbrokers also are providers of “financial services” as defined in section 103 of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 and are subject to its Title V (Privacy), which governs providers of consumer financial services and to the two federal consumer financial protection regulations that implement Title V. This term also covers banks and credit unions, as do the regulations. Pawnbrokers are subject to other federal statutes and regulations that apply to banks and credit unions. Pawnbrokers must comply with other federal consumer financial protection and anti-money-laundering statutes that apply to banks and credit unions. 

Some state laws may reference pawnbrokers specifically as “financial institutions.” Others do not. The NPA believes that state regulators should appreciate why pawnbrokers are “essential businesses” for their citizens. Team GRC is prepared to assist NPA members in communicating with your regulators to be certain that your business can be open during this economic emergency if banks and credit unions can. You may contact Fran Bishop fbishopdp1@gmail.com for further information. 

This GRC Update is not intended and should not be construed as legal advice to NPA members. 
Members should consult their own lawyers for legal advice.
Copyright © National Pawnbrokers Association 2020. All rights reserved.

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