From Guardian Dot Co Dot UK

By Deborah Orr

The pawnshop has been rehabilitated, and apparently this is not even such a Bad Thing. The decline of these seedy outlets was once measured in inverse proportion to the advance of the welfare state, until such businesses achieved vivid attention only when one was reading the novels of Dickens, Lawrence or Dostoevsky, or perhaps the early writings of Orwell, when he was down and out in Paris and London, or on the road to Wigan Pier.

Like the poor, naturally, pawnshops have always been with us, even if for decades now they have been thin on the ground, their unappealing window displays of little-loved jewellery sending a siren call to few. These days, they look different. The window displays are more sumptuous, for obvious reasons. But beyond the padded velvet display panels, pawnshops now resemble banks, with neatly barricaded counters looking more like the product of professional efficiency than of careful security. In recent weeks, even the gentle reader of the Telegraph has been advised to consider the pawnshop as a decent option when cash-flow problems occur, handy for securing one-off payments for school uniforms or, on occasion, school fees, and considerably cheaper than risking bank charges on unsecured overdrafts.

How crazy is that? In theory, bank loans have never been cheaper, with interest rates as close to zero as one could wish. Except that the banks are not lending and people are still borrowing. Since 2003, the number of pawnshops in the country has increased from 500 to 1,300, holding a loan book of around £192m. Britain’s biggest chain of pawnbrokers, H&T, last week announced a 71% leap in half-year profits, up to £14.5m from £8.5m in the first half of 2009. While the majority of customers are seeking loans of less than £100, and more than two-thirds live on a household income of less than £300 a week, industry insiders also report an increase in custom from businesspeople.

And the ghastly truth is that the Telegraph is right. Pawnbrokers are these days a comparatively solid option. If you go to a pawnbroker, then monthly interest payments range from five per cent to 12%, with a loan of £100 over six months attracting an APR of 70% to 200%. If you have nothing to pawn, though, and you instead go to a pay-day loan company – otherwise known as a “legal loan shark” – you could find yourself faced quickly with an APR approaching a stratospheric 3,000%. The appalling truth is that these companies too have proliferated in recent years, offering loans over the internet or via the mobile phone, and filling the gap left as bank loans became harder to secure.

The Consumer Finance Association, which represents most short-term loans firms, told the Metro newspaper this week that: “People want to borrow a smaller amount of money for their immediate needs and desires and pay it back quickly. If this is not a product people really like, then why is there the growth? We really don’t want to lend to people who can’t pay back and we don’t lend to people who aren’t in work.”

The Consumer Credit Counselling Service has another tale to tell though, as the Metro pointed out. Somebody is lending to people who aren’t in work, because the charity says that one in eight people contacting them in the first half of 2010 were claiming Jobseeker’s Allowance, owing an average of £15,412 in unsecured debt each. Poor, poor buggers. Credit crunch? We ain’t seen nothing yet.

Remarkably, however, there are strong arguments suggesting that little can be done. The government is already committed to taking action on the high interest rates that have for years been attached to credit cards, store cards and overdrafts, while plans to discuss capping the cost of credit more generally have been tabled at both the Labour and Lib Dem conferences this autumn. Yet a recent report from the Office of Fair Trading has already rejected the suggestion of price controls because suppliers might recover lost income by introducing or increasing charges for late payment or default. A further worry is that if the legal market is attacked, then truly unscrupulous lenders could flourish illegally, leaving the vulnerable open to intimidation and violence. The thought of such a scenario chills the blood.

The left-of-centre pressure group Compass is already running a campaign anyway, supporting price controls and arguing that they are already in place in Germany, France and Poland. Compass is also asking for the establishment of a People’s Bank, administered via the Post Office, or a National Credit Union. It wants all banks to commit to providing universal and affordable banking services, like the Cooperative Bank’s Cashminder account as well.

Such ideas have long been resisted by most high-street banks, which benefit from the fact that more or less every citizen is obliged to have a bank account if he or she is to exist in the real economy, but remain happy to cut people adrift if, for a time, their custom becomes unattractive.

The great irony, of course, is that it was the development of financial instruments which allowed loans to be made to people with little concern as to whether they could be paid back, that caused the credit crunch in the first place. Yet while politicians are fond of saying that the credit crunch was a worldwide phenomenon, the truth is that no nation embraced consumer borrowing more enthusiastically than Britain. It’s a way of life now, and it is out of control. People have been urged to believe that there is no shame in debt. On the contrary, people have been urged to believe that only the naive and pathologically careful lived any other way.

This present situation is terrible – legitimate operators are allowed to behave like cowboys, for fear first that if they are reined in at one point in the operation they will move their excesses to another part of their operation, and second that if they are bludgeoned into respectability, then criminals will step into the breach.

But beyond such specifics, there is a further problem – the worry that curbs on any commercial activity will “slow the recovery”. The hard-up must be allowed to get the cash to purchase what they need, whatever it costs them. So commerce of this kind flourishes. Pawnbrokers really are more straightforward and civilised than the unsecured loan guys, which is in part why they have quickly become quite respectable. Britain may well become a nation of shopkeepers again. But the shops will have three golden orbs dangling outside them, and will sell to their customers the stuff they own already. Here comes that private sector expansion. Grim.

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