To gauge the state of our economy, you could talk to the economists and other so-called experts. Or you could attend the annual pawnbrokers’ convention, as I did, held last week at Caesars Palace in Las Vegas. There, I met Lee Amberg, his face sunburned from competing in the annual golf tournament that these days opens every Pawn Expo.
A 23-year industry veteran with a pair of pawnshops in suburban Chicago, Amberg says he could tell as far back as 2006 that hard times were coming. “Suddenly we saw our demographic expanding,” he says. “We had more customers coming to us from middle-class communities and even upper-middle-class communities. We saw the erosion of the economy before you were even reading about it.”
Except, who listens to a pawnbroker? “We have our thumb on the true pulse of the economy,” Amberg says with a sigh, “but we’re laughed at or ridiculed because we’re in the pawn business.”
These are fat times for the pawn industry—in no small part because these are hard times for much of America. Pawnbrokers are lending money to a new breed of customer—the kind who drives up in a sports car, lugging a large flat-screen TV to hock—and it’s not like their traditional clientele are any better off than they were a few years ago. Pawn is even hot in the popular culture, as reality TV has spawned no less than three shows starring pawnbrokers.
At first glance, the Pawn Expo could have been any trade show of its kind: booths for exhibitors selling their wares (diamond and gold buyers, mainly), breakout sessions for the more studious conventiongoer (“10 Successful Steps to Becoming a Watch Guru”), boozy parties at night. And the brokers—1,300 attendees in all—made for a friendly, casual bunch, dressed in resortwear for the 100-degree Vegas heat. Still, most people think of the corner pawnshop as a forbidding place, dingy and depressing and smelling something like their grandmother’s attic. “I would describe image as our biggest challenge,” says Kevin Prochaska, who took over as president of the National Pawnbroker Association at this year’s meeting.
But changing that image is no easy task for these lenders of last resort. “If someone is coming to us, that’s the definition of a bad day,” a pawnbroker named Kathy Pierce told me. Apparently, there have been a lot of bad days for the people living near the two stores she and her husband own in central Illinois. The loan volume at both “is higher than it’s ever been,” she says.
If you’re a fan of the hit show Pawn Stars, you might think that what pawnshops mainly do is buy used stuff. But the vast majority are really loanmakers: that watch or wedding ring (usually the same watch or ring hocked the last time) serves as collateral for a loan that usually lasts from a few weeks to a few months. The amounts borrowed are typically small—$100 or less, just enough to make ends meet until the next payday. Four out of every five customers successfully pay off their loan and retrieve the item they’ve hocked.
But a pawn loan isn’t cheap. The fees charged work out to an annual interest rate of between 50 and 250 percent a year, depending on the state. Prochaska, the association president, defends the high interest rates by noting that “a lot of overhead goes into every loan.” That’s because pawnbrokers must store whatever a customer brings in—jewelry, mostly, in big cities, but plenty of weed trimmers, fishing poles, and power tools in less-urban areas. And there’s no guarantee that the pawnbroker will ever be able to sell the items if the borrower defaults. For some pawnbrokers, the sale of forfeited items has accounted for half their revenue, and a lousy economy means they get stuck with more inventory.
Yet for most pawnbrokers, the spike in loan volume over the past few years—and the corresponding increase in the fees they collect—has more than made up for the decline on the retail side. “It’s an awesome time to be in the lending business,” says Nancy Martin, a pawnbroker from North Carolina who has had her own shop since 1981. “Whether you’re talking about our traditional customers or the new people coming in the door, people are really hurting.”