While this young lady may have some of her facts straight, her reality is a bit skewed. She has obviously never been in a position where she has been exempt from mainstream forms of credit, had to pay for a bounced check fee, a utility reconnect, or even experienced difficulty purchasing a tank of fuel to get to work for the rest of the week. Pawnshop loans have their place in society, especially with current credit markets. Why condemn them when no reasonable alternative is offered or available? This type of soap box thinking proves most harmful to the consumers they are actually trying to protect. Pawnbroking is still the most civilized form of short-term credit.
WICHITA — Central Kansas pawn shops report giving out more short-term loans to cash-strapped customers willing to trade wedding rings and other luxury items.
Money Town Pawn Shop in Wichita recently loaned Lisa Boland money in exchange for her wedding ring so she could take an emergency trip out of town. She got back the ring after paying back the loan.
National Pawnbrokers Association vice president Dave Crume says he’s seeing an increase in these loans at A-OK Pawn in Wichita.
He estimates loans have increased by 15 to 25 percent.
Money Town owner Barry Ellis says about 70 percent of customers eventually buy their items back.
As demonstrated in this article from the South African Press:
People flock to pawn shops
By Bronwyn Gerretsen
Laptop computers, hi-fis, TVs, sporting equipment and other such luxury goods are among the primary items cash-strapped people are selling and pawning in these difficult financial times.
Many pawn shops are seeing an increase in the number of people trying to make some quick cash by parting with their no-longer-needed or non-essential possessions, with some even having to turn customers away because of an overflow of particular items.
But just as talks of the worldwide recession easing seem to differ from person to person, so business for such shops seems to ebb and flow from one to another.
‘People aren’t buying luxury goods any more, so we can’t sell them either’
Michelle Lutchmina, of Longbury Pawn Brokers in Phoenix, said yellow-gold jewellery, DVD players, TVs, car sound systems and fishing rods were the most common items people were getting rid of for cash, with most opting to pawn instead of selling them. And most of them did pay to get their items back.
But for a pawn shop in the upper Highway area, the situation was slightly different, with the buy-back rate of pawned items dropping from 65 percent to about only 20 percent.
“Even my regulars who come in every month to pawn the same items and then buy them back aren’t able to do so. It’s definitely a sign of the economy. I have never seen it like this in the past 10 or 11 years,” said the owner.
Guitar amps, electric guitars, speakers and fancy sound systems were the most popular items people were selling.
“We throw our hands up at them now. People aren’t buying luxury goods any more, so we can’t sell them either. If people are desperate enough and sell them for a ridiculous price then we may consider buying them, but even so, I have a small shop and it takes up space.”
Liesl Ubsdell, of Gold and Finance in Musgrave, which deals in jewellery, said the shop had been very busy in recent months, but had quietened down.
The business operates by buying or lending money against jewellery, including fine watches. For gold and diamond jewellery, it pays per carat or gold weight.
“But people often phone to ask us whether we deal in cellphones, sunglasses and laptops.”
Ubsdell said customers were both buying and pawning, but that although those who pawned their items did pay the interest on the loan, most of the time they couldn’t afford to buy them back.
But Richard Mukheiber, managing director of Cash Converters Southern Africa, said while people did sell more products in economic downturns, the company also, strangely, sold more. This is because they were able to sell relatively new items for much cheaper than if they were purchased new in shops, he said.
Cash Converters also rolled out a new product last month which is a cash-advance on a person’s next salary cheque. Mukheiber said the market demanded such a product.
He said items such as hi-fis, TVs, iPods, sports goods, cameras and cellphones were the items people pawned and sold most.
This article was originally published on page 5 of The Independent on Saturday on June 06, 2009
A STEADY trickle of gold rings bearing the letters “GM” has found its way into the Main Street Pawn Shop in the heart of the scruffy carmaking city of Pontiac.
GM veterans have been pawning once treasured company rewards in distress or disgust at the state of the biggest American car manufacturer, which is expected to declare itself bankrupt tomorrow.
“They have such a bad taste in their mouths that they don’t want them,” says Shelby Berger, co-manager of the family-owned shop. Mr Berger says he has handled more than 25 rings since Detroit’s motor industry went into a tailspin.
In a practice long since abandoned, GM awarded the ornaments for sales excellence, loyal service or for graduation from the company’s engineering academy. They now fetch more than $US200 each. Mr Berger’s pawn shop is one of the only prospering businesses in Pontiac, a city of 65,000 people 30 minutes’ drive north of Detroit. The area is dominated by an 83-year-old GM truck plant, which has shrunk to a single shift and is to stand idle for much of the summer as the carmaker freezes production lines to save cash.
“It’s affected the pawn industry in a positive way but we’re locals so it hurts to see our neighbors in a financial crisis,” says Mr Berger. Behind his modest storefront is a trove of hard-earned possessions. The most hard-up come in with single compact discs, which can be enough to generate a $5 advance.
GM’s blue-collar workforce in the US, which numbered 113,000 three years ago, is due to shrink to 38,000 by 2011. Under bankruptcy, the US Government is set to take a stake of as much as 70 per cent, with unions and bondholders owning the rest of the once-proud manufacturer, which owns brands including Chevrolet, Cadillac, Opel and Saab.
While the fate of short-term credit in the US is being threatened by Capitol Hill elitists, the Wall Street Journal reports that the value of pawnbroking activity is both understood and welcomed in the UK. Even right in the midst of some of the most valuable real estate in London.
It seems obvious that Senator Richard Durbin (D-IL) does not care about the millions of American consumers who rely on short-term credit sources daily to meet their emergency financial needs. Here is text of Senator Durbin’s comments taken from the Congressional record as to why he is trying to amend a bill currently being considered to include a 36% federal APR rate cap.
Senator Durbin said:
The second amendment I will file will be a Federal usury cap at a very high level. What is a usury law? It is a limit on interest rates. There was a time in America when that was considered normal; States would have usury caps. The Federal government had a usury cap. But then they went away in the interest of competition and free markets. We decided we were not going to put a cap on interest rates, and so it has reached the point where there are very few usury caps left. What I have established, as the maximum, is 36 percent.
Nobody in their right mind would pay 36 percent on a mortgage, or 36 percent on a credit card. I mean, you would have to be out of your head to get into that kind of a predicament–a 36-percent annual interest rate. But the fact is Americans right and left are paying much higher interest rates today and don’t know it–payday loans, title loans, installment loans. Sit down and do the math and figure out to borrow a hundred dollars and what you end up paying, whether you are going to one of those places and putting up the title of your car or letting them have access to your checking account, which is a deadly thing to do from a credit point of view. You end up paying interest rates that go through the roof. I have actually had people sit in my office and say, Senator, this 36-percent cap on interest rates will put us out of business. I said: Well, how much do you charge? Well, somewhere between 58 percent and 400 percent a year. I said: I hope you do go out of business, because, quite frankly, they used to call that a juice loan when the syndicate and gangs were involved in it, but now it is legitimate. It is legal.
So this 36-percent cap on interest is something which I know will be resisted by banks and title loans and payday loans and all the rest of these folks, but it is about time we got real here. If we are not going to protect the American consumers when it comes to some of these interest rates, they are going to be very vulnerable to some bad practices.
I’m confident his intentions are honorable, however, if he should be successful in his efforts, his effect on short-term credit available in the United States will be devastating.
From Michael Flores, CEO, Bretton Woods Inc. Mgmt Consulting Firm
Used with author’s permission
The “credit crunch” isn’t just about mortgages and large corporations. It’s also about people needing $200 or $300 to get through to their next payday. It means going to pawnbrokers, credit unions, banks, payday lenders and other financial services that make small loans.
As Congress considers legislation to regulate short-term credit — Rep. Luis Gutierrez (D-Ill.) recently held a hearing on payday loan reform legislation, and Sen. Dick Durbin (D-Ill.) and Rep. Jackie Speier (D-Calif.) have introduced a 36 percent annual interest rate cap bill — they should tread very carefully.
It’s just not that simple to regulate a $100 billion short-term credit market made up of a diverse group of products that charge different rates and are of various term lengths. A payday loan, for example, is typically two weeks, installment loans are three months, and pawn loan lengths vary.
Recently, I wrote a report revealing that banks are the largest players in the short-term credit market through “bounced check fees” and overdraft protection. In fact, banks garner $34.7 billion in revenue from these products.
When a consumer does not have enough money in his or her checking account to pay a bill, they have the option of bouncing a check, using overdraft protection, getting a payday loan, paying the bill late or borrowing from another institution, primarily credit card advances, all of which come at a price.
The FDIC reports that the average amount of a check written to overdraw a bank account is $66. For that $66 check transaction, a customer would pay an average of $27 in overdraft protection fees. Customers without overdraft protection would pay a non-sufficient funds/bounced check fee averaging $28.95, plus incur additional fees upwards of $30 from the merchant to whom they wrote the bad check. In comparison, a customer who took out a $66 payday advance to cover the cost would pay a fee ranging from $9.90 to $11.22.
The 36 percent APR cap proposed by Sen. Durbin and Rep. Speier would leave some of these products banned (payday loans), some advantaged (bounced check fees) and some untouched (some installment loans). That’s because the shorter the length of the loan term, the higher the theoretical annual percentage rate, even if the actual costs are the same.
The Gutierrez bill has some good disclosure language, but it sets payday lending fees at $15 per $100 loaned. It sounds reasonable but why shouldn’t an industry be able to raise prices as costs — rent, salaries, taxes — go up?
The goal of any federal legislation should be to ensure that consumers have choice, the market has competition and that there’s enough transparency of all products so that cost comparisons are easy to make. Arbitrary rate caps simply pick winners and losers.
Saint Simons Island, Ga.
Published in “The Hill” Copyright 2009 Capitol Hill Publishing Corp
