What is the difference between legal pawnshops and loan sharking?

Pawnshop services were first recognized as a conditional business form that enterprises are allowed to engage in, stipulated in Clause 9.1b, Article 9 of Decree 02/CP of 1995. Subsequently, in Inter-ministerial Circular 02TT/LB, issued on October 3, 1995, which provided guidance on Decree 02/CP, the concept of pawnshop services was first mentioned. Accordingly:

- Pawnshop services are a form of money lending that requires the borrower to have collateral to ensure the fulfillment of their obligations as stated in the pawn agreement. The person borrowing money with collateral is called the Pawn, and the person lending the money and receiving the collateral is called the Pawnbroker.- Collateral is movable property, valuable and usable, under the legal ownership of the Pawn, which can be bought, sold, or transferred.

The above circular also stipulates pawn loan amounts and interest rates as follows:

The pawn loan amount shall not exceed 65% of the collateral's value, based on the market price at the time of the agreement. For valuable documents, gold, and precious stones, if accepted by the Pawnbroker, the loan amount can be up to 80% of the value of those assets.

Pawn interest rates and fees: a maximum of 4.2% per month, calculated on the loan amount per pawn transaction. In cases where the Pawn wishes to take a short-term hot loan (under 15 days), the maximum interest rate and pawn fee shall not exceed 0.3% per day.

According to current regulations, to engage in pawnshop services, enterprises must meet the conditions stipulated in Article 4 of Decree 72/2009/ND-CP, which states:

Conditions for businesses to operate in sectors requiring security and order:

1. The head of the enterprise, branch, representative office, and the legal representative of the business establishment must have good ethics, clear background, and not fall under any cases prescribed in Article 3 of this Decree.
2. Business establishments in sectors requiring security and order can only engage in business activities after obtaining a Certificate of Eligibility for Security and Order issued by the competent police authority.
3. Only domestic individuals and organizations in Vietnam are allowed to produce seals. Only units of the People's Army and People's Police are allowed to manufacture, trade, and repair supporting tools and hunting guns.
4. Business locations in sectors requiring security and order must not be in prohibited areas as stipulated by law.

Guiding the above Decree, Point i Clause 2 Article 6 of Circular 33/2010/TT-BCA also provides:

i) Pawnshop services

- When implementing pawnshop services, the business owner must establish contracts as stipulated. The individual pawning or mortgaging must present a valid ID card or Passport for the business owner to verify, compare, and photocopy for retention at the establishment.- For pawned goods or assets that belong to a third party, a valid authorization document from the owner is required.- Pawnshops are not allowed to accept goods or assets of unclear origin or assets obtained through illegal activities.- If there are suspicions that the goods or assets are acquired through criminal acts, it must be immediately reported to the competent police authority for inspection and handling.

Furthermore, current regulations no longer specifically govern interest rates for pawnshop services as in Circular 02TT/LB, but interest rates are generally defined for lending activities, loan agreements, and other civil transactions concerning interest rates as follows: "Interest rates on loans are determined by mutual agreement between the parties but must not exceed 150% of the basic interest rate announced by the State Bank for the corresponding loan type. However, this is provided in Clause 4 on "loan agreements" (Clause 1, Article 476 of the Civil Code 2005).

Thus, if the interest rate exceeds the stipulated percentage, the pawnshop business may be subject to criminal liability for the offense of usury as prescribed in Article 163 of the Penal Code 1999, which states:

1. Anyone who lends money at an interest rate ten times higher than the highest rate stipulated by law, in an exploitative manner, shall be fined from one to ten times the amount of illegal interest earned or subject to non-custodial reform for up to one year.
2. If the offense results in substantial illicit profits, the offender shall be sentenced to six months to three years in prison.
3. The offender may also be fined from one to five times the amount of illicit profits, prohibited from holding certain positions, practicing certain professions, or doing certain jobs for one to five years.

Additionally, acts of accepting deposits, pawning, or lending money at gambling sites (including soccer betting, which is considered gambling) may be fined from 2,000,000 VND to 5,000,000 VND (Point d Clause 3 Article 26 of Decree 167/2013/ND-CP).

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