Банкеръ Weekly



DRAFT ON PAWNSHOP ACTIVITIES WILL BE DISCUSSED BY THE COUNCIL OF MINISTERS NEXT APRILPawnshops in Bulgaria will be deprived of the ability to launch mortgage credits secured by real estates, the BANKER weekly learned. Article 3 of the draft on pawnshops activities that is being prepared by a group of experts from the Ministry of Finance will stipulate that pawnshops cannot launch loans secured by mortgage of a real estate. They will also be stopped from becoming owners of property in return for paying a loan. The strict measure aims at restricting the dozens of frauds which result in unsuspecting debtors losing the ownership on their homes even though they have paid their debts to the pawnshop. A number of cases have been described in the press in the past few years in which naive borrowers were stung by pawnshops also known as the banks of the poor.Although this is not a secret for the enforcement bodies, the activities of the pawnshops have not been regulated so far. Hopes that this will change grew last April, when the group of experts from the Ministry of Finance was created. The writing of the pawnshops draft was entrusted to the legal experts of the Financial Supervision Commission. As the BANKER weekly learned, they deposited their text of the draft in the financial ministry at the end of 2004. According to the ministry PR Tanya Mitova, however, there is still a lot of work to be done on the draft before it is put forward for discussion by the Council of Ministers next April.Apart from the ban on signing mortgage credits, pawnshops will have to survive another hard blow, too. The draft is expected to contain a clause that forbids them to sign contracts for fictitious sale of the pledged goods. Pawnshops use such agreements mainly when they lend money in return for motor vehicles.Still, that's not the last unpleasant surprise that the authorities are preparing for the pawnbrokers. An idea is currently being discussed to issue each of them a licence. It will probably be the minister of finance to issue permission for their business. Pawnshops that are operating at present will need to be relicensed. Limited joint-stock companies, limited liability companies, and joint-stock companies holding capital of at least BGN50,000 will be allowed to apply for a licence. According to officers in the financial ministry who take part in writing the pawnshop draft, a registration instead of licence regime may be introduced. No matter which variant will be chosen, however, the activities of the pawnshops will become much more regulated than they are now. Currently, if a company wants to act as a pawnshop apart from doing its other activities, it only needs to add this type of activity in its registration and inform the Financial Intelligence Agency about what internal rules it will stick to. In practice, it means that pawnshops remain out of the law... according to the law.As long as a special law on the banks of the poor is adopted, companies that obtain permission to operate as pawnshops will be included in a special register. It is not clear yet to which department the register will be subordinate. Most probably it will be maintained either by the financial ministry or the Bulgarian National Bank (BNB). A person sentenced for committing a deliberate crime or a former member of the management of a bankrupt company will not be allowed to become a curator, manager, member of a managing or supervisory board or unlimited liability partner in a pawnshop. This restriction should result in greater transparency in the pawnbrokers' branch.Among the innovations that the law on pawnshops will bring is the introduction of a special pawn ticket. It will be issued at the time a loan agreement is signed. The ticket will contain the personal data of the person who pledges, the crediting terms, and a description of the pledged commodity. The act will also regulate the order for signing agreements and selling pledged goods in case a debtor fails to pay off his loan in time. Pawnshops will not be allowed to settle interests higher than the BNB base interest rate for the respective loan period plus 30 points or the three-month LIBOR for the respective type of foreign currency plus 30 points (for credits in dollars and euro). Interests offered by pawnshops in return for pledged machinery or gold are about 10% - for a 15-day payment term, and 20% if the loan is paid off in 30 days. Cars are pledged in return for an 8% monthly interest. A credit launched in return for house mortgage is paid off with a 6% interest on an average.Other news that will delight pawnshops is the ban on accumulating interest on unpaid and overdue interest. Pawn brokers shall be also allowed to sell movable property, whose market value is up to BGN3,000. For pledges above that value they shall have to obtain a writ of execution from court and seek the services of a bailiff in order to restore the due amount. It is not yet clear how the law will settle the issue regarding the interception of the wide-spread practice of pledging stolen goods in pawnshops. One of the standard replies which citizens complaining at the police from thefts is: Check in pawnshops. Thus, the lack of a requirement for the pawn brokers to verify that the loan borrower is the true owner of the goods he puts in pawn, practically encourages criminality in the streets. One of the solutions, proposed by experts from the Financial Supervision Commission, is that the client's personal data from his identification card should be written in the pawn ticket, and the obligation for the money borrower to sign a declaration that he really owns the pledged article. The establishment of an electronic link between the police and pawnshops would of course be much more efficient, but there will hardly be sufficient political will and ... money.

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