Pawnshop Fee Cap Scrapped
The Sunday Age
Sunday December 28, 1997
A "POOR man's bank" or a vampiric business that shouldn't be allowed? Victoria's pawnbrokers will be on trial from Thursday, when they will be allowed to charge unlimited interest on loans.
A cap of a flat rate of 48 per cent will be scrapped and it will be easier to become a pawnbroker.
Welfare groups and the State Opposition say the changes will leave vulnerable low-income earners and gamblers at the mercy of pawnbrokers, but those in the business and the police say it will legitimise and regulate a de facto industry of secondhand dealers.
Tighter identification and record-keeping rules will give extra protection to buyers of stolen goods.
Pawnbrokers and secondhand dealers already avoid the interest cap through buy-back systems that charge users up to 1300 per cent annual interest.
Pawnbrokers will have to display the rates they charge, with market forces expected to keep rates down.
The industry has an estimated annual turnover of $20 million in loans every year in Victoria.
The new regulations will eliminate buy-back. Instead of selling goods on a promise that they can buy them back, property owners will retain legal ownership of the goods they pawn.
A Collingwood pawnbroker, Mr Paul Sullivan, says customers will be protected because unscrupulous dealers won't be able to sell goods left in their care, or raise their fees unilaterally.
"Pawnshops in Victoria were all acting outside the law. Now we've been given regulations that the police can enforce," Mr Sullivan said.
He said there were enough pawnbrokers close to each other in inner-city areas such as Smith Street, where he operates, to keep prices down.
"It's going to be like going down the street and there being 40 petrol stations; you're going to choose the cheapest one," Mr Sullivan says.
But a Good Shepherd policy worker, Ms Valerie Ayres-Wearne, says pawnshop users are not really in a position to bargain. Most of them are desperate for cash, she says.
Mr Denis Nelthorpe, from the Consumer Law Centre, compares the new rules to putting vampires in charge of the blood bank.
He argues that pawnbroking should not be allowed, and particularly that pawnbrokers should not be allowed to charge unlimited interest.
A new study of pawnbrokers from Melbourne University's department of accounting and finance has found more loans are being given, and gambling was given as the main reason by the pawnbrokers surveyed.
Pawnbroking generally is a growing industry. Pawnbrokers are unwilling to single out gambling, but privately say it is a factor. Welfare workers insist poker machines and the casino end up with a lot of money from pawned goods.
When the interest rate cap comes off, the Melbourne University researchers predict an instant tenfold jump in interest rates, to match the rates currently used for buy-back.
The state shadow attorney-general, Mr Rob Hulls, said the Government was taking the easy option by changing the rules instead of enforcing the interest cap.
"The Government is saying, 'People are being ripped off. There is nothing we can do about it, therefore, let them charge what they like'," Mr Hulls said.
The Melbourne University study found that almost all pawnbrokers were in low-income inner-city areas, and pawnbrokers and secondhand dealers believed they were becoming a more common source of income.
The study by Professor Kevin Davis and a former student, Mr Nick Bienkowski, found the biggest risk for pawnbrokers was buying goods that were stolen or fradulently obtained.
Ms Ayres-Wearne and the Melbourne University researchers said pawnbrokers were not all exploiting their customers; many offered credit to people who had no chance of getting a credit card or other loans.
© 1997 The Sunday Age
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