What Should Be the Rules Regarding Cash for Gold?

Last month, Congressman Anthony D. Weiner (D-NY) all but declared war on Cash4Gold, which describes itself as the world’s number one consumer gold buyer. Weiner asked for an FTC investigation of the company and is introducing the GOLD (Guarantee of a Legitimate Deal) Act to curb perceived abuses in the mail-order gold-buying business.

In the short time it’s been around, Cash4Gold has made a lot of noise, and, it seems, a lot of money. Last year’s Superbowl ad, featuring Ed McMahon and M.C. Hammer, undoubtedly raised awareness of the company, but that can be a mixed bag, as it also brought a considerable amount of controversy.

The charges against Cash4Gold are twofold: The more serious ones are that the company sometimes falsely claims their customers’ jewelry gets lost in mail, and melts down its customers’ jewelry before the supposed refund period, making refunds impossible. These allegations — and let me stress, they are just that, allegations — were put forth in a recent class action lawsuit against the company, which can be seen here (PDF).  It is these alleged abuses this new legislation seeks to curb.  Cash4Gold strongly denied all these charges in its response to the lawsuit, and has denied similar charges in the past. (Here is a post on its blog.)

The second, more complicated, issue, is that the company underpays for the gold it receives. Now, underpay is a relative term. Many independent jewelers regularly offer about 50% of an item’s value – a nice mark-up.  However, Cash4gold, by its own admission, offers less than that most jewelers and pawnshops — Weiner puts the standard percentage at 11 to 29 percent. This is perfectly legal, but I think we all agree, a little low.

Cash4Gold is not alone in this — many of its mail-order competitors offers similar percentages, Weiner says. They say they make up for the low prices offered with their convenience and discretion. But it raises the question: Should there be an industry standard on how much should be offered for “scrap”? Should the rates be disclosed to consumers? Any thoughts?

(On a personal note, for a company that has received an amazing amount of negative press, Cash4Gold is also very image-conscious. Last year, a PR person sent me a nasty email because I linked — that’s right, linked — to an LA Times article that she said was inaccurate. The LA Times was about to run a correction, she said. Well, it’s been about a year later, and I don’t see a correction, and my link is still there. I later googled the PR person and found out that she used to work for the Times and had won a Pulitzer.  That was the most depressing google of my life.)

UPDATE: Good comments, but let me clarify one thing: I don’t think there will be, nor do I particularly favor, government regulation of gold buying (other than the standard rules to prevent fencing and money laundering, and of course the Patriot Act.) I was asking if there should be an industry standard. The bill in question, which you can see at the link above, only means to regulate online purchasers and deals with insuring shipments and promptly returning customers’ jewelry.

JCK News Director