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BRAVE USED WORLD: Secondhand Surprise

10 May, 2004 By: Holly J. Wagner

Imagine going to work at your entertainment store one day. A customer comes in offering to sell used DVDs or games and, because the store buys used product from consumers, you take a look. You buy the discs at your customary payout. Next thing you know, the long arm of the law is closing your store because you failed to take the proper information from the person selling the discs. Or you put the product into your previously viewed stock right away, and the law informs you that you were supposed to keep it around for a while before you sell it.

Welcome to the Brave Used World.

The issue is just starting to arise. In a recent survey of independent video retailers conducted by Video Store Magazine Market Research, just 5 percent reported taking movie or game trades from consumers. Just 2 percent of survey respondents reported that their city or state requires them to hold used goods before reselling them. But the reality may be quite different.

Virtually every state has a pawnshop law, which may extend to other dealers in used goods. Pawnshops are required to record information about their transactions, to report them to local authorities on a regular basis and to hold goods for specified periods of time — typically nine to 30 days — before selling the goods to others.

Some states have separate secondhand-dealer laws that specify they extend beyond pawnshops. The variance in what they require is broad. Most include a license and a fee, and set rules for what information merchants must collect from people selling used goods and record it for inspection by authorities.

Laws Aim to Stop Crime

The laws arose from a desire to prevent trafficking in stolen goods, and most initially were applied to items like guns, power tools, audio/video equipment and other items that are often taken in burglaries and have serial numbers or other identifying marks. But with the popularity and cash value of DVDs, authorities are increasingly looking to track businesses that trade in large quantities of packaged media.

“We had a guy who was a cocaine addict, and he was doing burglaries. He did about 50 in two months' time ... We yanked the records for about half a dozen pawnshops, and we noticed a lot of people selling DVDs — 20, 30, 40, 100 — almost daily. We knew they were stolen,” said Edward Glomb, chief of police for the Detroit suburbs of Franklin and Bingham Farms. He's not alone.

“We had one kid come in to sell CDs with a Wal-Mart vest on. He was on his lunch break. He came to a pawnshop when the police were there,” said Wayne County assistant prosecutor Dennis Doherty.

Wait, Is That Legal?

For dealers, especially those with multiple stores, it can be a regulatory minefield to navigate.

“The difficulty is that there may be a framework at the state level, but secondary sellers are regulated at the county or city level, so these things are a patchwork and there is no uniformity of how CDs and DVDs are treated,” said Sean Bersell, VP of public affairs for the Video Software Dealers Association (VSDA). “It is incumbent upon anybody who is involved in buying and reselling previously viewed videos and video games to be aware of the state and local laws that govern that trade. It may take a little bit of digging on their part to find out where that law is. The best approach is to have their business lawyer advise them on that particular requirement.”

The range is wide. Regulations may require as little as getting a photo ID from the seller, or as much as taking detailed information and entering it into a computerized system for daily or even real-time transmission to local authorities. Most jurisdictions require that used goods be held for a period of time before resale. Some apply only to cash transactions; others govern store credit trades as well. Some define secondhand dealers by the percentage of their business that is used goods, others by what type of goods they sell.

Retailer 0, The Law 1

In Chicago, Johnny Balmer fought the law, and the law won. At least for now.

The owner of five Second Hand Tunes stores in the Chicago area filed a federal lawsuit against the city in 2002, when officials moved to include the words “digital audio disc” and “digital video disc” to its secondhand dealer law. The reasoning, according to one police official, was that CDs and DVDs were stolen in 80 percent of residential burglaries.

The change, however, forced Balmer and others like him to start recording much more detailed information about sellers than they had in the past, as well as paying a $500 annual fee to the city for a secondhand dealer permit and having the owners fingerprinted and background checked.

“We have always required that anyone selling product to us have a valid photo ID, whether that be a passport, state-issued ID or a driver's license. That is just a common sense thing,” Balmer said. “I thought it was strange that the city decided to go a step further and get a Social Security number and hold product for 30 days before putting it out on the shelves. I would never ask a customer for a Social Security number, especially in this day and age of identity theft.”

Steps to Avoid Getting Burned

Businesses have a variety of practices to avoid buying stolen goods. Among the 12 percent of merchants who told Video Store Magazine Market Research they buy used product, 47 percent take a driver's license number, 20 percent only buy from store members, 13.3 percent ask for the original sales receipt, 7 percent won't buy items that are still in a factory wrapper and 7 percent give store credit only. (Multiple responses were allowed.)

Authorities recommend, at a minimum, getting the seller's ID.

“Hopefully people who have stolen stuff will be reluctant to bring it to secondhand shops and try to sell it if they have to give an ID,” Doherty said.

It doesn't always work. In a recent post to the VSDA discussion board, Bill Duggan of Videoport in Portland, Maine, said he only gives store credit.

“A young man sold one of my clerks 10 used DVDs, all new releases, with multiple copies of some titles ... This young man had no problem doing that because he did not care about the repercussions of selling stolen merchandise. He was a junkie,” Duggan wrote. Like law officers, Duggan recommends only trading in store credit to reduce problems and watching for irregularities.

“If someone comes in with 10 copies of the same DVD and they are all new, that should be a clue,” Doherty said.

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