Pawnshops not just for the poor

When the economy's bad, their business is good

The fur coats range from full-on ankle-grazing Elizabeth Taylor excess to the more demure jackets that add a little glamour to the jeans and high-heeled set. If the coats in the display window aren't suitable, Jerry's Pawnshop has another rack of pelts behind the counter — adjacent to a rack of assorted leather outerwear.

As White House economists continue to insist that the nation is moments away from being flush once again, pawnshop loans indicate the news has yet to reach the national wallet. Indeed, pawnshops thrive when all else is failing, or rather, because all else is failing, though pawnbrokers don't like to think of it that way.

"Our loan base has increased," says Dave Adelman, owner of Jerry's Pawnshop in downtown Atlanta. While the shop's location always meant customers from every income level, some regular buyers have had to start hocking.

"We probably have a higher inventory of Rolexes now," says Adelman.

Adelman says the store earns more in interest charges, but an estimated 8 percent increase in customers defaulting on loans leave the store with more stock and fewer people to buy it.

For those who don't know how a diamond can be the gift that keeps on giving, here's a primer: You go to a pawnshop with say, a diamond bracelet you got for Valentine's Day. The pawnbroker agrees to loan you $100 based on its value and the likelihood that someone else will buy it if you take the money and run. At Jerry's, a customer would typically have to pay $120 to get the bracelet back — the original $100 plus $20 in interest (or the "juice" if he can still afford cable and watch "The Sopranos").

Interest rates vary from shop to shop, but Georgia law prohibits pawnbrokers from charging more than 25 percent interest for the first three months and 12.5 percent monthly after that.

If you don't pay up within 30 days (Georgia law imposes an additional 10-day "grace period"), the bracelet you used as collateral can be sold to recoup costs. If you can't pay the full amount but can pay the interest, the item can't be sold. Some pawnbrokers will hold merchandise for much longer than the 30 days required under the law but, of course, the juice keeps running.

It's hard to know how many pawnshops are operating in Georgia because there's no state licensing agency. Shops are licensed by local municipalities, says Jackie Kinlaw, president of the Georgia Pawnbrokers Association. Even his group, which lobbies on behalf of the pawn industry, is unsure how many stores exist, although he estimates the number between 700 and 800.

Still, the industry of extending quick, high-interest loans to those in need is definitely a growing trend, he says.

"I can go into a bank right now and get a loan for $10,000," Kinlaw says. "But I can't go into a bank and get a loan for $100. The cost isn't worth it for them."

Fewer private shops open when the economy is bad, he says, because cash is the main commodity at pawnshops and pawnbrokers need plenty of it. Only one party in the deal can be desperate for money, so a broker who has to recover his losses on an item immediately won't stay open long.

Kinlaw's Buford shop, Quick Cash, is doing well because he's been savvy during the 15 years he's been in business, he says.

"I know somewhere in this economy there's money to be made; you have to find it."

With retail down, Kinlaw sells merchandise on eBay. He'd prefer to make loans and never sell a thing. But if there's an economic boom, he might consider purchasing new inventory and selling it retail, he says.

Cash America Inc., the largest publicly traded pawnshop chain, has ridden the economic wave to success. When times were good it adjusted, building up stores when they were cheap. Now, it can reap the rewards of loan increases and not worry about the dip in sales. Its stock has more than doubled in the past year; in July, it topped $18 for the first time in five years, according to second-quarter SEC reports. The company attributes its gains to the U.S. economy's losses.

Cash America isn't a friendly, down-home place like family-owned shops, and locations are invariably in poorer minority communities. Though the profits make the corporation successful, the atmosphere and location of its stores contribute to the image of pawnshops as vultures' dens. At the East Atlanta store on Moreland Avenue, black and Hispanic customers stand in a line that often stretches to the front door, silently waiting for service. It's nearly impossible to tell who's making a purchase and who's pawning merchandise or paying interest on prior loans. That's the way customers seem to want it as they speak in hushed tones to clerks and hand over a watch or remove crumpled documents from their pockets.

Cash America has made a foray into the lucrative payday loan market — a pawn loan with extra juice and no jewelry — and takers are plentiful. The loans can grant a pardon to people imprisoned by an expensive emergency and a temporary cash flow problem. But, like the pawn industry and other financial services aimed at the poor, payday loans are controversial.

Cash America declined to comment on its business. But the perception that pawnshops profit by taking advantage of the poor chafes Stephanie Greene, who works at the two Metro Pawn Shop locations owned by her father. Metro doesn't offer payday loans, but the image is the same, she says.

"People say it's taking advantage because of the interest, but they don't say anything about the late fees and the cost for reconnection if your lights get shut off. Which is less?"