Banking & Fintech

Pawn loans under scrutiny

The gray area of pawn loans

According to the assumptions of the law project published on the government website, as of March 2020, 5% of citizens have used this method of obtaining money. This amount should be considered significant, taking into account that at the same time, in the same period, i.e. from March 2020 to May 2021, consumer credit was used by 10% of citizens. In absolute numbers, this means that during this period about 1.5 million Poles used the services of pawnshops , with 41% declaring that they used the pawnshop service because they were refused a credit or loan from financial institutions.

At the same time, despite the fact that pawnshop entrepreneurs are formally subject to the provisions of the Consumer Credit Act, many of them avoid the resulting restrictions, which means that, as a result, it happens that one has to pay up to 1.5 percent a day for a pawnshop loan.

Pawn shops to be regulated

Therefore, a package of solutions was prepared to regulate the existing state of affairs and extend increased protection to customers of pawnshops. The assumptions of the act are to a large extent in line with those proposed earlier by entrepreneurs’ unions. The most important of them are:

  1. 1.introduction of the definition of pawnshop activity and lombard loan in the new act, which aims to curtail the practice of hiding pawnshop activity under the guise of conducting other activities,
  2. introducing regulations specifying the conditions for the sale of pledged items via auction portals or other online platforms,
  3. establishing a register of entrepreneurs running a pawnshop activity,
  4. introducing the obligation to conduct a lombard activity in the form of a limited liability company or joint-stock company and the share capital requirement at the level of PLN 50,000 (Article 37 (2) of the draft),
  5. increasing the transparency of the processing of personal data of customers of pawnshop companies and the information obligation in contracts concluded with the consumer in order to increase customer awareness of the actual costs and risks of the concluded contract,
  6. introducing only a written form of a lombard loan agreement, preventing the underestimation of the value of the item pledged,
  7. severe financial sanctions for violation of the provisions of the Act.

The planned date of adoption of the draft of the new law by the Council of Ministers is said to be the fourth quarter of 2022.

Author team leader DKP Legal Magdalena Napierała
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