Decree-Law 160/2015 was published on 11 August 2015. This law create the legal framework for pawnbroking, in other words, the activity of loans secured by personal property. Decree-Law 365/99, of 17 September, which established the legal framework for access to, the exercise of and supervision of pawnbroking. Nevertheless, the new legal framework will only enter into force 60 days after its publication.
Pawnbroking may only be engaged in by natural or legal persons duly licensed by the Directorate-General of Economic Activities (DGAE) that are based or have permanent establishment in Portugal, that are of good standing and have an appraiser of articles with precious metals and gemstone materials, under the terms provided for in the legal framework for gold and silver working and assayers.
Application for authorisation: the application must be submitted to the Balcão do Empreendedor service, using a specific form and accompanied by the following elements: (i) identification of the applicant; (ii) address; (iii) online certificate code or start -up declaration; (iv) extract from the judicial record (of the applicant or, in the case of a legal person, of its representatives); (v) Economic Activity Code corresponding to the activity (64923); (vi) address of the establishment(s) where the applicant intends to engage in the activity; (vii) identification, for each establishment, of the appraiser of articles with precious metals and gemstone materials and submission of that person’s professional qualification certificate, under the terms of the legal framework for gold and silver working and assayers; and (viii) written solemn affirmation of the absence of any of the circumstances that may determine the unfitness of the applicant. However, the elements referred to are not necessary in the case of a credit institution.
In the event of a favourable decision, the DGAE shall notify the interested party to submit proof of compulsory insurance, without which it may not start the activity.
Good standing: pawnbroking may only can engaged in by natural or legal persons deemed to have good standing. Pursuant to this law, the following circumstances are causes of lack of good standing: (i) having been declared insolvent by a judicial decision in the last five years, being liquidated, wound up or having its business suspended, being subject to any ban against the sale of assets or being in any similar situation, or having its case in progress, unless it is covered by a special business recovery plan, under the legislation in force; (ii) having been condemned, in Portugal or abroad, for various crimes referred to in the law, provided they are punishable by a prison term of six months or more; (iii) having been condemned for unlawful or unfair competition; (iv) having been condemned for infringements of the legal or regulatory rules that govern the activities of credit institutions; or (v) being prevented from engaging in commercial activity, irrespective of the cause. In the case of a legal person, these circumstances concern its representatives.
Each appraiser of articles with precious metals and gemstone materials may work for up to three establishments, located in the same district, provided he/she guarantees the appraisal of all the items of this nature pledged.
- Obligations of pawnbrokers
Compulsory insurance: pawnbrokers must prove to the DGAE, each year, through the Balcão do Empreendedor service, the renewal of the insurance contract that transfers liability to an insurance company in the event of loss, misplacement, theft, robbery or fire of items pledged. With regard to value of the insurance: during the first year of activity the minimum value is €100,000.00, per annual period; in subsequent years, the value of the insurance is the average of the appraisals made in the previous calendar year, when this average exceeds €100,000.00.
Compulsory notices to be displayed: apart from the duty of pawnbrokers to have a book of complaints, each establishment where they engage in their activity must display the following in a clearly visible location: (i) copy of the document of authorisation to pursue the activity; (ii) details of the appraisal fees and interest; (iii) proof that the weighing instruments comply with compulsory requirements; (iv) proof of validity of the compulsory insurance; (v) daily prices of gold and of other precious metals, according to the London Bullion Market Association (LBMA); and (vi) table of legal marks, printed by the Contrastaria Nacional (National Assayer’s Office).
Sales to the public: pawnbrokers that display or sell to the public articles with used precious metal acquired in auctions for the sale of pledged items must comply with the provisions of the legal framework for gold and silver working and assayers and corresponding complementary legislation.
Object: all freely tradable movable items may be pledged, with the exception of the following: (i) military articles or uniforms of the armed forces or security forces; (ii) arms and munitions (the previous rules did not mention munitions); (iii) flammable, explosive or toxic materials; (iv) objects especially intended for public worship; and (v) movables subject to registration. It should be noted that the new legal framework, unlike the previous framework, no longer mentions “objects which offend against decency” as tradable movables that cannot be pledged.
Agreement: the loan agreement secured by the pledge must be set down in writing, done in two copies and signed by both parties, one remaining in the possession of the lender, entitled “pawn document”, while the other copy, entitled “pawn ticket” is for the borrower. In addition to the identification of the parties, the contract must contain the following details: (i) the appraisal value; (ii) the appraisal fee and the amount collected in this respect; (iii) the amount loaned; (iv) the interest rate; (v) the start and end dates of the agreement; (vi) the indemnity in the event of loss, misplacement, theft, robbery or fire of the items pledged; (vii) the terms of payment of the loan; (viii) information on the possibility of sale of the object by auction in case of arrears for a period of more than three months; (ix) the terms and conditions for redemption of the items pledged; (x) the rules for the allocation of the balance from the sale of the item pledged; and (xi) information to the borrower that the pawn ticket may only transferred to third parties after prior notification of the lender of the identification of the new owner.
Appraisal of the items pledged: the appraisal must take into account age, artistic value, rarity, state of repair, as well as the type of item, with a view to its resale value. In the event of appraisal of articles with used precious metals, the following must also be taken into account: (i) the daily price of gold and of other precious metals; (ii) the weight of the items; and (iii) the purity of the precious metals in accordance with the legal framework for gold and silver working and assayers. In addition, in these situations the appraisal must be carried out by an appraiser of articles with precious metals and gemstone materials.
Assessment fee: at the time of conclusion of the agreement, the pawnbroker may charge, for the appraisal of the item, an amount deriving from the application of a single fee not greater than 1% of the amount loaned and the lender must inform the borrower of this fee before the appraisal of the item. If this duty is not complied with, as well as the duty to indicate the appraisal fees and interest, such appraisal fee cannot be charged.
Interest rate: the interest rate may not exceed, in each calendar year, 85% of the maximum annual percentage rate (APR) applicable to credit cards to be in effect in the 1st quarter of each calendar year, in accordance with the information published by Banco de Portugal. The law contains more detailed rules on other conditions of the interest rate.
Redemption: the redemption of items pledged requires the prior payment of the amount owed, the accrued interest and, when the redemption of the item takes place during the sale stage, the corresponding sale charge. However, the redemption may be conditional upon advance notice of 5 business days by the borrower, when provided for in the agreement.
With regard to the loan agreement, the new legal framework also contains other aspects, such as the time limits and renewal of the agreement, the maturity of interest, situations of arrears, conditions for payment of the loan and cases of loss, misplacement, theft, robbery or fire of the items pledged.
SALE OF THE ITEMS PLEDGED
Sale of the items pledged: in case of arrears for a period of more than three months, the item pledged may be sold through an auction or directly to entities that, by law, have the right to acquire certain items. Sales by auction must be announced in the forms and with the details set out in the law. The law also provides for rules with regard to the entities which must be informed of the auction, and other procedures.
Balance: once the amounts owed have been deducted, if there is a remaining balance, it shall be given to the borrower, within six months from the date of the sale. If the borrower does not claim the balance within that time limit, 60% shall revert to the State and 40% to the lender.
With regard to the sale of the items pledged, the law provides detailed rules on auctions, as well as the obligations of the pawnbroker after the sales procedure.
- Administrative offences
Notwithstanding any civil or criminal liability, namely for false representations or counterfeiting of the documents supporting the submission of communications, or other documents provided for in the law, the new legal framework sets out a large number of infringements and their fines, as well as additional penalties.
- Transitional arrangement
The licences issued under Decree-Law 365/99, of 17 September remain valid until cessation of business or until any of the requirements for engaging in the activity set forth in the new legal framework has not been met. However, pawnbrokers licensed under that law must, within 180 days from the date of entry into force of the new legal framework for gold and silver working and assayers, inform the DGAE of the identity of the appraisers of articles with precious metals and gemstone materials, at each establishment, and submit their corresponding certified of professional qualification.