Mexicans are lining up at pawnshops to hock their jewelry, family heirlooms — and in one case a harp fashioned from a shark’s jaw — in more evidence Mexico is struggling to recover from a deep recession.
Maria del Refugio Garduno, a 60-year-old widow, pawned her watch for 400 pesos ($31) after her son lost his job last month, sending her household’s finances into a tailspin.
“I had to come here just to be able to buy some medicine,” Garduno said at a pawn shop in the capital, Mexico City. “Our money just isn’t going far enough.”
Across the country, unemployment remains near its highest level in 14 years even though Mexico’s recession technically ended in the third quarter with a big industrial rebound.
The government thinks better jobs data from December shows Mexico has turned a corner in terms of employment, but even the finance ministry expects only a partial recovery from last year when the economy likely shrank about 7%.
Loans made at Nacional Monte de Piedad, Mexico’s largest chain of pawnshops, rose about 20% during the first three weeks of January compared to the same period in 2009.
The increase is higher than the 10% rise in pawns during 2009, and some people borrowing against their wares said recent tax hikes and rising government-set fuel prices had put extra pressure on their finances.
A value-added tax on most goods rose by 1 percentage point to 16% on Jan. 1, a few weeks after the government bumped up gasolizne prices after keeping them steady most of 2009.
“It’s hitting me all at once,” said Pedro Uribe, a street vendor in downtown Mexico City, who pawned one of his wife’s religious figurines.
Pawn Shops Play Interesting Role In the Recession
Reported by: Kate Stacy
Monday, Sep 14, 2009 @09:52pm
From paying bills to cashing in on a bargain, pawn shops are playing an interesting role in this recession. Some people get information from their stock broker, others learn about the recession’s affect from their pawn broker.
“In June, people were picking up pawns,” says Norm Dias at Gold Digger Pawn in Springfield. He’s not your typical economist. But he has his finger on the pulse of the recession. “It’s taken another turn. People are bringing stuff in.”
To fill their wallets, customers are willing to put their items on these shelves.
“More middle class people than normal,” says Brandon Reynolds of the crowd he’s seeing at Gunsmoke Pawn. Still, he hasn’t noticed the sign that things have hit rock bottom.
“You can tell it’s bad when they bring the shotgun, wedding ring, stuff like that.”
Store managers say there are other items that indicate the difficulty in one specific industry.
“We have tools,” says Reynolds. “No one is buying them. We’re not taking them. There’s just not a market for them right now. Everybody’s getting rid of tools left and right. Nobody’s needing them, there’s no construction work. It’s tough times for that sector.”
That’s good news for buyers.
“If you’re looking to buy a construction tool, now’s the time to do it,” says Dias. “I mean, you’re paying pennies on the dollar.”
While most tools end up on the sale rack, managers say they really work to ensure other items do not.
“75% of people come back for their stuff,” says Reynolds.
“We want you to come back,” adds Dias. “We want to float a loan to make it to pay day so you don’t lose your item. We don’t want to end up with it.”
While tools and gold are being pawned, people who are spending are putting money in guns. Staff members says sales are not as high as right after President Obama’s election when there was worry about gun laws, but it’s still double what they typically see.
Competition in the market for selling pawned items is tough. There are a few stores that are closing shop. Others are working to become more marketable by selling items in online auctions.
Anyone with an interest in the United States Bullion Depository, which by the way has not been audited in 50 years, will greatly benefit from taking the time to read this expertly written article.
One of the authors scenarios is:
FORT HOCKS: In this scenario, an audit will show that a significant portion of the citizens’ gold has been mobilized by the Treasury and / or the Federal Reserve; in other words, that it has been hocked at the global financial system’s pawn shop. There are many possible means by which this could have happened; we list only a few.
Could it be that the global financial system is operating its own pawn shop?
Ahhhh … The beatings will continue until morale improves. And there is one pawnbroker on the southwest side of Chicago who is getting thoroughly flogged. Andy Grayson of Berwyn Illinois made the decision to open a high-end pawnshop in the village of La Grange Illinois. After checking with the village hall on legalities and requirements, and finding a vacant location to lease in downtown Lagrange, Mr. Grayson put his entrepreneural plans into action. He signed a lease for the location, obtained a building permit for remodeling, received his village business license for All-Star Jewelry and Loan, and received his state financial license to operate as a pawnbroker. Everything was right on target until the signage for his new pawnshop went up. Turns out not everyone was happy with the pawnshop moving to downtown Lagrange.
In a widely circulated email to business owners and community leaders, the president of the La Grange Business Association (LGBA) wrote that a pawnshop “does not bring the shoppers and consumers we need to fill our stores and restaurants … devalues the progress this village and business community has made over the last decade to make La Grange a top 10 downtown in Chicago … will in fact have a long term reverberating affect on our property values, both residential and business [and] does not compliment the businesses and restaurants we have in town and will never, no matter how ‘upscale’ it looks be a business others will look at positively when starting or relocating to La Grange.”
Really?
Because of this the village Board of Trustees decided to make Mr. Grayson feel a little less welcome. They have decided to zone his pawnshop out of existence. Here is Shawn Temple defending the pawnshop owners right to open his business in downtown Lagrange.
Yet the beating continues, and the village Board of Trustees is putting on a full-court press to change the zoning laws making the pawnshop illegal. The village attorney, Mark Burkland, has notified Grayson’s attorney that any such a change “could be applied” to his business. With village officials apparently pulling an about-face, Grayson now is concerned that his request for the building permit he needs to construct the interior of his store won’t be received as graciously.
I believe the LBGA could use a serious lesson in Pawnonomics.
Are pawn loan customers consumers? You bet they are and it’s great when reporters get their real story such as this recent one from Texas:
Without a pawnshop and a gold onyx ring, Patrick Heinaman’s grandmother might have missed her daughter’s funeral.
The short-term loan put the 412-mile trip to Port Lavaca within reach. It was costly, but her only option. But Heinaman’s grandmother and other lowincome borrowers would have a harder time getting an emergency loan of that type if the legislation Congress is considering to cap interest rates on all consumer credit transactions passes.
Both critics and supporters of the bills agree the popularity of payday lenders and other shortterm creditors highlight the need for credit among the country’s poor and their inability to obtain loans traditionally.
Two bills, one from Sen. Dick Durbin, D-Ill., the other from Rep. Jackie Speier, D-Calif., would cap interest rates on the loans at 36 percent. The legislation is aimed at payday lenders, but pawnshops and other short-term lenders say the cap would also keep them from making a profit.
“The way I see it, they help families that need the money,” the 19-year-old Heinaman said shortly after paying $50 off the balance of his grandmother’s loan at Danny’s Pawn and Sporting Goods in McAllen. “(Shutting them down), that’s like taking meals away from the family.”
The Capitol Hill elitists should listen carefully to the needs of the people exempt from what little mainstrem credit is left available in the US. Pawnbroking is not the problem, it’s a solution.
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
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.
I find it interesting, all of the consumer protection groups that are rallying behind certain members of Congress, pressing them to pass some form of federal APR rate cap for all consumer credit transactions in the US. While the efforts of these consumer groups may be considered laudable, as well as the efforts of Congress, their actions could prove to be downright dangerous to the very consumers they are attempting to protect.
The reason I say this is because I know these consumers closely and personally, having been a pawnbroker for over 30 years. I also admit I have experienced first-hand what their short-term credit crisis feels like having had to turn to the pawn industry earlier in my life on several occasions to provide some much-needed short-term credit for my own financial dilemmas. While I cannot speak on the effects such a federal APR rate cap would have on other forms of short-term credit currently available in the US, I can offer my point of view on the effect this would have on the pawnbroking industry in the US and the millions of customers it provides credit to.
From my own experience, roughly half of these current pawnshop consumers would end up paying additional charges to their banks through none sufficient funds fees and overdraft protection fees amounting to an APR that would make any pawnbroker blush. The other half of these current pawnshop consumers would end up turning to unlicensed unregulated (and presumably unsavory) short-term lending alternatives because they do not have any formal banking relationship. This is because the pawnbroking industry as we know it in the US cannot and will not survive with any of the federal APR rate caps proposed. Here’s a simple example of why.
In my pawnbroking career the average dollar amount on the pawn loans I have written are roughly $100 each. The average length of time my typical customer takes to pay this $100 loan back is roughly 45 days. Because I charged 15% finance charge per month, this translates to a $122.50 loan payoff for the average size loan paid off in the average amount of time. Far less expensive for the consumer than what they would be charged for an NSF check, an automatic overdraft protection fee, a reconnect fee for a utility, or missed payment on their credit card.
But here’s the big thing. This $100 loan obtained by the consumer at my pawnshop is secured by collateral. Some form of personal property the customer decides to pledge. This personal property is the only form of recourse I have if the customer chooses not to repay the loan. That’s right, I said chooses. By giving them a choice am I actually creating debt for them?
Pawnbroking is the only form of consumer credit where the borrower actually has a choice on whether they wish to repay their loan or not. Of course, if they choose not to repay the loan within the amount of time disclosed on their pawn ticket, their loan goes into default and the pawnbroker now owns the pledged personal property and will dispose of it. But there is no additional recourse or consequences imposed on the nonpaying borrower. No lawsuits, no bad credit reporting, and no additional debt in their lives. They simply forfeit the property.
You may be wondering why the pawnbroking industry could not survive this proposed federal APR rate cap. The most generous proposal currently in Congress calls for a 36% APR cap. While this may appear as overly generous for any type of conventional lending, this methodology cannot be equally applied to the pawnbroking industry. Now if you take my typical $100 loan with the average 45 day payoff the customer would pay back $104.50. Hardly as generous as you would like to believe, and hardly sustainable for anyone in the pawnbroking industry.
I understand it may sound appalling to you that I write loans with a 180% APR disclosed on the pawn ticket, and because of this you may consider me no better than a usurious loan shark. But you’re thinking would be flawed and actual pawnshop customers understand this. Pawnshop loans are short-term, much like your average hotel stay. You probably do not give second thought to staying in a hotel with a $100 room rate per night. You certainly wouldn’t think the hotel is exploiting its poor customers by charging them $36,500 in annual rent. Would you? I think not.
As the US credit crisis continues to tighten, the overly liberal lending practices of many mainstream credit providers continues to be further exposed and scrutinized.The latest exposé is that of credit card issuers who recently met in the White House with President Obama and his economic advisers.Even while credit card defaults are running at record highs the U.S. Congress is proposing tighter rules for card issuers that could greatly reduce their ability to collect fees and adjust interest rates on their products.
Keeping in mind that this sort of government scrutiny is generally welcomed by credit hungry consumers it remains to be seen if the White House and Capitol Hill can actually create and implement a “Credit Card Holders’ Bill of Rights” without making mainstream consumer credit even more difficult for the average borrower to obtain.
This trick can be compared to threading a needle in the dark when you consider the average US household with credit cards has more than $10,000 in credit card debt.While the US government crackdown on questionable consumer credit lending practices is laudable and long overdue, the timing of such reform is problematic considering the conditions of the consumer credit industry in the US.
Yet, the broad brush approach of placing limits on all US consumer credit transactions by imposing a federal APR rate cap is even more problematic.This broad brush approach could end up exempting noncredit card holding consumers from any form of short-term credit.
By including the pawnbroking industry, the oldest form of consumer credit, in the proposed federal APR rate cap, the only source of credit for these noncredit card holding consumers could literally disappear overnight.This would prove to be an incredible hardship for millions of US consumers who will never be affected by a credit card holders bill of rights.
Looking at history you will find this is nothing new for the pawnbroking industry.Over its thousands of years in existence the industry has been controlled by governments, religious leaders, groups of the elitists, and even royalty.This type of control in the past has proved to fragment or even temporarily shut down these lenders of last resort.
Much like Chairman Mao who completely took over all financial and business institutions in China.Pawnbroking was a vital part of the Chinese culture until Mao and communism took root, causing the Chinese pawnbroking industry to cease existence.But as China moved towards a free market economy pawnbrokers were again allowed to open in 1987.
Now the growing Chinese economy uses pawnshops as funding sources for many entrepreneurs with flexible collateral requirements, as well as being the main source for short-term credit again with Yen strapped Chinese consumers.Could history repeat itself for the pawnbroking industry and its customers in the US?
Could a federal APR rate cap temporarily eliminate the world’s second oldest profession from the US consumer credit industry?It could if this industry is included in the broad brush approach of the federal APR rate cap now in Congress.But even if it were to be temporarily eliminated, I can guarantee you one thing.The need for the services the industry provides can never be replaced and will never be eliminated.
I doubt the pawnbroking industry will ever be given the courtesy of a meeting with the White House economic advisers.Will our legislators listen to their millions of constituents who rely on pawnshop loans for financial emergencies?This remains to be seen.Maybe the pawnbroking industry will get lucky and discover that many of our legislators had to seek out the services of a pawnbroker in leaner times getting through law school.
