Recession Has Been Shot in Arm for the Pawnbroking Business

Much like a bartender, a pawnbroker sometimes hears the most intimate details of a stranger’s life, said Pomona pawnbroker Michael Norton.

Customers who come into Sheila’s Loan & Jewelry often confide in Norton, explaining why they cannot pay the rent, the phone bill or car installments. They sometimes tell him they have no money to bury a family member. Young couples explain how they have fallen in love and want to buy wedding rings at a good price.

The 27-year-old shopkeeper and his mother, co-owner Sheila Norton, said that, recently, they have heard more and more stories from people who are unemployed, laid off or receiving pay cuts.

During the last year in Pomona alone, General Dynamics, a defense subcontractor, laid off scores of workers and Faberge, a cosmetics manufacturer, shut down its Pomona facility completely, city officials said.

“The last two recessions didn’t really affect most Californians,” Michael Norton said. “But this one is taking a lot of people by surprise.”

Likewise, pawnshop business statewide has increased 5% since 1990, said Dennis Hooker, president of the Collateral Loan and Secondhand Dealers Assn.

“The backbone customer is still the blue-collar worker,” said Robert Hammond, 31, owner of Monrovia Jewelry & Loan, “but with times harder, you see more middle-class and affluent customers.”

Hammond--a Rotary Club member and an active participant in the Monrovia Chamber of Commerce--believes that he represents the “new age” of pawnshop owners. The boyish-looking merchant cheerfully greets his customers and makes a point of always wearing a shirt and tie.

Hammond said he issued about 33,000 loans during the past year, double the number from 1990. And the Nortons reported a 20% to 30% increase in such transactions in the same period.

Pawnshops operate by either purchasing merchandise outright for resale or accepting the items as collateral for loans. Most income, however, comes from making loans. A borrower must repay the loan within about five months, or can gain more time by rewriting his application. If the borrower fails to meet the obligations, the property is forfeited.

According to Hooker, most shopkeepers offer loans and purchase merchandise for about 50% of an item’s resale value. State-regulated interest rates range from 120% on a $10 loan to 21.58% on loans of $2,400 or more.

“Many people come in here with a lot of unrealistic expectations, especially if they’ve never been in a pawnshop before,” Michael Norton said.

A customer might automatically expect a $500 loan for a ring he purchased for $1,200, he said. However, such a ring can merit a loan worth anywhere from $25 to $300.

“Jewelry depends on so many things,” Michael Norton explained. “Is it rare? Do I have others in stock? What is its quality? Can I move it quickly?”

Stereo equipment depreciates rapidly, he said. Firearms are very stable. Guns usually provide loans for one-third to one-fourth of their retail value.

Hammond observed that more customers have been redeeming their loans. In 1990, about 89% of his loan applicants retrieved their collateral; in 1991, about 93%.

“It’s a different class of borrower,” he said. “It’s more middle-class America, and they honor their debts.”

Michael Norton said the percentage of customers who paid off their loans has remained steady at his store, but noted that more people are extending their applications.

“They want to keep their possessions,” he said. “And they need the extra time.”

But at the Azusa Pawn Shop, owner Jack Robinson said more people are abandoning their merchandise. But he agreed that his clientele has changed and sales have picked up.

“People used to think that only lowlifes who needed drug money came here, but it’s changed,” he said.

The influx of new customers has brought different items into the pawnshop, where the staples were once guns, jewelry, electronic equipment and musical instruments, pawnbrokers said.

Power tools first appeared when the construction industry began declining several years ago. Now, they fill many stores’ shelves.

Some local stores have even begun accepting automobiles as collateral, a trend that began about three years ago in Texas, Hooker said. A BMW, a Jaguar and a six-wheel truck are just some of the vehicles awaiting their owners to repay loans at Hammond’s Monrovia store.

“Being more affluent, my customers are bringing in more expensive items,” Hammond said. He stores the cars in a sheltered, secured and privately owned lot whose location he keeps secret for security reasons.

In fact, hocking cars has grown so popular that used-car dealers began applying for pawnbroker’s licenses for the first time this year, said Chris Okubo, property analyst with the state Department of Justice.

“It was quite unexpected,” he said of the new applicants. About eight licenses have been granted to at least 15 dealers who applied.

Baseball cards also have become common collateral, merchants said.

“People used to want to hold on to their treasures, especially collectibles,” Robinson said, adding that baseball cards now account for 15% of his loans.

Sales are rising at all the stores, shopkeepers said.

“There’s an increase because we provide bargains,” Hammond said. “For example, we sell gold for about $9.75 a gram. The Jewelry Mart sells at about $12.75 a gram, and regular retail stores will sell for as high as $77.75 a gram.”

Recycling has also altered people’s perceptions of pawnshops, Norton suggested. Reusing materials is not only economical but ecologically wise, he said.

“Handling used goods used to be considered a dirty business,” Norton said. “As people hear about recycling, they realize it’s OK, and it’s becoming more popular.”

Hooker, along with most of the pawnbrokers, is optimistic that the economic downturn will be only temporary because, statewide, 80% to 90% of borrowers are reclaiming their collateral.

“It’s down, but not out,” Hooker said. “If people were (just) dumping, we’d be in trouble.”