Parliament: Competition among pawn shops an "effective check" against low valuations

SINGAPORE - Stricter laws on pawn shops were passed in Parliament on Monday, but some politicians were worried the rules did not go far enough to protect Singaporeans from crooked pawnbrokers.

MPs also voiced concerns about the rise in pawnbroking activity in recent years, asking whether this signalled more financial difficulties among Singaporeans.

Mr Hri Kumar Nair (Bishan-Toa Payoh GRC), Dr Fatimah Lateef (Marine Parade GRC) and Non-Constituency MP Lina Chiam feared that the new Pawnbrokers Bill, which replaces the Pawnbrokers Act, does not guard against unscrupulous pawn shops giving unfairly low valuations for pawned items.

Under the old laws, unredeemed items at pawnshops would be put up for auction. Any surplus gains between the auction sale price and the valuation of the item would be returned to the person who had pawned it.

With auctions now scrapped, pawnbrokers can sell unredeemed items and pocket the surplus gains. This may incentivise them to depress valuations so as to maximise the potential surpluses they can keep, Mr Kumar suggested.

But Senior Minister of State for Law Indranee Rajah said the competition among pawn shops would be an effective check against any of them offering overly low valuations.

Pawnbrokers who consistently offer low valuations are also likely to suffer reputatonal damage and go out of business, she said.

She added that only 5 per cent of pawnbroking loans go unredeemed. Of those, only 10 per cent may yield an auction surplus.

Thus only a very small number of people received surplus gains under the auction system, whereas the cost savings from doing away with auctions would benefit the whole industry and its customers, Ms Indranee added.

Responding to questions from Mr Kumar and Non-Constituency MP Yee Jenn Jong about why pawnbroking loans have risen - from $856 million in 1993 to $5.47 billion in 2013 - Ms Indranee said this trend depends on the demand for credit and the price of gold.

Most pledges are gold items, she said, and the price of gold has shot up in the past five years.

She added that people pawn items for a variety of reasons. For those in genuine financial distress, government aid is at hand.

The new laws aim to ensure pawn shops keep up with evolving trends. Among other things,pawnbrokers must now maintain a higher security deposit of $100,000 for each branch, up from $20,000.

They must also maintain a minimum paid-up capital of $2 million for the first branch, and $1 million for each subsequent branch.

Additionally, they must take steps to prevent money laundering, such as conducting stricter checks on their customers and reporting suspicious transactions to the police.

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