By David Harry

Staff Writer

Coastal Trading and Gifts owner Tom Bennett was happy to show off the gold watches he recently bought from a customer.

He said he is happier to know he will soon be allowed to accept watches and other items as collateral for loans because councilors approved a pawnbroking ordinance at their Feb. 17 meeting.

A background check required by the state Bureau of Investigation is under way, Bennett said, and the town council must hold a public hearing before granting him a one-year license for a $100 fee. Bennett expects to begin lending money April 1at his Route 1.

With those steps completed, Bennett said he can begin the business he intended when he opened the store last fall.

Since opening, he has bought tools, gold and electronics from customers, but has not been able to lend money using the items as collateral. Bennett estimates he has turned away 250 to 300 people seeking short-term loans.

Pawnbrokers, who are regulated in Maine by the Maine Bureau of Consumer Credit Protection, can lend money to customers by giving them cash for an item. The item is held for 30 days as collateral and can be sold if the customer does not repay the loan principal and interest.

Interest on loans is capped at 25 percent monthly and 8 percent for loans of more than $8,000.

A local license is needed to establish a pawnbroking business, and Scarborough lacked a governing ordinance until last week.

The lack of an ordinance could have allowed Bennett to get a state lending license for a pawn shop, but the required $50,000 bond and 20 percent in assets to cover loans was too expensive for him to consider, Bennett said.

Councilor Karen D’Andrea, chairman of the ordinance committee, said time to craft the ordinance was needed to ensure steps and considerations were fully covered.

She said she was surprised councilors voted to remove a section of the ordinance that required buyers to keep items on hand for at least 15 days before reselling them. The clause exempted pawnbrokers, who are already required to keep records of any purchase as well as items on collateral, but D’Andrea saw it as a way to ensure stolen items were not resold.

The ordinance committee may take up more regulation of second-hand stores and yard sales, D’Andrea said.

As a pawnbroker, Bennett must keep records of all items used as collateral and the identification of all borrowers.

While D’Andrea said she had reservations about interest rates pawnbrokers can charge and any business that takes advantage of people facing economic difficulties, Bennett said he will be able to provide a service conventional banks do not provide because the loans are too small.

“What is the other outlet for that?” he asked.

Bennett said it is up to him how to treat loans if a customer pays within 30 days.

“I can eat the interest if I want to,” he said.

Items kept as collateral must be locked away for the first 30 days, Bennett said.

Once available for sale, they will be offered at the store and on eBay, he said.

“It is not making me any money if it is sitting on a shelf,” he said.

Staff writer David Harry can be reached at 282-4337, ext. 219