Tough times for consumers mean busy times for pawnshops

YAKIMA, Wash. -- It took several armloads for the Jacksons to carry their stuff -- assorted tools and DVDs, a DVD player, TV, alarm clock and space heater -- back out to the car on a recent afternoon.

"They've saved us on numerous occasions," says Sarah Jackson, standing at the counter of Ed & Moe's Pawn Shop on Yakima Avenue and redeeming her family's valuables for just over $170.Pawning, says Jackson, "is a way to get a loan if you don't have good credit. We have two kids and no job."

The Yakima family, Sarah, husband Jacob and their two daughters, ages 7 and 5, have been visiting Ed & Moe's for the last seven or so months.

They aren't alone. Driven by the recession, more cash-strapped customers are trading their valuables for short-term loans from pawnshops. And places such as Ed & Moe's on Yakima Avenue are seeing a bump in business.

"It's everything -- TVs, jewelry, tools," says store manager Jesus "Jesse" Rosales. "We're seeing a lot more people. We're seeing quite a bit of first-time people."

Nationwide, pawnshops are reporting more activity in the last eight or nine months, says Dave Adelman, president of the 2,600-member National Pawn Brokers Association in Texas.

"We're seeing an increase of everything, across the board," Adelman says. "We don't keep statistics on what the shops do. But from what we're hearing, there is an increase in loans, and the customer base has certainly widened or increased from blue collar to white collar."

Pawnshops -- most of which Adelman describes as "mom and pop" -- offer quick-cash loans in exchange for items left as collateral. There's no credit check. And there are no legal consequences if the loan isn't repaid. Instead, the shop assumes ownership of the item.

"We don't go after them with a collection agency," says Adelman, a second-generation pawnbroker who has been in the business 30 years and owns two pawnshops in Atlanta. "There's no bad mark on their credit-worthiness or their credit score."

If borrowers pay back loans, plus interest and fees within a certain period, they can get their things back. If not, pawnbrokers are free to sell them.

"What you see in a pawnshop out for sale represents roughly 20 percent" of all loans, Adelman says, stressing that 80 percent of pawnshop borrowers get their property back.

Locally, "That's probably a conservative number," says Dianne Mabry, manager of Bestway Pawn Mart on South First Street in Yakima. Her husband Tim owns the shop, which has been in business -- and in the family -- since the early 1950s.

"Business is good," Mabry says.

It began picking up when gas prices hit the $4 mark last summer and continued to increase slightly as the economy weakened.

That's because pawnshops -- there are approximately a dozen between Ellensburg and Toppenish, including several in Yakima -- fill a niche, catering to bargain hunters and people in need of fast cash, often for basic living expenses.

"You can't go to a bank and get a $50 loan to fill your gas tank or pay your electricity bill," Mabry says.

Adelman hesitated to estimate how much business has increased nationally, saying it varies depending on region and market. But in December he told the Wall Street Journal the number of first-time pawnshop users was up 10 percent.

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Jewelry, firearms and electronics remain the most popular collateral. And the current top-selling items are firearms, ammunition, electronics and -- at Bestway --"probably musical instruments," Mabry says.

These days, fewer people are buying jewelry. "It's a luxury," Mabry says.

Under state law, pawnshops can hold hocked goods for 90 days. After that, if both the broker and the borrower agree, the loan can be rewritten into a new loan.

State law allows fees for loan preparation, storage and firearms, as well as interest charged every 30 days. Plus there's the original price of the loan.Nationally and locally, the average pawnshop loan is $80.

If the collateral included firearms and was collected at 90 days, a customer in Washington State would pay $106.75 on an $80 loan to get their belongings back.

Under state law, pawnshop storage carries a flat $3 fee. There's another $3 charge to store firearms.

For a typical $80 loan, the preparation fee would be $11 and interest of $3.25 would accrue every 30 days. Those fees escalate according to the amount of loan.

What are pawnshop borrowers using the fast-cash for?

"Most of it's gas to get back and forth to work, or -- at (money) to pay the utilities or medical bills," Mabry says. "You have people who need groceries and diapers for their children. Some have had their electricity or water shut off. That's hard, especially when they have small children in the home. Some even need it to pay rent or make a house payment, if they are lucky enough to own a home."

According to Adelman, the average pawnshop borrower is 39 and a repeat customer with an income of roughly $29,000. Most pawnshop borrowers have jobs, and slightly more are men than women. And that's true here, too.

While pawnshops in the Yakima Valley are seeing more first-time borrowers, most are middle- and lower-middle class. Unlike reports from cities such as Beverly Hills and Palm Beach, local pawnshops aren't seeing many -- if any -- Rolexes or first-time upper-income clients.

They also aren't seeing many stolen goods. Contrary to popular belief, less than half of 1 percent of all pawned goods is identified as stolen, according to the trade association. Borrowers are required to provide identification as well as a complete description of the merchandise.

"This information is then regularly transmitted to law enforcement, which dramatically decreases the likelihood that a thief would bring stolen merchandise to a pawn store," according to the association's Web site.

Critics contend pawnshops unfairly target vulnerable people and give them only a small percentage of what an item is worth.

"When they come in, many people sometimes assume their items are worth what they paid for them," says pawnbroker Raul Sanchez, who works at First Choice Pawn in Wapato. "It breaks down to a percentage of what they bought it for."

The value of an item is determined by its age, condition and resale value, he says.

Like pawnshops in Yakima, First Choice is also seeing an increase in customers.

"We're getting a lot of first-timers, especially from Granger and Prosser," Sanchez says. "A lot of people don't want to travel all the way to Yakima because of the gas. There's a lot more activity going on, a lot more loaning. We're actually seeing a lot more gold come in."

As far as sales go, they remain "steady," Sanchez says.

Adelman says pawn brokers are part of a heavily regulated business.

And more restrictions could be on the way. A U.S. Senate bill would set a national usury rate for consumer credit transactions.

The Protecting Consumers from Unreasonable Credit Rates Act of 2009 would limit the maximum yearly interest rate on consumer loans to 36 percent, including all fees. The proposal's aim is to protect borrowers from high-cost payday loans and unfair forms of credit.But some pawnshops worry the proposal could put them out of business. And some consumers, like Sarah Jackson, wonder how they'd do without them.

"Without 'em, we'd be in deep trouble. We probably would've been evicted," Jackson says of Ed & Moe's, who she credits with treating her well.

She promises she'll be back before May. The pawnshop still has her wedding ring.

* On the Web: www.nationalpawnbrokers.org and www.savemypawnshop.com.

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