ACM forces pawnshops to apply the rules correctly
The Netherlands Authority for Consumers and Markets (ACM) has imposed a binding instruction on two municipal pawnshops. More specifically, the instruction concerns the fact that these pawnshops demand interest payments from customers when extending pawn loans. According to ACM, customers cannot be forced to make interim interest payments. Yet, the municipal pawnbroker in Amsterdam (Stadsbank van Lening) and the one in The Hague (Gemeentelijke Kredietbank) do so nevertheless.
The new Dutch Pawnshop Act came into force on July 1, 2014. In the past few months, ACM has reminded these pawnshops of the new rules. ACM has now decided to take enforcement action.
New rules for pawnshops
Consumers that pawn something through pawnshops decide at the end of the pawn contract if they wish to reclaim their collateral by repaying their pawn loans (plus interest) or that they surrender their collateral as payment in full. If consumers are unable or do not want to repay their pawn loans at the end of the pawn contract, they do not need to pay anything. Pawnshops are then allowed to sell the surrendered collateral and keep the takings. It is also possible that a consumer and a pawnshop agree to extend the pawn contract.
Under the new rules, pawnshops are allowed to decide for themselves what conditions they attach to extensions, but the rules do not allow pawnshops to demand from consumers to make interim interest payments when extending the contract. According to ACM, these two municipal pawnshops however do. Customers of these pawnshops that are unable or do not want to repay their loans are offered the opportunity to extend their pawn contracts on the condition that the interest on the current agreement is paid directly. A new pawn contract is then created with collateral that has already been pawned. Since the collateral has not been made available to the customer in question in between these contracts, ACM argues such a situation must be considered an extension. Therefore, no interest payment can be demanded.
The pawnshops do not agree with ACM’s decision, and have taken the matter to court. ACM will wait until the court has issued a ruling before it will force the pawnshops to adjust their business practices.
Since July 1, 2014, a maximum interest rate of 9 percent per month applies to pawn loans. From July 1, 2015, this maximum will become 4.5 percent per month. In addition, pawn loans must have a minimum loan term of two months. The new Pawnshop Act also sets out what information consumers must receive when signing a pawn contract. ACM is the regulator that enforces compliance with these regulations, which protects vulnerable consumers in particular better against very high interest rates and unclear contracts. The rules apply to anyone that offers pawn loans, including jewelers.