Pawnbroker Bond Claims Guide

The Pawnbroker Bond is used as a financial tool by regulators to guarantee reimbursement to customers harmed monetarily by pawnbrokers, secondhand dealers, etc. Jet Insurance Company, as the surety company providing the bond, guarantees the restitution.

Pawnbroker Bonds go by a few other names: Pawn Shop Bond, Consignment Store Bond, Pawnbroker License Bond, Secondhand Dealer Bond, Junk Dealer Bond, and other similar variations. For the sake of sanity, we’ll stick to Pawnbroker Bond for this article.

How Can a Pawnbroker Avoid Bond Claims?

Following the city, county, and/or state’s regulations is an easy way to ensure compliance while operating a pawn shop. Basically, do right by the customer and there should be no qualms.

Things to Avoid

This is not a comprehensive list, but here are a few situations where a claim may arise:

• Not keeping accurate records
• Accepting items from a minor
• Accepting items that are stolen
• Charging too much interest
• Selling a pawned item during the repayment period

Where Do Claims Originate?

Claims start when a customer believes they have been ripped off by the pawnbroker and cannot find restitution from them. At which point, they are only left with the decision whether to pursue action within the court system or with the regulator. 

How Much Can Claims Pay Out?

Claim payouts are never to exceed the total bond limit. For example, if the bond limit is $5,000, the bond will only pay out up to $5,000, even if the customer’s losses exceed that amount. The pawnbroker is still liable for the remaining amount beyond the bond limit.

Pawnbroker Bond Claims Process With Jet

For the process, we’ll use an example.

(1) Complaint

Meet Shawn. He is new to the pawning industry. Even though Shawn went through the registration process and obtained a license bond, he didn’t read much into the legalities of owning a pawn shop. Because of this, he overcharges a customer (Ray) interest within the first month. 

Ray pays the high interest for two months, then is told by another local pawn shop that the interest rate is illegal per the county’s regulations.

Ray immediately takes action against Shawn in the local court.

Note: the dispute process varies from city to county to state, but claims are generally dealt with by local county courts.

(2) Investigation and Judgment

Shawn and Ray appear in court. Ray is able to provide documentation showing the interest he was charged for the previous two months.

Shawn admits to his wrongdoing, tells the court he didn’t know the interest being charged was over the legal amount and promises to never overcharge again. However, he doesn’t have the money to pay Ray back at this time.

Because Shawn is unable to reimburse Ray, the court decides to place a claim against Pawnbroker Bond so Ray can receive immediate restitution for his losses.

Note: If Shawn was able to pay Ray back and did so, the likely scenario would be that Shawn may additionally be charged a civil fee for his failure to follow the regulations. He could also have his license suspended or revoked—the discipline varies by location and by the law(s) broken.

(3) Recovery and Indemnification

Here’s where Jet comes in. The court has requested a payout from the surety bond, but it’s not that easy. Sure, the court has investigated and determined Shawn is guilty, but Jet Insurance Company delves into court documents to be absolutely sure of the validity prior to paying the claim.

Jet has the dual responsibility to pay back the damaged party, but also to represent our bonded client. After a thorough review, Jet determines the claim is indeed legitimate and payment is made to Ray. 

Jet then sends Shawn a notice that he must restore the bond to its full limit by paying Jet back. The reason for Shawn needing to pay Jet back is because surety bonds are not insurance. Instead, surety bonds act as an extension of credit. Just like any credit offered upfront, it must be eventually restored to the creditor. Surety companies can only offer the bond on this basis and must be paid back by the pawnbroker, lest the pawnbroker continues to land in regulatory issues or stay out of business.