THE PAWNBROKER : Recession Leaves Mark in Over-the-Counter Lending

Never mind the Commerce Department and all those dueling bank economists. Pat Murtagh knows just when the recession started.

It was more than a year and a half ago. That’s when he noticed that four out of five people who hocked things at his Reseda pawn shop, Traders Inc., couldn’t afford to reclaim them.

Normally, about half of Traders’ borrowers redeem their loans after the initial five-month term. But these days most just keep scraping together the interest payments and renewing their loans, again and again.

While their customers are hurting, Murtagh and his partner of 38 years, Paul Trietsch, do a brisk business. Their loan volume is up more than 20% over last year. “Throughout the country, pawn shops are doing well,” Trietsch says.

When the economy is weak, pawn shops typically thrive as people look for quick ways to raise cash. Murtagh and Trietsch loan customers up to half the amount they believe they can sell an item for.

They charge annual interest rates ranging from 20% to 60% or more, depending on the collateral--the more it’s worth, the lower the rate.

This downturn is particularly severe, Murtagh says, because it is a meeting of the borrowing binge of the ‘80s and the credit crunch of the ‘90s.

With personal and business loans harder to get, and many credit cards already at their limit, pawn shops--traditionally, lenders of last resort--are seen by some as the only way to survive a cash squeeze.

Murtagh says all of his customers feel compelled to tell him why they’re pawning their possessions. Lately he hears the same story day after day. People aren’t borrowing for vacations, suits or cellular phones.

“They’re borrowing $500 for food on the table,” he says.

About half of Traders’ revenue comes from sales of goods that it buys outright or collects when borrowers don’t make their loan payments. In a normal year, the store does about $1 million in sales, but this year sales are slow--as they are for most types of consumer goods.

But the increase in loan volume has more than compensated. Overall, the shop’s revenue is up 15% over last year, Trietsch says.

On a recent Friday morning, he and Murtagh prepare for the expected onslaught of debtors coming in to renew their loans. It’s a “roller skate Friday;” every other Friday, Trietsch says, is when loans come due. The Traders staff must scramble to handle the traffic.

With the demand for loans so great, Traders’ biggest problem is keeping enough cash on hand. Even so, Murtagh says, he sometimes can’t bring himself to sell items that haven’t been collected by longtime customers.

Throughout the shop, signs of a tough economy are everywhere. In normal times, Traders might have three power drills for sale. But with the construction industry on the skids, more than a dozen are on display.

Cabinets are filled with diamond rings, guns and watches. Televisions, VCRs and compact disc players line the shelves. Guitars hang from the walls.

And there are plenty of hard-luck stories. One customer pawned a VCR for $70 in Christmas money.

Another paid $10 in interest to renew his $17 in loans. “He couldn’t come up with the extra,” Murtagh says. “That shows you how tight things are.”