In Tough Times, Pawnshops Boom : More Are Driven Into Hock

Nobody has to tell Fred Rustay, sales manager at Escondido Pawn and Gold Buyers, about the recession.

“Can’t talk,” he said hurriedly one recent afternoon. “I am just packed right now.”

It may seem incongruous, but North County, one of the most prosperous places on the planet, is home to a growing number of pawnshops, most of which are doing a hectic business.

Pawnshops have long been seen as refuges for scoundrels, gamblers, drug addicts and thieves. Not so any more.

California’s 513 pawnshops are heavily regulated, primarily by the state’s Business and Professions Code and the California Financial Code. The California Department of Justice conducts a background check on every applicant seeking to open a pawnshop. Any conviction for a property-related offense is grounds for exclusion. Each shop is licensed by the local law enforcement agency.

“It has been my experience that your pawnshop owners and operators are honest people,” Oceanside police Sgt. John Lamb said. Lamb said new laws have turned the old image of pawnshops as holding tanks for stolen goods into history.

Detectives with the Escondido Police Department and the San Diego Sheriff’s Department agreed.

According to Dennis Hooker, president of the Collateral Loan and Second Hand Dealers Assn. of California, that response is not an accident. The association has been waging an aggressive education campaign designed to attack that past image.

Hooker and other pawnbrokers talk of their stores as “a service” and “like a small bank.”

Perhaps because of the image work by the state pawnbrokers association and new laws that make it more difficult for a thief to pawn stolen property, a new clientele is discovering that pawnshops can be a quick source of easy cash in hard times.

“We have people from all areas,” Christine Harvey, a manager with San Marcos Jewelry and Loan said.

“We have lots of small business people coming in who can’t pay their people.”

Just ask the Temecula-based contractor who wandered into San Marcos Jewelry and Loan clutching his gold and stainless steel Rolex.

“I’d prefer you not use my name, it could be a little embarrassing,” he said. “I don’t want my customers to know.”

Those customers, it turned out, explained why he was pawning his watch. The recession has forced customers to put off paying him, which, in turn, means he has not been able to pay his workers. For a while, anyway, his workers will live off the proceeds of his watch.

Over at Rustay’s place, the construction slowdown story is told even more vividly in the rows of hand and power tools pawned by construction workers.

And the recession ripples.

A 23-year-old secretary, who also declined to allow her name to be used, walked into a North County pawnshop with a gold bracelet. It was her second trip to the shop in three days. A friend borrowed some money and had not been able to pay it back. The pawned jewelry paid for gas and bills until the friend could come through.

“I’d prefer not to have to do this,” she said. “I was kind of afraid to come in.”

Harvey pointed to a framed Erte lithograph pawned by a woman business owner who used the money to pay her small staff.

“One guy came all the way from Newport Beach with a Fender Broadcaster (guitar). We have one old couple from Rancho Santa Fe. I have all her jewelry. They are just having a hard time right now. We also have a lot of everyday people. There’s one husband, a contractor. He needed money to finish a job, so he pawned his wife’s wedding ring and tennis bracelet. Lots of young mothers come in for a $5 loan because the kids need diapers. I have had someone who has paid $8 in interest on a $5 loan.”

So you’ve been caught in the crunch and want to know if a pawnshop might be the answer? It depends on the question.

The best use of a pawnshop is simply as a bridge between flows of money. If you need a little cash for a month or so and know that a big check is coming your way, a loan from a pawnshop will get you over the short-term crisis. When the new money comes in, you can simply pay your loan and the interest and retrieve your property.

But if you aren’t sure that the new money is coming, or you question your ability to pay off the interest, you may have to kiss your goods goodby.

If you decide to try a pawnshop, be warned that pawnshops have different looks.

Some look more like jewelry stores, others fit the traditional mold of warehouses of everything from deadly looking machine guns to children’s bicycles. Some feature floor displays of motorcycles.

In what may be a sure sign that music is a poor way to make a living, almost every pawnshop features a dozen or so guitars hanging from the ceiling.

When you first come to a pawnshop, you may be surprised at how quickly the shop’s workers size up that sentimental ring or the saxophone you played in the school band. They don’t care how much it may be worth in your eyes. Their only concern is how much it will fetch if you do not pay off your loan.

For example, when the young secretary first visited the pawnshop, she pawned a gold bracelet, a gold sapphire ring, a ruby ring, a pearl pendant and two other gold rings. That stash netted her just $100.

As a rule of thumb, pawnbrokers like to give only about 10% of the retail value of an item. If the item is something that will appreciate or hold its value, you could get more, maybe up to half the value.

When a pawnshop buys something outright, as many do, they will pay up to half the wholesale value. Keep in mind that the shop sets the value, so their wholesale may not be your wholesale.

Some pawnshops will not accept very expensive items, such as artworks. Some have self-imposed lending limits. They may not lend more than $100 or $500 no matter what you bring in. Others have no limits. Harvey, for example, loaned $2,500 on the Erte litho and even more on the Fender Broadcaster, a classic guitar appraised at $10,000.

After deciding on how much your item might fetch as a loan amount, you will be required to fill out a form of “pledged property” and show a valid photo identification such as a driver’s license.

As a further precaution against thieves, you will be asked to give a thumbprint on the form. The thumbprint and the description of the property is then submitted to the local police agency, which, in turn, submits it to the state Department of Justice. The property descriptions are cross-checked against lists of stolen goods.

“Only stupid crooks would try to pawn stolen goods now,” Lamb said.

(Which is not to say there are no stupid crooks. According to Escondido detective Hal Espy, some thieves still try to use pawnshops, gambling that the police don’t have time to keep track of it all. Unfortunately, he says, the thieves are right and so sometimes do escape attention.)

After you fill out the form, and turn over your goods, you’ll be given the cash. But this is a loan, and every loan carries finance charges. And pawn shops have not heard about falling interest rates.

On the secretary’s $100 loan, for example, the shop charged an annual percentage rate of 44%. A $50 loan will cost you $9.50, including a $2 state imposed ticket-writing fee, for an annual rate of 57.6%.

These charges are the maximum allowable under state law, and most shops go for the maximum.

“We don’t make money on selling people’s stuff,” Harvey said. “We make money on the interest.” No wonder pawnshops prefer customers who retrieve their goods.

The loan period changes from shop to shop, but generally you will have four or five months to retrieve your goods.

Most pawnshops set the loan period at either 20 or 30 days. If you wish to renew the loan, you usually have to pay the interest on that loan at the end of the loan period. If you do not retrieve the property or renew the loan, the property legally belongs to the shop.

Practically speaking, however, the goods are still yours a bit longer. State law requires pawnshops to give borrowers four months to redeem their property, plus 10 days for the shop to notify you that the four-month period is over.

You want to make sure the pawnshop takes some security precautions because if your goods are stolen while they are in hock, you’ll take a loss. The shops are only liable for damages up to 10% of the loan. In other words, the secretary who pawned her jewelry for $100 is entitled to $10 if her jewelry is stolen from the store.

It may not be your first choice, but pawnshops can fill a short-term need. Just be sure to deal with a pawnshop in which you feel comfortable. There are wide variations in the atmosphere, clientele and merchandise at different shops.

Those in the business recommend you choose one that is a member of the collateral loan association. Always be sure the shop is licensed and that it displays an interest rate sheet and explains any additional charges, such as storage fees, so you know exactly what turning that special piece of jewelry into cash will cost.