Regulation of Pawnshops Operation in PH

Policy, purpose, and guiding standards

Section 2 declares State policy to regulate the establishment of pawnshops and place their operation on a sound and stable basis.
Section 2 states the aim is to derive the optimum advantages of pawnshops as an additional source of credit for small borrowers left unserved by banking and other financial institutions.
Section 2 directs the law to prevent and mitigate, as far as practicable, practices prejudicial to public interest.
Section 2 requires the law to lay down minimum requirements and standards under which pawnshops may be established and do business.

Core definitions for pawnshop regulation

Section 3 defines “Pawnshop” as a person or entity engaged in the business of lending money on personal property delivered as security for loans, and it is synonymous with “pawnbroker” or “pawnbroker age.”
Section 3 defines “Pawner” as the borrower from a pawnshop.
Section 3 defines “Pawnee” as the pawnshop or pawnbroker.
Section 3 defines “Pawn” as the personal property delivered by the pawner to the pawnee as security for a loan.
Section 3 defines “Pawn ticket” as the pawnbroker’s receipt for a pawn; it is neither a security nor a printed evidence of indebtedness.
Section 3 defines “Property” as only personal property actually delivered to the control and possession of the pawnshop, excluding specified chattels such as guns, knives, and similar weapons whose reception in pawn is expressly prohibited by other laws or regulations.

Who may establish pawnshops, and how

Section 4 allows a pawnshop to be established as a single proprietorship, partnership, or corporation.
Section 5 requires any person or entity desiring to engage in the pawnshop business to (a) register with the Bureau of Commerce (for single proprietorship) or the Securities and Exchange Commission (for a corporation or any other association), and (b) secure a license from the appropriate city or municipality with territorial jurisdiction over the place of establishment and operation.
Section 6 requires every duly registered and licensed pawnshop to file with the Central Bank an information sheet under oath before commencement of actual operations.
Section 6 gives existing pawnshops a transitional obligation: pawnshops licensed and operating before Decree approval must register with the Central Bank within six months from the date of effectivity; the Central Bank shall furnish the required copies of the prescribed information sheet upon request.

Capital and ownership requirements

Section 7 sets the minimum paid-in capital for pawnshops established after the Decree’s effectivity at PHP 100,000.00.
Section 7 requires pawnshops already in operation to comply with the minimum capitalization within a period prescribed by the Monetary Board, but in no case less than three years from the date of effectivity.
Section 8 imposes a citizenship rule: upon effectivity, only Filipino citizens may establish and own a pawnshop organized as a single proprietorship.
Section 8 requires, for partnerships, at least 70% of capital to be owned by Filipino citizens.
Section 8 requires, for corporations, at least 70% of voting capital stock to be owned by citizens of the Philippines; if there is no capital stock, at least 70% of members entitled to vote must be citizens of the Philippines.
Section 8 protects existing pawnshops from increasing foreign voting interests beyond 30%: if foreign-owned voting stock or non-citizens entitled to vote exceeds 30%, it shall not be increased but may be reduced; once reduced, it shall not be increased thereafter beyond 30%.

Loan limits, interest, and service charges

Section 9 allows pawnshops to grant loan amounts agreed upon between the parties.
Section 9 prohibits loans below a threshold: the loan amount shall in no case be less than 30% of the appraised value of the security unless the pawner manifests in writing the desire to borrow a lesser amount.
Section 10 prohibits pawnshops from stipulating, charging, demanding, taking, or receiving any higher rate or greater sum or value for any loan or forbearance than the rate allowed by the Usury Law.
Section 10 prohibits unlawful interest collection methods: it is unlawful for a pawnshop to divide the pawn in order to collect greater interest.
Section 10 prohibits requiring an additional charge as an insurance premium for safekeeping and conservation of the pawned article.
Section 10 allows pawnshops, in addition to interest charges, to impose a maximum service charge of PHP 5.00, but in no case to exceed 1% of the principal loan.

Mandatory records and customer documentation

Section 11 requires every pawnbroker to keep a memorandum book with ink entries made at the time of each loan or pledge.
Section 11 requires each entry to include: an accurate account and description (in Pilipino or English with translation in the local dialect), the amount of money loaned, the date of pawning or pledging, the rate of interest, and the name and residence of each pawner including nationality, sex, and general appearance.
Section 11 prohibits alteration or erasure: no pawnbroker or other person may alter or erase any entry made in the memorandum book.
Section 11 requires each person pawning or pledging to sign and give an address, and those details must be part of the described record.
Section 11 provides for illiterate pawners: the person who is unable to write shall imprint his thumbmark, and the person writing the name shall have his own name signed as witness to the thumbmark.

Pawn ticket requirements

Section 12 requires every pawnbroker, at the time of each loan or pledge, to deliver to the pawner a memorandum or ticket signed by the pawnbroker.
Section 12 requires the ticket to contain the substance of the record required by Section 11, excluding the description of the person pawning or pledging.
Section 12 prohibits charging: no compensation of any kind whatsoever may be received by any pawnbroker for the memorandum or ticket.

Redemption period and computation after maturity

Section 13 grants the pawner a redemption right: if the pawner fails to pay on the due date, the pawner may redeem the pawn within ninety days from the date of maturity.
Section 13 requires redemption payment of the principal of the debt with interest.
Section 13 sets interest computation after maturity: the basis for computing interest due after maturity is the sum of the principal of the obligation and interest earned at the time the obligation matured.

Default disposition and sale requirements

Section 14 authorizes the pawnbroker, if redemption is not made within ninety days from maturity, to sell or otherwise dispose of the pawned article.
Section 14 requires notice of sale on or before the termination of the ninety-day period, with the notice stating the date, hour, and place of sale.

Public auction mandate and publication/posting

Section 15 prohibits any sale or disposal of pawned items except at public auction.
Section 15 requires the auction to be conducted in the pawnbroker’s place of business or another public place within the territorial limits of the municipality or city where the pawnshop is located.
Section 15 requires the auction to be under the control and direction of an auctioneer with a license duly issued by the corresponding authorities.
Section 15 requires publication in at least two daily newspapers printed in the city or municipality during the week preceding the sale date.
Section 15 provides a remote area procedure when newspapers are not published or circulated: notice must be substituted by posting notices in conspicuous public places within the territorial limits of the city or municipality.
Section 15 requires the notice to be in English, and either in Pilipino or in the local dialect, and to state: the name of the pawnshop, owner, address of the establishment, hour, and date of the auction sale.

Closing or transfer limits for pawnshops

Section 16 prohibits a pawnbroker from closing or transferring the place of business within three months after the expiration of the period for which any article was received in pawn or pledge.
Section 16 also prohibits closing or transfer before any such article is sold or disposed of in accordance with the Decree.
Section 16 allows removal or transfer within the same city or municipality only if authorized with conditions.
Section 16 requires authorization conditions for within-city transfer: the pawnbroker must publish a notice in two local daily papers (one in English and one in Pilipino or local dialect) for a period of not less than three days, with the last day of publication occurring five days before the removal.
Section 16 requires the notice to state the date of removal, the address of the premises to be vacated, and the address of the premises to which the pawnshop will transfer.
Section 16 requires the pawnbroker to post in a conspicuous place in both premises two copies of the notice (one in English and one in Pilipino or local dialect) during the publication period in the local papers.

Central Bank powers and regulatory enforcement

Section 17 authorizes the Central Bank to issue rules and regulations to implement the Decree.
Section 17 authorizes the Central Bank to require reports of condition and other reports necessary to determine compliance.
Section 17 grants the Central Bank visitatorial powers whenever deemed necessary.
Section 17 authorizes the Central Bank to impose administrative sanctions, including the imposition of fines, for violations of the Decree and Central Bank regulations issued pursuant to it.

Criminal penalties for violations

Section 18 imposes for violations of the Decree and implementing rules and regulations a fine of not less than PHP 100.00 and not more than PHP 1,000.00, or imprisonment of not less than thirty days and not more than one year, or both, at the discretion of the court.
Section 18 provides corporate/association liability: if the violation is committed by a corporation, partnership, or association, the penalty is imposed upon the directors, officers, employees, or persons responsible, without prejudice to civil liabilities arising from the criminal offense.

Other applicable laws and general rules

Section 19 provides that existing laws apply in matters not otherwise specifically provided for in the Decree, insofar as they do not conflict with any Decree provision.

Separability, repeal, and effectivity

Section 20 establishes separability: if any provision or section is held invalid, the other provisions and their application to other persons or circumstances are not affected.
Section 21 states the Decree takes effect immediately.

Central Bank implementing circulars

Central Bank Circular No. 374 dated July 13, 1973 prescribes rules and regulations governing pawnshops.
Central Bank Circular No. 381 dated September 17, 1973 lays down the procedures for processing complaints against pawnshops.