People in need of quick cash loans may bring personal items, eg, clocks, musical instruments and pieces of jewellery, to a pawnbroker as collateral. If the loan is not repaid within a specified time, the pawnbroker may sell the item. Thus, pawnshops operate as lending institutions and as retail stores.
The procedure of pawning an item is similar across Canada. A pawnbroker inquires how much an individual is hoping to borrow. If the item is acceptable to the pawnbroker, a quick appraisal is done. Many pawnshops have trained gemologists on staff to appraise precious stones. The pawnbroker names the amount he is willing to lend and issues a pawn ticket to the customer. The loan is usually up to 25% of the value of the merchandise but may be as low as a few dollars. The item may be reclaimed at any time within the loan period marked on the ticket by full repayment of the loan, plus interest and nominal service and storage charges. Pawnshops are, in fact, frequented by a cross section of Canadians. Part of the appeal of this avenue of acquiring ready cash is that no explanation is required regarding why the money is needed.
Because human need, greed and desperation are intrinsic to this trade, pawnbroking has had a colourful past and some murky connotations. Unscrupulous lenders were known in the past to strip desperate clients by accepting clothes, shoes, false teeth and glass eyes; to charge usurious interest rates; or to sell someone's cherished possession almost as soon as he or she had pledged it and left the shop. As well, some thieves saw pawnshops as places to dump stolen goods.
However, pawnbroking in Canada today is so well regulated that nearly all risks - both to borrowers and shoppers - as well as some of the drama have disappeared. A federal Pawnbrokers' Act was passed in 1886, and more recently various provincial laws concerning pawnbroking have come into effect. In general, the areas that are regulated include the safekeeping of objects left as collateral; the level of interest rates that may be charged; the length of time pledged items must be kept before being sold (usually one year); and requirements for municipal licensing. Local police usually monitor pawnbroking businesses by checking the pawnbrokers' daily records of transactions against lists of stolen goods.
Though pawnshop merchandise is often still a grab bag of odd items, pawnbrokers in Canada are more selective, some specializing only in precious metals. Approximately 80% of the items placed are redeemed by their owners.