Pawn shops soar: More consumers depending on these banks for broke people

photo Employee Leonard Carroll places a gun back in a display case Tuesday at U.S. Money Shops.


Pawn shops eager to shed the unwelcome stereotype as a fence for stolen goods are getting unexpected help from a source that most say has been a source of aggravation in recent years: online competitors.Some criminals have started to bypass pawn shops, selling their goods on, eBay or even, said Sergeant Rebecca Shelton, who oversees property crime for the Chattanooga Police Department.While pawnbrokers like Greg Johnson, co-owner of Quick Cash Pawn Shop on Rossville Boulevard, are glad that some thieves are now selling their stolen goods online instead of in brick-and mortar stores, the rise of online marketplaces has also cut into margins, Johnson said. Big-ticket items like Rolex watches, while still making their way to pawn shops on occasion, are more often found online these days, he said."eBay is killing pawn shops," he said. "The corporate pawnshops don't scare me. They're gonna get some of your business, sure, but eBay scares me more than anything."Yet some of those same corporate chains, like U.S. Money Shops, are embracing the online revolution, using their size to bleed off inventory that won't sell at the stores, said Jabo Covert, spokesman for U.S. Money Shops. The chain, co-owned by Cleveland, Tenn., businessman Allan Jones, has moved aggressively into both the physical and online market since the first store was founded in 2006."We have a photography studio set up where we take excess inventory and we put it up ourselves, so we're competing against online [marketplaces], but we're also participating in it," Covert said.Even as customers look for more items online, there will always be an advantage to a brick and mortar store, he said. For one thing, pawnbrokers are unlikely to buy an item that they can't examine in person. On the other side of the transaction, there are some items that customers are loathe to buy without first seeing the product, he said."On eBay, it's hard to put your hands on a drum set, listen to the way a guitar sounds, touch a camera or see how a gun feels in your hand," Covert said. "To be able to put your hands on an item, there's still value in that."

photo Employee Ross Ford examines an acoustic guitar at U.S. Money Shops on Tuesday.

It's nearly time for the lunch rush at Quick Cash Pawn Shop on Rossville Boulevard.

A young woman in a saggy T-shirt opens the front door, cradling a 12-megapixel camera in one hand and using the other to push past the steel security bars protecting the glass.

She strides over the threshold, not into a dingy room piled high with dusty electronics and firearms of questionable origin, but into a well-lit showroom organized like a department store. Guitars on the left, jewelry to the right, guns straight ahead.

Welcome to the bank for broke people, one of nearly two dozen such stores in the Chattanooga area that provide the micro loans necessary to bridge the gap between paychecks or welfare checks.

The number of pawn stores across the United States has grown from about 6,400 in 2007, at the start of the Great Recession, to more than 10,000 today. At the same time, the percentage of underbanked U.S. households -- those that have a bank account but primarily use cash, pawnbrokers and payday lenders -- climbed to 20 percent, or one in five families, according to an FDIC survey. That's up 2 percentage points from 2009, the survey showed.

Less than half of all Tennessee households have ever used a payday lender or pawnbroker. But more than 93 percent of underbanked Tennesseans, the highest proportion of any state, at one time have used pawnbrokers or other alternative financial services to meet their needs. Alternative financial services are especially popular among black households, of which about 24 percent report they visited a payday lender or pawnbroker within the past 30 days.

That's double Tennessee's average, according to the FDIC, which reported that just 9.7 percent of Tennessee's white non-Hispanics said they had used such services within the past month.

At the Quick Cash Pawn Shop, the young woman offers up her camera in exchange for cash. No credit, no problem. She haggles a bit, pawns the camera for $35 and leaves to finish her shift at work. Though she's lost access to a decent digital camera, she'll be able to put gas in her car and food in her fridge for the weekend. Total transaction time, less than six minutes.

A middle-aged mechanic arrives a few minutes later. He's here to pay the interest -- about 20 percent -- on a set of guns that he pawned a month ago. A women in her 40s follows him into the store, clutching a wad of bills to roll over the loan on some jewelry that she pawned. A few more payments and she could get her rings back.

Some things are never as valuable as customers think they are. Pearl necklaces and earrings are worth very little at present because suppliers have flooded the market, pawnbrokers say. Perhaps less surprisingly, as much as 95 percent of Confederate money is worthless because it's either fake or in terrible condition.

Firearms and 4-wheelers, on the other hand, always hold their value. A customer can bring in a gun, get a $200 secured loan to pay off a medical bill, and then buy the weapon back for $244 the next month when their paycheck comes in.

They can do this as many times as they want, every month if they want to, pawning and redeeming the same item over and over again. And many do.

"Your business is built on repeat business," said Greg Johnson, co-owner of Quick Cash. "The majority of my business is people on a fixed income. It's all people who are trying to get by until the first or third of the month."

"They need a place"

Tightened banking rules and compliance costs mean that traditional banks can't provide the small loans needed by these households, and instead focus on wealthier customers and businesses that are more likely to pay back loans.

In practice, there's no way for an unbanked Tennessee resident with bad credit to walk into a bank on Friday and come away with $100 to make it through the weekend. It just isn't possible.

First Tennessee, the largest bank by deposits in Chattanooga, doesn't lend less than $2,500, "and we don't make money until we get way over that," said Keith Sanford, market president for the bank. "Even at that level, we try to steer them toward a credit card."

SunTrust has an option on its website for unsecured loans, but it also requires a credit check, and the minimum loan amount is $3,000.

Some banks, like Regions Bank, have launched payday loan-type products, but they require customers to open an account first, and have faced scrutiny from the U.S. Consumer Financial Protection Bureau and from watchdogs like the Center for Responsible Lending.

Many of today's pawn customers once had a credit card or other type of access to bank credit, said Emmett Murphy, a spokesman for the National Pawnbrokers Association. But some of them fell on hard times during the recession and are no longer on friendly terms with banks, which can track customers who have a bad history of paying their bills.

"They may have a leveraged relationship with the bank, they may have credit cards or have had them in the past but don't any longer, and they still need a place to go borrow money," Murphy said.

Other consumers have no problems using a bank, but they prefer the convenience of being able to walk into a store with something they no longer want, then walk out a few minutes with a handful of crisp dollar bills. It's one of the easiest transactions in the world.

How it works

The pawn business is fairly predictable. Toward the end of the month, consumers from all walks of life enter the store clutching a family heirloom, an old stereo, a set of tires or an LED TV.

The pawnbroker pays them for the item, or more often makes a loan against the value of the item, keeping the object as security. If customers don't repay the loan with interest within 60 days, the pawn shop can resell the item to someone else. Most customers come back at the beginning of the month -- after their check arrives -- and at least pay the legally-capped 22 percent interest rate due that month to keep from losing the item. Paying the minimum is called "rolling over" the loan.

About three in four people end up getting their stuff back, Johnson said, which is good because like most businesses, pawnbrokers can't survive if they acquire a bunch of inventory that they can't sell.

"To be successful, to be really successful, you have to try to loan in such a way where you have a high redemption rate," Johnson said. "You want them to get their stuff back."

This isn't a new concept. The pawn business is one of the oldest professions -- after prostitution. Christopher Columbus funded his journey to the New World thanks to the Spanish Queen Isabella, who pawned the crown jewels to raise cash for the voyage. Members of the Italian Medici family in Florence, famous for spawning the political genius Machiavelli as well as several popes, pawned great works of art to finance their conquests and behind-the-scenes machinations. Today, the TV show "Pawn Stars" is in its fifth year on the History Channel, as hordes of viewers tune in for a double-barreled education in history and commerce.

"Pawnbrokers are really a unique form of lending," said Murphy, the industry spokesman. "They're not selling money, they're lending against an item of value."

But like any lender, the pawn business has its share of detractors. Though there are many publicly-traded chains and independently-owned stores that thrive on a reputation of being clean, safe and friendly, others have a reputation as a clearinghouse for stolen goods, where thieves go to fence their ill-gotten electronics and jewelry.

To some, they're a place where dreams go to die, as evidenced by the rows of guitars given up by aspiring musicians, and boxes of professional tools left behind by mechanics and contractors.

"All they do is prey on human misery," said Times Free Press reader Obi Jahn.

FAST FACTAbout 17 million adults, or one in 12 households in the U.S., have no bank account whatsoever.

Chattanooga resident Jim Rothwell hasn't been in a pawn shop since he stopped doing cocaine. That was when he hit rock bottom and lost everything.

"Been clean now for a little over 13 years now and have not stepped into a pawn shop in over 13 years," he said.

Mary Holcomb from Soddy-Daisy said she's never sold anything to a pawn shop, primarily because of the sky-high interest.

"They let my mom, who had dementia, borrow off of the car several times," she said.

The store kept allowing her mother to pawn the car until Holcomb threatened to go to the police, she said.

In fact, pawn shops have an unusually close relationship with police, because of the laws that require them to keep a record of every item that comes in the store. Pawnbrokers are required to record the serial numbers of all exchanged goods, record a driver's license for each transaction and turn the list in to police within 48 hours. And the sale of a firearm does require a background check.

"We're one of the most heavily-regulated places in the world," Johnson said. "The number of things that turn up stolen are less than 1 percent."

Richard Mason, district manager for U.S. Money Shops, said an average street criminal should feel a little uncomfortable walking into one of the chain's 11 stores, each of which is specially designed to dispel any thoughts of criminality.

Mason, sitting in the U.S. Money Shops store on Brainerd Road, pointed out the colorful balloons, high ceilings, bright lighting and professionally-dressed staff. Patrons run the gamut from well-dressed white-collar workers to some who have no collar at all. There's no seediness, no furtive glances, nothing that would appear unseemly.

"Thirty years ago, if you wanted to go to a pawn shop you had to go to the worst part of town," Mason said. "Our stores now are designed to make everyone feel comfortable. We don't want to make them so nice that they scare people away, but we want people to feel safe in shopping here."

High above his head, tucked into every corner of the store is an extensive video surveillance system covering all the angles in the shop. Behind the counter are copies of every customer's drivers license. In the back, racks of shelves hold items in pawn shop purgatory, waiting the legally-mandated 21 days after buying an item before they put it up for sale. That's to give theft victims enough time to report items that the store has purchased outright. It's only 21 days because these items have been bought outright and not pawned.

Though it seems counter intuitive for a thief to walk into a store filled with video surveillance and show their drivers' license with the knowledge that the police will be aware of their identity by the end of the day, many still do, said Chattanooga Police Sgt. Rebecca Shelton.

Her officers find stolen goods at area pawn shops nearly every week, which the police promptly reclaim, she said.

"The item goes back to the victims; the pawn just basically loses money on it," Shelton said.

Shelton said police haven't had any problems with pawnbrokers skirting the rules recently.

"It's been a long time since we've had any that have not been up to par," she said.

Reaching other demographics

That's part of the story behind pawnbrokers' growing clout as a legitimate financial service, as the businesses attract attention from demographic groups who in years past would have shied away.

Though surveys show that almost 30 percent of the stores' most frequent customers -- measured as those who have visited within the past 30 days -- still make less than $15,000, slicing the numbers a little differently reveals a surprising amount of interest from those who are more well-off.

In Tennessee, more than a quarter of those who make between $30,000 and $50,000 have been pawn customers in the past year, and one-fifth of those who make between $50,000 and $75,000 have been to a pawn store in the same period, according to the FDIC. That's a decisive shift toward the middle-class, said the spokesman for U.S. Money Shops, thanks in part to television exposure.

"Even without all the TV shows, it's gotten hip and cool," said Jabo Covert, spokesman for U.S. Money Shops. "Customers will give us a price, we'll give them a price, and then they'll say, 'Don't you need to bring in an expert now?'"

But while growing market penetration among the middle class makes a good argument for the legitimacy of pawn, there's also a societal value in keeping lines of credit open for those who have no other choice, said Simon Vainrub, a writer in the high-risk lending industry.

Without pawnbrokers, there are few other solutions for renters who want to avoid having their electricity turned off, or for people who need to deal with an unexpected hospital bill, or even for contractors who need to pay their employees or risk going broke. Though the high interest rates may rankle some watchdogs, the pawn industry is a bridge between paychecks that shouldn't be burned, Vainrub said.

"If you need $100, $300, $500, you're not gonna get it from a bank, but you can pawn your TV or computer or jewelry," he said. "Sure, the altruists hate them, but so what? When was the last time an altruist gave you money?"

Contact staff writer Ellis Smith at, or call him at 423-757-6315.