Pawnshops: maximum interest, deadlines and when they can sell

This is the law that puts numbers on pawning: how much interest can be charged, what additional fees fit, how long the loan lasts, and from when the shop may keep and sell the item. It also carries a long list of prohibited practices, several of which can be checked just by looking. The regulator is the Commissioner of Financial Institutions, not DACO.

Anyone who pawns an item at a pawnshop business in Puerto Rico. The law calls the person pawning the "prendador" and the licensed business the "concesionario". There is nothing to register for or apply to: the interest, charge and term rules apply to the transaction on their own. One requirement the law imposes on the other side, worth knowing: the licensee may not transact with a minor, a legally incapacitated person, or anyone who to their best understanding is under the effects of alcohol, a narcotic, drug, stimulant or depressant.

• Being of legal age and not legally incapacitated: the law prohibits the licensee from transacting with minors and legally incapacitated persons.Verified against the official source
• A photo ID issued by a Puerto Rico or Federal government agency, current at the time of the transaction, whose number is noted on the pawn receipt.Verified against the official source

• The transaction receipt. The law expressly prohibits failing to provide it, and requires it to itemize the Sales and Use Tax where applicable.
• The contract, with the item’s value stated in it: it is the figure on which compensation is calculated if the item is lost or sold without authorization.
• If there is an extension: the writing evidencing it, clearly stating the new due date and the interest and service charges owed at that date. The licensee must give you a copy.

1. 1

   Step 1: Interest: between 5% and 20% per thirty days

   Article 12 sets the band: in a pawn loan transaction, the interest rate shall be no less than five (5) percent per thirty (30) day period, nor exceed twenty (20) percent per thirty (30) day period, as the parties agree. There is a detail about the first month worth understanding before pawning: the applicable rate is charged for the initial thirty-day period as agreed, **regardless of when the item is redeemed**. That is, taking the item out after three days does not reduce that first period’s interest. After the first month the calculation changes and is done by days, as the next step explains. The law also requires transparency: the rate shall be expressed as an annual percentage rate (A.P.R.) in every contract, application, statement, report, correspondence and promotional material, and interest is computed by the simple interest method, on the outstanding balance, with the exception of that initial period.

2. 2

   Step 2: After thirty days, you pay by the day

   Article 14 says it precisely and it is what prevents being charged a full month for a few days. If you redeem within thirty days of the transaction, you pay what Article 12 sets. If you redeem at any point **after** thirty days, the total interest and service charges shall equal the original period’s interest and service charge divided by thirty days — that is, one thirtieth (1/30) of the total original service charge and of the interest rate — multiplied by the number of days elapsed. And it adds a refund: any service charge paid in advance by the pledgor, in excess of the charge determined under this Article, shall be reimbursed. The same thirtieth rule applies during an extension, per Article 13.

3. 3

   Step 3: Additional charges: one dollar, or five with justification

   Article 12(B) is short and very concrete. The licensee may only demand and charge additional fees for care, insuring and storage of the item that **do not exceed one dollar ($1.00) per pawn loan contract**. For pawned items requiring special care, five dollars ($5.00) monthly may be charged, **always justifying the reason** why such special care is required. The same item prohibits something that slips in easily: no interest may be demanded on overdue interest. And Article 18’s prohibited-practices list adds another: no charge of any kind for insurance related to the transaction may be made.

4. 4

   Step 4: The term, the extensions and the fifteen-month cap

   Any pawn loan’s due date shall be thirty (30) days, unless extended by agreement between pledgor and licensee. Each extension must be evidenced in writing, clearly stating the new due date and the interest and service charges owed at that date, and the licensee must give you a copy of that writing. The law closes an exit: any term granted beyond the original thirty-day term shall be considered an extension, and **not a new loan contract**. The number of extensions the parties may agree shall not exceed fifteen (15) months, and the licensee shall permit redemption of the item before the extension term ends. For extensions, the contract must provide that payment of principal, interest and additional charges be made on the same original terms and interest, and that payments toward principal be allowed. There is an alternative the law also contemplates: instead of the thirty-day loan and its extensions, the parties may agree an installment arrangement, with payments in equal periods and equal amortization amounts; in that case the principal obligation is deemed matured when two (2) installments of interest and additional charges are overdue.

5. 5

   Step 5: The thirty extra days before they can sell

   This is the fact most people need and fewest know. Article 14(B) says that once a pawn loan matures — counting any agreed extension — without having been satisfied in full, **the pawned item must be kept by the licensee for at least thirty (30) days from the maturity date**. After those thirty days, the item may be executed by the licensee, unless the parties agreed otherwise, its title passing by operation of law to the licensee, with no need for notice to the pledgor, and the licensee may sell it without the pledgor having a right of redemption, provided no law enforcement investigation is under way regarding that item. Two honest warnings there: after those thirty days no notice is required, and the right of redemption is lost. Count from the maturity date, not from the pawn date.

6. 6

   Step 6: If they sell or lose your item: double

   Article 18’s prohibited-practices list includes refusing to return a pawned item once the pledgor pays the total amount owed within the set term, and in the same item the law sets the consequence. If a pawned item **is sold or lost during the loan period**, while in their possession, the licensee shall compensate the pledgor **double the item’s value stated in the Contract** for the item lost or sold without authorization. And it distinguishes acts of God: if a pawned item is lost or destroyed by act of God while in the licensee’s possession, they shall compensate the item’s value stated in the Contract **minus** the loan amount not repaid. Which is why it matters that the item’s value be properly stated in the contract: it is the figure all of this is calculated on. The same article prohibits selling a pawned item before the agreed term elapses, and selling before thirty days from maturity have elapsed.

7. 7

   Step 7: If you lose the receipt, you do not lose the item

   Article 15 settles the panic. When the pledgor mislays or otherwise loses the receipt for the pawned item, they are obliged to inform the licensee immediately, and the item may be redeemed by verifying the identification details appearing on the pawn receipt and in the records with the person claiming ownership. The identification shall be one issued by a Puerto Rico or Federal government agency, with a photo current at the time of the transaction, whose identification number was noted on the pawn receipt. An acta is drawn up recording that the person is the same one who pawned the item, noting their address, workplace and telephone number at home, workplace or office. The key: report it immediately, and bring the ID.

8. 8

   Step 8: Prohibited practices you can see for yourself

   Article 18 carries a long list. These are the ones you can check without being a lawyer. Hours: they may not operate outside 7:00 a.m. to 9:00 p.m. The window: transactions through a window where the pledgor remains in a motor vehicle, as driver or passenger, while the transaction is conducted, are prohibited. The paperwork: requiring or permitting the pledgor to sign blank documents is prohibited, and failing to provide a transaction receipt itemizing the Sales and Use Tax where applicable is prohibited. Advertising: advertising as a pawnshop without a Commissioner’s license is prohibited, as is advertising without stating the trade or corporate name, the physical address and the license number granted by the Commissioner. Care: failing to provide reasonable care to protect pawned items from damage or loss is prohibited. And waiver: reaching any agreement requiring or permitting the pledgor’s personal liability, or containing a waiver of any provision of the Act or the regulation, is prohibited.

9. 9

   Step 9: What the Commissioner can do

   Article 22 gives the Commissioner concrete tools. They may impose and collect administrative fines of no less than one hundred dollars ($100.00) and no more than ten thousand dollars ($10,000.00) per violation of this Act or its regulations. They may order restitution or refund of payments received in contravention of the Act, or any other remedy they deem necessary. They may impose fines of no less than one hundred ($100.00) and no more than five thousand dollars ($5,000.00) **per day** the business fails to comply with their requirements or orders. And there is a specific penalty of interest to anyone who lost an item: in addition to the above, the Commissioner may impose an additional fine equal to the total price of the pawned item sold in contravention of this Act, discounting the balance of the loan amount received; **or order the return of the pawned item in the condition in which it was delivered**. Separately, violating the law is a misdemeanor, with an individualized fine of no less than one hundred ($100.00) and no more than five thousand dollars ($5,000.00) or imprisonment of up to six (6) months or both, and each transaction in violation constitutes a separate offense.

Before the Office of the Commissioner of Financial Institutions. The law calls the regulator of this business the "Commissioner" and it is who issues, renews, suspends and revokes licenses, who imposes Article 22’s administrative fines, and who may order the return of the pawned item. The law also gives them access to the paperwork: among the prohibited practices is refusing to provide any record, document or information in their custody that the Commissioner or authorized public officials wish to examine, and the licensee may only destroy its records after five (5) years from the last entry, from when the obligation ceased to be enforceable, or from when it was audited by OCIF, whichever is later. What we do not publish: the form, procedure and deadlines to file a complaint with the Commissioner, because Act 23-2011 does not regulate them.

• Counting the thirty grace days from the pawn date rather than from the maturity date.
• Expecting notice before they sell the item: after those thirty days the law requires no notification.
• Accepting a verbal extension: each extension must be in writing, with the new date and the charges, and with a copy for you.
• Accepting the extension presented as a new contract: the law says it is an extension, not a new loan.
• Paying additional charges above one dollar per contract without the five-dollar monthly special care being justified.
• Paying an insurance charge, which the law expressly prohibits.
• Signing blank documents or leaving without the itemized receipt showing the Sales and Use Tax.
• Not insisting the item’s value be properly stated in the contract: it is the basis of the double they owe if they sell or lose it.
• Giving the item up for lost when you lose the receipt: Article 15 has a route with photo ID and an acta.

These are the government pages this guide is based on.

• Oficina del Comisionado de Instituciones Financieras (OCIF)

  OCIF

  bvirtualogp.pr.gov

• Office of the Commissioner of Financial Institutions (OCIF)

  OCIF

  www.ocif.pr.gov