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Pawn Shop Rules and Regulations in California

Pawn shops are a safety net for over 30 million unbanked or underbanked individuals and small businesses in the United States who periodically need short-term collateral loans.

Being classified as a financial institution under 31 U.S. Code § 5312(a)(2)(O), pawn shops are highly regulated and must comply with several federal and state laws, rules and regulations.

Book titled “regulations” with two other law books

This article will focus on pawn shop rules and regulations in California, where our pawn shops are based.

Pawn Shop Myths

Before we continue to look at the rules and regulations governing pawn shops in California, let’s quickly address two common pawn shop myths.

Although the below myths have been debunked, some people are still under the mistaken belief that they are factual.

Myth: Pawn Shops Are Legalized Loan Sharks

Pawn shops are, second only to banks, the most highly regulated businesses in the United States.

Contrary to what some people believe, pawn shops cannot charge clients whatever they want for a pawn shop loan. The fees are determined by the State of California, not by the pawn shop.

Myth: Pawn Shops Deal in Stolen Property

Pawn shops are the last place a thief wants to bring their stolen property!

Pawn shops require a valid form of identification for everyone wishing to sell or pawn an item. All intake transactions, and every item’s serial number along with a detailed description, are forwarded to law enforcement and checked through a stolen property reports database.

Licensure for Pawnbrokers in California

California pawn shops are regulated by the California Department of Justice. Pawnbrokers must apply for a license through either the chief of police, the sheriff, or, where appropriate, the police commission.

California Financial Code Chapter 3 Section 21300 states:

“The chief of police, the sheriff, or, where appropriate, the police commission shall accept an application for and grant a license permitting the licensee to engage in the business of pawnbroker, as defined in Section 21000, at the address indicated on the application, to an applicant who has complied with the requirements of Sections 21303, 21304, and 21305 and has not been convicted of an attempt to receive stolen property or any other offense involving stolen property.”

As mentioned in Section 21300, the applicant has to comply with the requirements of Sections 21303, 21304, and 21305.

Section 21303

File a pawnbroker’s two-year non-revocable surety bond with the issuing authority, in the sum of twenty thousand dollars ($20,000) in favor of the State of California.

Section 21304

File a financial statement with the issuing authority, confirming that the applicant has at least one hundred thousand dollars ($100,000) in the form of liquid assets readily available for use in each licensed business for which the application is made, not including real property.

In the absence of one hundred thousand dollars ($100,000), an applicant may post a non-revocable surety bond in the amount of one hundred thousand dollars ($100,000) or the applicant may, in lieu of posting a surety bond, deposit money, certificates, accounts, bonds, or notes, as provided in Section 995.710 of the Code of Civil Procedure. 

Note: This section does not apply to any person holding a secondhand dealer’s license pursuant to Section 21641 or 21642 of the Business and Professions Code who is actively engaged as a pawnbroker on the effective date of this section.

Section 21305

A license issued pursuant to this chapter (Chapter 3) shall not be transferred or assigned.

State and Federal Laws

Blocks titled standards, rules, regulations, law, and compliance

As mentioned in our guide on how pawn shops work, pawn shops have to comply with a number of federal and state laws.

Federal laws include:

Gramm-Leach-Bliley Act

Truth in Lending Act (TILA)

USA PATRIOT Act

State laws vary from state to state.

Maxferd, being based in California, has to comply with California Financial Code, Division 8, Chapter 2 – Pawnbroker Regulations [Sections 21200 – 21209].

Section 21200 – Regulates the fees a pawn shop may charge.

Section 21201 – Stipulates the requirements of a written contract for pawn shop loans.

Section 21202 – The records pawn shops must keep related to pawn shop shops.

Section 21203 – How and when property must be returned upon redemption of the loan.

Section 21204 – What needs to be included in the receipt upon redemption of the loan.

Section 21205 – Sharing data relating to the current financial condition of the industry.

Section 21206 – Who may inspect records of loans and pledged property.

Section 21207 – Pawn shops may not receive anything in pledge from a minor.

Section 21208 – Compliance with the reporting requirements imposed on secondhand dealers.

Section 21209 – A violation of any provision stipulated in Chapter 2 is a misdemeanor.

Conclusion

We trust after reading this article, you will have a better understanding of pawn shop rules and regulations in California.

Key takeaway: Pawn shops financial institutions under 31 U.S. Code § 5312(a)(2)(O). They are highly regulated and must comply with several federal and state laws.

Don’t hesitate to contact Maxferd Jewelry & Loan if you have items you wish to sell, pawn, or have evaluated. And if you want to buy something special for yourself or a loved one, visiting us first before shopping elsewhere can be a smart move.

Call us at (800) 888-7296 or visit one of our pawn shops in Los Angeles or our San Francisco pawn shop to find out how we can assist you.

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