Court fight over pawned accordion highlights how many brokers' interest rates are illegal

The owners of a pawn shop in the Fraser Valley say they were shocked to learn their interest rates are criminal, after a judge ordered them to reimburse the former owner of a vintage accordion.

In a judgment issued last week, B.C. provincial court judge Kristen Mundstock said the Pioneer Trading Post in Agassiz could not legally charge 25 per cent interest monthly on a three-month loan agreement. The accordion was left as security. 

"I find the defendants entered into an agreement to receive interest at a criminal rate because they charged an effective annual interest rate of 300 per cent," Mundstock wrote.

The Criminal Code of Canada defines a criminal interest rate as anything over 60 per cent annually.

Mundstock acknowledged that the pawn shop's operators, Tracy and Adrian Davies, were unaware that their interest rate was illegal. But she ordered them to pay the accordion's former owner $3,397 for the estimated value of the 1978 Excelsior accordion, minus the $500 loan, which was never repaid.

The decision has left the Davies feeling perplexed, but it's also shed some light on an industry where the law may not be strictly enforced.

Tracy Davies told CBC that she and her husband are planning to appeal the judgment, and they'll be updating their loan agreement.

"Getting this [judgment] in the mail, I'm like, 'are you kidding me?'" she said.

She says she's spent the past few days frantically Googling pawnbroker interest rates and calling up other Lower Mainland pawn shops to ask what they charge.

Davies said her shop's rates are in line with those of other shops, and CBC has confirmed that many other brokers in B.C. charge between 10 and 30 per cent for a pawn loan with a month-long term. 

Under the terms set out in the Criminal Code, the legal monthly interest rate is just five per cent.

A 2002 report on profit-driven crimes prepared for the Department of Justice confirms that illegal interest rates of 20 per cent or more are routinely charged by pawnbrokers in major cities.

"However, police who visit them look only for stolen goods; they only infrequently query the rates," the report says.

'Very risky' loans

Prosecutions aren't unheard of, though. In 2006, a Calgary pawn shop owner was convicted of usury after charging an effective annual interest rate of 207,981 per cent.

The British Columbia government describes pawnbroker loans as "very risky" and says that anyone who has a concern about a pawn shop loan should contact Consumer Protection B.C. A spokesperson from the agency declined to comment for this story, but confirmed that pawn shop interest rates are governed by the Criminal Code.

Pawnbrokers are not regulated in B.C., and any licensing requirements are implemented at the municipal level. Agassiz does not require special licensing for pawn shops.

The Davieses represented themselves in court during the dispute with the accordion's original owner, Garry Lawrence Hemminger, and they're currently speaking with lawyers about proceeding with an appeal.

But Tracy Davies said it's "ludicrous" to be ordered to pay thousands of dollars to Hemminger, who didn't pay any interest on his loan or repay the $500.

The judge acknowledged the Davieses didn't enter the agreement with an "illegal purpose or evil intention" and that Hemminger understood the agreement he was signing.

"The claimant therefore received a benefit from this transaction. To allow the pawn agreement to be set aside entirely would give the claimant a windfall," Mundstock wrote.

According to her judgment, Hemminger reappeared at the pawn shop the day after his three-month agreement expired, asking for an extension. Tracy Davies refused, saying the instrument was already sold.

"Tracy Davies acknowledges she had not in fact sold the accordion but she was tired of dealing with the claimant and wanted to be finished with him," Mundstock wrote.

The Davieses later sold the accordion to someone else.