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Posted By FFL Dealer Network on 08/03/2018 in FFL Business

Pawn Shops and the Type 02 FFL



Pawn Shops and the Type 02 FFL

Looking at the of Federal Firearms Licenses (FFLs), and those who write about them, everyone says Type 01 and Type 02 FFL are identical except 02 is for pawnbrokers

To explain, a Type 01 and Type 02 FFL allows the person to buy and sell firearms, except for destructive devices. With the appropriate Special Occupational Tax permit, either license holder can also sell full-automatic and other restricted items. 

Why did the Bureau of Alcohol, Tobacco, Firearms and Explosive BATF create a separate category for pawnbrokers? The BATF Pawnbrokers gun sale rules are the same as for a Type 01 license holder. 

The BATF never really answers that question even in the giant reference guide. A reason is found in the questions on "Pawnbrokers" webpage, but not the answers. 

Question number four on the page puts it best: "To whom may a pawnbroker return a pawned firearm?" 

Pawnbrokers make loans, taking personal property as collateral. When a person pawns a gun, it is not being sold. It is held to guarantee repayment of the loan with interest. The pawned item is not meant for resale. 

Of course, the gun can be sold if it is not redeemed by the owner. 

A type 01 license holder buys a used gun with the intention to resell it. The owner has no intention of coming back to get it. 



A BRIEF HISTORY 

Pawn shops, whether rightly or wrongly, have a reputation as being a place where questionable deals are made. A brief history of FFLs and the changes made over time bear this out. 

The 1938 Federal Firearms Act created the federal firearms license system. The entire law is available here. The law gave the BATF the power to create license types. 

Why the BATF decided to carve out a Type 02 license for a pawnbroker is probably lost to time. Certainly, the 1938 Federal Firearms Act was part of an attempt to rein in organized crime. Perhaps by creating a separate license for a pawnbroker, the BATF reasoned local law enforcement would keep a closer eye on the place v. how much they watched a regular gun store. 

Is that extra attention needed? "As compared to dealers, pawnbrokers experienced illegal purchase attempts (for guns) and theft more frequently, even when controlling for other factors that have been identified in prior research," says a report from Injury Prevention.

Another clue to the thinking is found in a bill introduced in the Senate in 1964 by the late Senator Thomas Dodd

Sen. Dodd introduced a bill to further restrict such shops from doing business in firearms. "It raises the license fee to ten dollars for dealers and fifty dollars for manufacturers and pawn-brokers, in an attempt to restrict these classifications to persons doing a bona fide business in firearms," says the University of Chicago Law Review

REGULATION 

A further reason could be the regulation these businesses come under. Pawn shops often have local restrictions that do not apply to sporting goods stores. Most communities have pawn brokers turn in regular lists of items brought in for sale or pawn. Gun lists certainly get attention from local law enforcement. 

WHICH IS BEST? 

Which license is best? That is a decision the person applying for an FFL must make. If the FFL is for a home-based business, a Type 01 is the best choice. A Type 02 FFL means the license holder and the location where the license is based must meet local business and zoning codes for these kinds of businesses. A home-based FFL can often be placed in a house where zoning allows small home-based businesses. A pawn shop does not fall under that zoning code.




  1. How to Get an FFL
  2. FFL Application Process and Procedures
  3. Your FFL Transfer Fee
  4. Gun Wholesalers for FFL Dealers
  5. What Can You Do With an FFL?
  6. The FFL eZ Check System
  7. The NFA and Owning NFA Items
  8. Offline Firearms Marketing and Your FFL Business Plan
  9. Online Firearms Marketing and Your FFL Business Plan
  10. Pawn Shops and the Type 02 FFL
  11. FFL Responsibilities and Regulations
  12. BATF Will Approve Home Based FFLs
  13. Customer Service in Your FFL Business

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