Falling gold prices are a challenge for cash-for-gold stores now; some have already closed their doors as business has fallen. But those shops could be facing another hurdle: stricter local laws.
The Los Angeles City Council will consider restrictions on where new stores could open and a possible moratorium on new cash-for-gold and secondhand jewelry businesses in an effort to crack down on crime.
Councilman Mitchell Englander, who represents a San Fernando Valley council district, called for a city review on cash-for-gold stores last month because he said they contribute to visual blight and some stores might be accepting stolen goods, thereby encouraging theft.
“We’re seeing a problem here and we should look at it,” he said.
Newport Beach attorney Jon Straub, who represents three cash-for-gold stores in the L.A. area, said he sees an existential threat to the stores because a moratorium could lead to an outright ban.
“This is an example of the government doing the wrong thing,” Straub said. “Prohibiting new businesses does nothing to address the bad business people disobeying the law. Just enforce the existing law.”
The number of cash-for-gold stores in the city isn’t available. However, the Los Angeles Police Department counts 436 granted permits for secondhand jewelry stores in Los Angeles; those include pawnshops and cash-for-gold stores.
Most cash-for-gold stores don’t make collateral loans as pawnshops do. They usually only pay cash for jewelry made of precious metals. The jewelry is then sold to a smelter.
Englander told the Business Journal he called for the review after he learned from the LAPD that thieves were stealing jewelry and selling the hot goods at nearby cash-for-gold stores.
“The LAPD has been having trouble with them for some time,” Englander said. “It’s an easy way to fence stolen goods.”
Capt. Kris Pitcher at the LAPD’s Devonshire Division is working with Englander’s office on the issue. Pitcher said that his unit has been conducting compliance checks at cash-for-gold stores for the past three months. In a sting operation of 10 stores, seven made purchases from people posing as thieves who told the store workers that the goods were stolen. Those who processed the transactions were arrested.
Under current regulations, the stores are required to check and record the identification of sellers and keep the inventory for 30 days so that stolen goods have a chance to be recovered. Sellers also need their fingerprints logged to a Department of Justice database.
Englander suspects the regulations are often ignored, if the results of the sting are any indication.
His motion, passed by the City Council last month, ordered the city’s Planning Department and the city attorney to examine the feasibility of imposing land-use restrictions and a possible moratorium on future cash-for-gold stores. Land-use restrictions typically mandate that specific kinds of businesses cannot open within a certain distance of a school, for example. However, Englander said it’s too early to determine specific restrictions.
He said that existing businesses would not be directly affected by any new restrictions or a moratorium.
Other California cities – Richmond, San Pablo and Carson – adopted moratoriums on cash-for-gold stores. Carson, however, let its moratorium expire in December after council members felt it couldn’t be proved that the stores were linked to criminal activity.
Weeding out the bad
Of course, established cash-for-gold companies could get a competitive advantage if Englander’s measure gets approved. If restrictions on new stores or a moratorium result from Englander’s review, it might be difficult or impossible for newcomers to set up shop.
So Goldmax USA, a cash-for-gold company in Chicago with about 200 stores in the country and 13 in the L.A. area, welcomes any new restrictions. Goldmax’s chief executive, Jordan Sadoff, said they could weed out bad operators.
“We come under heavy scrutiny,” Sadoff said. “If it’s the best for everyone involved, we need to support it. There are some great cash-for-gold operators. There are some not so great. We would support it, being a high-end gold buyer.”
Because Goldmax stores are corporate owned, managers make sure stores are following local, state and federal laws, he said.
“We show them we’re following laws and not a fly-by-night company,” Sadoff said. “We are fortunate enough to open up our stores in the existing areas and locations we want to be in.”
But not all cash-for-gold store owners are happy with potential regulation.
Unlike Goldmax, which already has stores in its desired markets, there are other shop owners who might like to expand if prices rebound in the future, said Straub, the attorney who represents some of them.
For now, new stores would seem to be scarce. Gold has fallen to about $1,300 per troy ounce from a high of $1,900 in 2011. Straub said he knows of no one looking to expand now.
The Business Journal tried to contact several cash-for-gold stores in the last few weeks. No one would speak on the record. Some of the stores visited were in the process of closing.
But Straub said he and his clients fear that Englander’s motion is just the first step in a process that could lead cities to shut down cash-for-gold businesses.
“These laws are knee-jerk and not thought out,” he said.
Englander acknowledged that many of the shops are legitimate, saying his goal is not to harm good businesses.
“Most of the operators are very good,” he said, “but there are a lot that are bad. We need to know the good from the bad.”
