Landmark court ruling in Westport woman's fight with pawnbroker
An elderly Westport woman who pawned her wedding ring on Christmas Eve has set in motion a legal action that may force dozens of pawnbrokers across the state to shut their doors.
"Life as Connecticut pawnbrokers have known it is over," said Bridgeport lawyer Jonathan Klein after the Connecticut Supreme Court ruled last week that the state's pawnbrokers must reduce the interest rate they charge for so-called buy-back loans -- the bread and butter of many pawnbrokers -- because they are in violation of the state's usury law.
Klein had brought suit against Pawn King on Barnum Avenue in Stratford on behalf of 86-year-old Bess Gilmore of Westport, who he said was faced with a 20 percent per month or a 240 percent yearly interest rate when she tried to buy back her wedding ring and other jewelry from the pawnbroker.
"In July 2008, when she called Pawn King to arrange to make some interest payments which had been demanded in order to prevent her property from being sold by Pawn King, she learned that Pawn King had disposed of the items. She demanded that Pawn King return her property, and when they did not, she sued," Klein said.
Gilmore died in 2009 while the case was pending, and her son, Douglas Gilmore, pressed forward.
In a buy-back loan, a person sells valuables to the pawnbroker, who then agrees to hold onto to the items for a set time period and then sell them back to the customer at the sales price, plus interest.
While loans from pawnbrokers in which customers leave items as collateral are governed by state law and interest is limited to 2 percent per month, or 24 percent a year, the pawn industry has not had a limit of interest charged for buy-back loans.
But the Supreme Court decided that buy-back transactions are governed by the 12 percent per year limit of the state's usury statute.
"That's just crazy," said Sax Medina, who has owned the Pawn Shop on East Main Street for more than 20 years, after learning he can't charge more than 12 percent a year on buy-back items because of the court ruling. "I'm going to have to close my doors."
"Most of our members don't do repurchase agreements anymore," he said. "I'm sure it may cause some stores to close, but it (the court's decision) shouldn't have that big an effect."
Medina said buy-back loans account for 20 percent of his business, and that could increase as competition in the area increased for those selling gold.
"I have a lot of elderly people who come in at the end of the month who need money and they bring in defibrillators and respirators they get from the state. The community depends on the money I give them in buy-backs for this stuff," Medina said.
He was vague on the amount of interest he charges on buy-backs, instead talking about the cost for the space to hold items until customers can repurchase them.
"I'm very reasonable -- not like that guy in Stratford (Pawn King). He charges ridiculous prices and I'm sure that's why there is a problem," Medina said.
Klein said that during the Gilmore case it was learned that a pawn shop in Hartford charges 60 percent per month, or 720 percent per year.
"Since the pawn shops have believed that they can charge any rate they want, they do business virtually exclusively in the form of repurchase transactions, because they make at least 10 times as much money that way," he said.
"The Supreme Court justices did not give an impartial decision," said Pawn King's owner, Will Mingione. "They had to come up with a way not to give pawn shops the right ruling because they feel pawn shops are a bad thing."
Pawn King is a cavernous store on the Bridgeport-Stratford line. Mingione stands behind a chest-high glass counter containing all sorts of jewelry. On the wall above him hang dozens of electric and acoustic guitars, along with military-style swords and numerous antique portable weapons of war.
Mingione says he got into the pawn business 14 years ago when he came out of the U.S. Marine Corps and bought a friend's fledgling business.
He said because of Gilmore's lawsuit he no longer does buy-back transactions, "Even though I still think what I was doing was legal," he said.
"I'm not getting rich here," he continued. "People need pawnbrokers. Banks are not giving loans to everyone and sometimes people have to come in and pawn a ring so that they can buy diapers for their baby or food for their family."