Driving a Hard Bargain : Business Is Booming for Pawnbrokers Who Take In Autos

Glendale pawnbroker Phil O’Dening can always tell just by the look on Gerry Richardson’s face whether he has come to pay off a loan, or take out a new one.

Out of work since November, Richardson has pawned his 11-year-old Honda station wagon five times--for as little as $50 and as much as $225. And he doesn’t see an end to his visits to “Once A Pawn A Time,” O’Dening’s shop.

“I wish there was some other way. I don’t like living like this. It’s more of an embarrassment than anything else,” said Richardson, 55, who lives at the Glendale YMCA.

Last employed as, of all things, the manager of a collection agency, Richardson said finding a job during the recession has been tough. So the pink slip to his Honda goes in and out of O’Dening’s shop.

O’Dening is one of a growing breed of pawnbrokers in Southern California who take in automobiles.

A few brokers had dealt in a small number of cars before the recession, but hard times have prompted others to consider expanding into the auto business if they can find safe and affordable storage space.

“Pawning cars is a fairly new concept. We do it as a favor to customers from time to time,” said Doug Robinson, owner of Crown City Loan and Jewelry in Pasadena. He said he lends money on a car about once every two months but wants to rent space to expand that part of his business.

“We simply do not have adequate and safe storage for it,” he said.

Azusa Pawn Shop owner Jack Robinson said he takes in up to three cars a month but would consider taking more if he had the space. Before hard times hit so many people, he said, he would take about one car a year.

“People are looking to pay the rent,” he said, and he regularly must turn down would-be car pawners. Autos are good business for pawnbrokers, he said; not only is demand up, but the loan amounts are higher than for most items.

As in pawning anything else, the car owners put their cars and their pink slips in the pawnbroker’s hands in exchange for a four-month loan. If the owner cannot pay off the loan plus interest at the end of the four months or renegotiate the loan with partial payment, the car belongs to the pawnbroker to sell.

The vast majority of cars are redeemed, O’Dening and other pawnbrokers said. But those that are sold go cheap. O’Dening said he has sold six cars in the past two years; the last one, a 1968 Ford Ranchero went for $300.

O’Dening said he sold a 1980 Cadillac Coupe De Ville last year after nearly eight months of holding the car as collateral for a $1,500 loan. The loan was renewed once, but the owner, who had been laid off, could not pay the rest and let it expire, he said.

“It was so nice I almost kept it myself,” O’Dening said. But when a regular customer from Pomona offered $1,500 for the car, he accepted, even though the car was worth $4,500, he said.

O’Dening usually has about eight cars, small potatoes compared to Bruce Singer, who owns RPM Lenders in West Los Angeles.

He began his auto pawn operation two years ago when he saw the growing market. In addition to autos, he accepts RVs, motorcycles, Jet Skis and even fixed-wing aircraft. He said he has about 400 autos in his storage lot.

But Singer also complains that the booming auto pawn business has opened a floodgate of unscrupulous secondhand car dealerships that act as pawn shops, but are not licensed by the state Department of Justice or regulated by local police.

Car dealerships are licensed by the state Department of Motor Vehicles to buy and sell autos. Whether they can lend money on cars and foreclose on them depends on a loose interpretation of existing state laws, said Bill Hall, a DMV investigator. And until there are regulations to govern them, “there is no answer on whether what they do is illegal.”

Because the car dealerships are not licensed pawnbrokers, they are not restricted by state laws on interest rates--15% to 30% for the average car loan--or on the four-month leeway provided to pawn shop customers before foreclosure. The dealerships advance higher sums for shorter periods, pawnbrokers said, so more car owners end up losing their autos.

“It’s like the fox minding the henhouse,” Singer said. “If a car dealer is taking in your car, what do you think his motives are going to be? They loan to own. They are out to get cars cheap, not to make money on interest, or build relationships (with customers) like we do.”

The car dealerships “are kind of circumventing the law,” said Detective James Battle of the Los Angeles Police Department’s pawn shop division. “We feel that they are doing something wrong, but at this point, we don’t have a clear law to define that what they are doing is wrong.”

The car dealerships say they merely “charge storage fees” and therefore are exempt from the regulations of a lender. But Battle said storage fees should mean charging for the space, not advancing money and accepting pay-backs based on the value of the car.

Battle said a daily fee for “storing” a Rolls-Royce could be $50, but only $10 for an old Volkswagen. The free rein on fees and terms of foreclosure leave a lot of room for abuse, he said.

In North Hollywood, Able Auto Pawn handles about 200 cars at a time, said manager Brad Curian. Although the firm calls itself a pawn operation, it does not have a broker’s license, he said.

“It’s just a generic term,” Curian said of the use of the word pawn . “We don’t loan, we just advance money for storage fees.”

Depending on the auto, those fees can range from $50 to $5,000 a month, Curian said, usually 50% of the vehicle’s Blue Book value. Pawnbrokers in the San Fernando Valley say their average car loan is about $150, and never more than 25% of Blue Book.

Curian said the fees and terms, usually 30 days, are negotiated with the customer.

In contrast, pawnbrokers must follow state law on interest rates for loans up to $2,500, and observe the four-month term. Curian said about 80% of the cars he takes in are redeemed by owners; pawnbrokers put their rate at 98%.

Pawnbrokers such as O’Dening said that when they acquire titles to cars, they sell them to dealers or a private party at a much lower rate than the Blue Book price.

“Business is so good because people are in so much trouble,” O’Dening said. And cars make up only a small portion of his business.

“For a pawnbroker, I can’t believe my popularity,” he said. “I could run for mayor. I could.”

“And I’d vote for him,” said Richardson, haggard but smiling after again parting with his old Honda. “I trust him. And he trusts me.”