Could a Texas pawnbroker split several items pawned together into separate transactions to collect higher total service charges?

Texas AG Opinion JM-225: Split Pawn Service Charges

Plain-English summary

The consumer credit commissioner asked what counted as separating or dividing a pawn transaction under article 5069-51.12. The dispute concerned whether several items pawned at the same time could be placed in separate transactions with separate charges. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

JM-225 concluded that the statute barred splitting a transaction "for the purpose of charging a total service charge greater than the service charge on one transaction." Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

The prohibition was not limited to dividing a single physical unit, such as a matched silverware set or a rifle and attached sight. It also applied when "several separate and distinct items are pawned at the same time." Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

The opinion did not ban every use of two transactions. It said the statute "does not prohibit making two transactions" when the split did not cause the total service charge to exceed the charge authorized for the combined amount financed. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

JM-225 also concluded that "A single pawn transaction may be secured by more than one item of collateral." It relied on the pawn-ticket statute's requirement to identify and describe the pledged goods, including serial numbers when available. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Currency note

This opinion was issued in 1984. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could one pawn transaction include more than one item?

Yes. JM-225 concluded that a single transaction could be secured "by more than one item of collateral." Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Could a watch and a ring pawned together be put into two transactions?

Only if the split did not increase the total service charge. The opinion said the prohibition applied to "several separate and distinct items" pawned at the same time. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Did the statute prohibit every split transaction?

No. JM-225 said splitting was not prohibited "if greater service charges are not assessed" than would apply to one transaction. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

What was the statute trying to prevent?

The opinion described the purpose as preventing lenders from "charging excessive fees" by dividing collateral among two or more loans instead of using it to secure one loan. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Why did the pawn-ticket language matter?

The ticket had to identify and describe "the pledged goods," including serial numbers when reasonably available. JM-225 said that language clearly implied that more than one item could secure the transaction. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Background and statutory framework

Article 5069-51.12 prohibited separation of a pawn transaction when the purpose or effect was a total pawn service charge above the charge authorized for the combined financed amount. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

JM-225 traced the rule to earlier Texas loan statutes aimed at stopping lenders from dividing one loan into smaller loans "so as to earn higher interest." The 1971 Texas Pawnshop Act restored a similar limit for pawnbrokers. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Article 5069-51.10 required the pawn ticket to state the amount financed, finance charge, total of payments, annual percentage rate, maturity date, and description of the pledged goods. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Citations and references

• Article 5069-51.12 supplied the prohibition against dividing a pawn transaction to obtain excessive total service charges. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf
• Article 6165b, section 17(a)(7), and article 5069-3.15(7) appeared in the opinion's history of restrictions on dividing loans to increase charges. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf
• Article 5069-51.10 supplied the pawn-ticket requirements that JM-225 used to conclude that multiple items could secure one transaction. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf
• The Truth-in-Lending Act appeared in the pawn-ticket provision governing calculation and disclosure of the annual percentage rate. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0225
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0225.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.

The Attorney General of Texas

November 5, 1984

Mr. Sam Kelley
Commissioner
Office of Consumer Credit Commissioner
P. O. Box 2107
Austin, Texas 78768

Opinion No. JM-225

Re: What constitutes the separation and division of a pawn transaction within the meaning of article 5069-51.12, V.T.C.S.

Dear Mr. Kelley:

You have requested our opinion regarding the applicability of a portion of article 5069-51.12, V.T.C.S., to certain types of pawn transactions. The pertinent portion of the statute provides:

No pawnbroker shall separate or divide a pawn transaction into two or more transactions for the purpose or with the effect of obtaining a total pawn service charge in excess of that authorized for an amount financed equal to the total of the amounts financed in the resulting transactions.

V.T.C.S. art. 5069-51.12.

While the statute prohibits charging more than one service charge for splitting transactions, it does not prohibit making two transactions as long as only one service charge is assessed. A dispute has arisen over the meaning of what is a division or separation of a pawn transaction and which transactions violate the statutory prohibition. The pawnbrokers association argues that "separation and division of a pawn transaction" occurs only when there is a separation or division of a single unit of collateral. For example, in its view, the pledge of a matched set of silverware or a rifle with attached telescopic sight would constitute a single transaction. The opposing viewpoint is that the statutory prohibition on division of collateral applies when several items are pawned at the same time. For example, the pledge of a watch and a ring when pawned at the same time could not be divided into two different transactions if service charges were assessed greater than the amount which might be charged if the watch and ring secured one transaction.

Article 5069-51.01, et seq., V.T.C.S., the Texas Pawnshop Act, was enacted in 1971 and continued a long history of governmental regulation of pawnbrokers. See Tex. Gen. Laws 1874, ch. CVII, section 1, et seq., at 153, 8 H. Gammel, Laws of Texas 155 (1898); V.T.C.S. arts. 6146-6165 (1925); V.T.C.S. art. 6165b (1963); V.T.C.S. art. 5069-1.01, et seq. (1967). Few of the Texas Pawnshop Act's provisions are new. The part of article 5069-51.12 with which we are concerned had its roots in legislation passed in 1963 and 1967. In the first of these, the Texas Regulatory Loan Act, which was repealed in 1967, article 6165b, section 17(a)(7) provided in part:

No licensee shall induce or permit any person, or husband and wife, to be obligated, directly or indirectly, under more than one (1) loan contract under this Act at the same time for the purpose, or with the effect, of obtaining a higher authorized charge than would otherwise be permitted by this Act. . . .

In 1967, legislation concerned with consumer credit included the following:

No licensee shall induce or permit any person, or husband and wife, to be obligated, directly or indirectly, under more than one loan contract under this chapter at the same time for the purpose, or with the effect, of obtaining a higher authorized charge than would otherwise be permitted by this chapter; but such limitation shall not apply . . . to pledged loans made pursuant to Article 3.17. . . . (Emphasis added).

V.T.C.S. art. 5069-3.15.(7). Article 5069-3.17 specifically dealt with pawnbrokers.

Clearly, the legislature in 1963 sought to prevent lenders from dividing a loan transaction into two or more small loans so as to earn higher interest. Pawnbrokers were apparently included as "lenders." Although pawnbrokers were explicitly exempted from this prohibition in 1967, the legislature reinstated the limitation in slightly altered form with the passage of the Texas Pawnshop Act. The obvious purpose of this section of the Pawnshop Act and its predecessor statute was to prevent lenders from charging excessive fees by taking collateral and dividing it among two or more loans instead of securing one loan. With the passage of the 1971 Texas Pawnshop Act, this prohibition once again applies to pawnbrokers.

"Pawn transaction" is not defined in the Texas Pawnshop Act, but there is no prohibition against allowing more than one item of collateral to secure a loan, and article 5069-51.10 clearly indicates that "pawn transaction" can refer to a loan secured by more than one piece of collateral.

Art. 5069-51.10. Pawn Ticket

The pawnbroker, at the time the pawn transaction is entered, shall deliver to the pledgor a memorandum or ticket on which shall be clearly set forth the following:

(a) The name and address of the pawnshop;

(b) The name and address of the pledgor and pledgor's description or the distinctive number from pledgor's driver's license or military identification;

(c) The date of the transaction;

(d) An identification and description of the pledged goods, including serial numbers if reasonably available;

(e) The amount of cash advanced or credit extended to the pledgor, designated as the "Amount Financed";

(f) The amount of the pawn service charge, designated as the "Finance Charge";

(g) The total amount (the Amount Financed plus the Finance Charge) which must be paid to redeem the pledged goods on the maturity date, designated as the "Total of Payments";

(h) The "Annual Percentage Rate," computed in accordance with the regulations issued by the Federal Reserve Board of the United States pursuant to the Truth-in-Lending Act, Title I, Act of May 29, 1968, Public Law 90-321, 82 Stat. 146, as amended;

(i) The maturity date of the pawn transaction;

(j) A statement to the effect that the pledgor is not obligated to redeem the pledged goods, and that the pledged goods may be forfeited to the pawnbroker sixty days after the specified maturity date. (Emphasis added).

The statutory requirement that a ticket be made up at the time the pawn transaction is entered into and that the ticket contain an identification and description of the pledged goods including serial numbers clearly implies more than one item of collateral can be used to secure the transaction. See also article 5069-51.11, which states that a pledgor shall have no obligation to redeem goods or make any payment on a pawn transaction. Thus, the statutory prohibition on division of collateral applies when several separate and distinct items are pawned at the same time.

SUMMARY

We conclude that article 5069-51.12, V.T.C.S., prohibits pawnbrokers from splitting pawn transactions for the purpose of charging a total service charge greater than the service charge on one transaction. It does not prohibit splitting transactions if greater service charges are not assessed on more than one transaction than would be assessed on a single transaction. A single pawn transaction may be secured by more than one item of collateral.

Very truly yours,

JIM MATTOX
Attorney General of Texas

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Bradley Seale
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Chairman
Colin Carl
Susan Garrison
Tony Guillory
Jim Moellinger
Bradley Seale
Nancy Sutton
Bruce Youngblood