Despite cleanup effort, pawnshops hardly rate as bargain boutiques. They’re a last resort for cash, few questions asked. : Buying a Little Time
People are timid about pawnshops. They see the cases of gold jewelry, the guitars hanging from the ceiling, the shelves of cameras and guns. It’s tantalizing but also forbidding.
“I’ve looked in pawnshops but never gone in,” says Annette Sloan, a college teacher in Scranton, Pa. “You figure they’re full of things that were dear to someone--Aunt Lily’s brooch--but you’re intimidated, both by the look of the place and the merchandise. It’s like following the hearse, benefiting from the hardship that brought the person to the pawnshop in the first place and then kept them from coming back.”
Historically, the pawnshop image is equally mixed: People have heard the story of Queen Isabella pawning her jewelry to finance Columbus’ voyage to the New World. They think of gold gambled, gold sought, riches waiting.
But they also remember Rod Steiger as “The Pawnbroker” in 1965, grimly doling out cash to desperate people. They hear the stuff may be stolen. They note that pawnshops aren’t on the best boulevards.
Now we’re hearing about upscale pawnshops catering to the chic, about chains of clean, well-lit places in Middle America’s malls, about pawnshops as virtual boutiques full of recession bargains. You could do your Christmas shopping there.
Sure, and I’m Queen Isabella.
Pawnshops are no boutiques--not then, not now. They may sell off the unredeemed goods, but not always to consumers and not always at bargain prices. They’re basically moneylenders, and on the far periphery of the field. If pawnshops had, as loosely estimated, a billion dollars in loans outstanding at the end of last year, it’s still minute--half of 1%--compared to the $166 billion carried on bank cards.
What’s new is an active industry trade association, which in six years has built its membership to 1,500 of the 10,000-plus pawnshops nationwide. In addition, five pawnshop chains have gone public since 1987, with some fanfare. Texas-based Cash America, the largest, has 233 pawnshops in the United States and Britain and a listing on the New York Stock Exchange, and it wants to broaden the market, from downtowns to suburbs, from blue-collar to middle-income, from borrowing to buying.
It sure looks like a growth industry. Pawnshops declined when credit cards and automated-teller machines began providing almost universal access to cash and credit, then multiplied when banks abandoned low-income neighborhoods and discouraged small customers with new fees and charges. More than ever, pawnshops are important as “banks for the little man,” wrote economist John Caskey in a 1989 study, “Pawnbroking in America.”
But the picture is mixed. The recession is bringing in some new customers: “People go to pawnshops who never would before,” says Detective Mark Myrdahl, the officer in charge of the pawnshop section at the Los Angeles Police Department, “and they’re bringing in business machines, computers, studio film equipment.”
The business is also losing customers when “they go where there’s work,” says Michele Rosenblum, a spokeswoman for Cash America in Ft. Worth. Moreover, she adds, “forfeitures are up, but it’s harder to sell (the goods).”
A new image wouldn’t hurt, particularly if it drew people with money to spend into the stores. Things have already changed some since “The Pawnbroker,” thanks to regulations in most states intended to clean up the pawn transaction and the pawn goods.
Rules on reporting discourage the dumping of stolen goods. In California, for example, dealers must see identification and take a thumbprint from everyone who brings in something to pawn--anything. They fill out a form describing each item and noting any serial number and file one copy with local police. This description is then entered on an automated system, a network that matches goods stolen with pawned goods, though it may take some “gumshoe work,” says Myrdahl.
It’s apparently successful for retrieval and discouragement: “Of all the property pawned in Los Angeles,” says Myrdahl, “I doubt if even 1% is identified as stolen.” Thieves don’t want to be in a police report and pawnbrokers don’t want stolen goods, wrote Caskey, “because the police can seize the goods, and the pawnshop owner loses the collateral and the loaned money.”
Most states also regulate interest rates, although the official ceilings in some areas still reach Dickensian heights. Naturally, the business has concentrated in states where laws “are conducive to running a pawnshop,” says Jim Callas, executive director of the National Pawnbrokers Assn. in Chicago.
In New York, where rates are held to 2.5% a month, the number of pawnshops has declined to 15 statewide. In Texas, with its 20%-a-month limit (240% a year), the number of stores went from 600 to 1,000 in a decade. California has a range of fees, from 2.5% a month on loans less than $225 to 1% on loans of $1,650 to $2,500, but various “user fees” add more money here and there--set-up fees, storage fees, fees for notice of payment due.
Through it all, the basic business has changed little: It’s money-lending, and it looks it. Boutiques don’t have this security--the counters, cages, bulletproof glass, locked doors, video cameras. Pawnshops deal in cash, lots of cash, and what’s not cash is tangible, portable, sometimes valuable property.
Pawnbrokers “are bankers to people who have no other recourse,” says Sam Rosenfeld, owner of Collateral Loans Inc. in Reseda. “We can grant a loan immediately and in person; it doesn’t take background checks or interviews or anything.” Customers don’t need a job or good credit or any credit at all--just an item.
Generally, this is not yet an upscale market. The pawnshop is a last resort, albeit a regular one. People who pawn are often broke just short of payday or are about to have their utilities turned off.
“People are always in trouble,” says Denis Hooker, owner of Ace Loan in San Jose and president of California’s Collateral Loan and Secondhand Dealers Assn. “For a segment of our population, things will never change.
“Pawning becomes a habit like anything else,” he adds. “Musicians pawn their instruments, redeeming them for bookings. Sportsmen pawn their guns, redeeming them in season. Some people bring things in every Friday and pick them up on Monday. It’s a happy habit. They enjoy it.”
Some have recourse to money elsewhere but want secrecy from spouse or parent or creditors. What’s in pawn is never displayed or discussed with anyone but the person who pawned it. “It’s a privacy thing,” says Rosenfeld. “A banker wouldn’t provide your bank statement.”
They may even have a substantial credit line at a bank “but don’t want their banker to know they’re getting a loan or what for,” says Jean Zimmelman, co-owner of her family’s 52-year-old Beverly Loan Co. in Beverly Hills, which makes loans of $100,000 and more. “They may also be embarrassed: They overspent on Rodeo Drive or bent a fender or want some plastic surgery.”
Anything can be pawned, if it has some resale value. Jewelry naturally leads the list, given the inherent value of precious metals. Firearms and musical instruments also hold their value. Appliances and electronic goods are less welcome, because the item “could be turning worthless” while it’s held in pawn, says Hooker. “A prudent pawnbroker will reappraise (such things) and lower the amount when the loan is rewritten.”
Pawnbrokers say they set the amount they’ll lend by various formulas--25% of retail value, for example--but most just start with the question “How much do you need?” and take it from there. In actuality, the average loan is $50 to $75, and “the smaller the pawnshop, and the fewer the assets,” says B. K. Botach, whose family owns a shop called Los Angeles Collateral Lenders, “the less they’re going to give you.”
Many loans are paid off in the first month. If not, when the loan comes due (usually in several months), the borrower must pay the accumulated monthly interest and ask to have the loan rewritten or forfeit the goods.
Some are rewritten over and over: Pawnbrokers tell of four-year loans, even 12-year loans. Up to a third of the borrowers forfeit on their loans, and their goods go to the front of the store to be sold.
It’s the need to unload forfeited goods that lets Cash America claim to be not just a bank but a department store. The chain backs it up with newspaper and radio advertising at Christmas. Others see the possibilities: Rosenfeld’s cluttered store windows now say “Xmas Sale 25%-50% Off.”
But few pawnshops would be confused with retail stores. Signs declare their priority: “Money.” “Instant Cash.” “Loans.”
Customer service is variable and sometimes absent. Pawnshops, says Sloan, are “not exactly user-friendly,” unlike secondhand stores, their nearest competitors. The goods are stacked, bunched and shelved at random, the staff clustered at the lending stations. Few rush to welcome browsers, open cases, lay things out on little velvet trays.
Even upscale shops, pawnbrokers-to-the-stars, don’t beckon shoppers. Beverly Loan, for example, occupies an office suite on an upper floor of a bank building--not really a drop-in environment. The forfeited pawn--jewelry, coins, fine art--is sold, but mostly it goes to dealers or “private customers,” says Zimmelman.
Dealers buy a lot of pawnshop goods--certainly the most valuable items--the minute they’re available. This leaves pawnshops with relatively little to sell, given the low forfeit rates, and with so little traffic, what they have may be fairly shopworn. To maintain that department store image, Cash America even has to supplement the stock with new merchandise.
For some reason, the uninitiated assume they’ll find treasures at giveaway prices, and pawnshop owners gladly reinforce the assumption. They shrug off their retail side as a “secondary market.” They note that they’re not as dependent as secondhand stores on profit from sales because, as Rosenfeld explains, “a pawnshop makes a good portion of its profits from the interest paid for loans.”
Implication: They let the goods go cheap.
Maybe. One hears of great pawnshop buys like the 18-karat gold watch, an Art Deco piece, bought for $700 in a low-income neighborhood. It would be $3,000-plus at a fancy jeweler, says the woman who bought it. (It might, of course, be $700 at a secondhand store as well.)
But there are also piles of prosaic gold chains and earrings of the sort department stores promote, at department store prices. There’s silver jewelry, faintly American Indian, often unmarked (“It’s silver: I guarantee it,” said one pawnbroker). There are a lot of old but hardly vintage cameras.
In many shops, prices seem disappointingly high to people seeking bargains--a feeling hardly alleviated by the persistent assurance, sotto voce, that “We give a third off on most sales” and “Everything is negotiable--up to 40%.” This may give some shoppers the illusion they’ve cut themselves a deal. For many, however, it puts an uncomfortably slippery cast on the whole business.
So, the fact that something was pawned is no guarantee of value, even in a cleaned-up industry. On the one hand, it’s probably not stolen. On the other, it’s not necessarily a steal.
