Untitled Texas Attorney General Opinion

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The Attorney General of Texas
August 22, 1978
JOHN L. HILL
Attorney General

Honorable Sam Kelley Opinion No. H-1231
Consumer Credit Commissioner
Office of Consumer Credit Commissioner Re: Whether banks which take
P. 0. Box 2107 physical possession of tangible
Austin, Texas 78768 personal property as collateral
for loans are required to comply
with the provisions of the Texas
Pawnshop Act.

Dear Mr. Kelley:

You have requested our opinion as to whether the Texas Pawnshop Act,
artic?e 5069-51.01, e; seq.,, V.T.C.S., is applicable to state banks which take
physlcal possesslon o tangible personal property as collateral for loans.

The Pawnshop Act prohibits any person from ” engag[ingl in business as
a pawnbroker without first obtaining a license from the [Consumer Credit1
Commissioner.” V.T.C.S. art. 5069-51.03. “Pawnbroker” is defined as “any
person engaged in the business of lending money on the security of pledged
goods,” and “person” includes every “corporation . . . or any other legal entity
however organized.” V.T.C.S. art. 5069-51.02. We have been advised that a
borrower occasionally secures a large loan from a bank by pledging valuable
jewelry or a rare coin collection. As a rule, such collateral is held in the
physical possession of the bank and in those instances, you ask whether the
bank must qualify as a “pawnbroker.”

Under the Banking Code, a state bank is empowered to ‘lend money
with or without security at interest.” V.T.C.S. art. 342-301(a). In its
statement of purpose, the Banking Code provides: “This code provides a
complete system of laws governing the organization, operation, supervision
and liquidation of state banks. . . .” V.T.C.S. art. 342-101 (emphasis added). In
Robertson v. State, 406 S.W.2d 90 (Tex. Civ. App. - Fort Worth 1966, writ
ref’d n.r.e.1, the court held that, by virtue of this statement of purpose, a
provision of the Texas Business Corporation Act regarding cumulative voting
is not applicable to the election of directors of a state bank:

Surely the Legislature has in plain words with clear
meaning spelled out its intent that the operation of

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state banks shall be controlled by the ‘complete’ provisions
of the Texas Banking Code, subject to such future legislation
as may be enacted by it for the ‘regulation of such banking
institutions.’

406 S. W.2d at 94.

Although we need not determine the outer boundaries of the Robertson
doctrine, we believe the court’s language in Robertson requires the conclusion that
the Pawnshop Act is not applicable to state banks. A number of restrictions which
the statute places on pawnshops are not present in the Banking Code, and are
contrary to banking practice. A pawn loan, for example, may not exceed the sum
of $2,500, whereas no limitation is placed on the amount of a secured loan made by
a state bank. V.T.C.S. art. 5069-51.12. See Attorney General Opinion H-49 (1973).
The pledgor in a pawn loan has no personal obligation to repay the amount
borrowed, while one who borrows from a bank assumes personal liability for
repayment. V.T.C.S. art. 5669-51.U. Finally, the default of a pawn loan transfers
title to the pledgee, regardless of the amount of money originally paid to the
pledgor, whereas a bank, following default, must account to the debtor for any
amount which exceeds the amount of the loan, plus an additional amount for
interest, costs, and attorneys fees. It is our opinion, therefore, that the Texas
Pawnshop Act is not applicable to state banks which under normal banking
practices take physical possession of tangible personal property as collateral for
loans.

You also ask whether lenders regulated by chapter 3 of article 5069, other
than state banks, must comply with the provisions of the Pawnshop Act if they take
physical possession of tangible personal property as collateral for loans. Unlike the
Banking Code, chapter 3 of article 5069 does not purport to furnish a “complete
system of laws” governing the transactions described therein. Thus, it would
appear, absent some other statute, that any lender which is regulated under chapter
3 of article 5069, must also comply with the provisions of the Pawnshop Act if it is
“engaged in the business of lending money on the security of pledged goods.”

SUMMARY

The Texas Pawnshop Act, article 5069-51.01, et seq.,
V.T.C.S., is not applicable to state banks which under normal
banking practices take physical possession of tangible
personal property as collateral for loans, but it is applicable
to other lenders regulated by chapter 3 of article 5069,
absent some other statute.

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Attorney General of Texas

APPROVED:

C. ROBERT HEATH, Chairrian
Opinion Committee

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