Between You and Me | Carroll Leggett | Hard Times and Pawnshops

Hard Times and Pawnshops

By Carroll Leggett

In these hard times, you would think that at least pawnshops are doing well. Actually, traffic did pick up during the recent period of $4 gas. Getting to work was more important than a fancy guitar or an unworn high school class ring. But increased business can be a double-edged sword. Pawnshops aren’t nearly as interested in guitars and class rings as they are in the interest on the loans for which they are collateral. If more customers fail to repay loans and reclaim “pledged” items, and fewer people during hard times shop for guitars, power tools, used TVs, weed whackers, and the myriad other items that make their way to pawnshops, pawnbrokers have a situation.
In good times and in bad, the industry battles a negative stereotype created by chock-a-block pawnshops and tattoo parlors of military communities and images of desperate people making their way to strip malls and sketchy parts of towns to get quick cash at exorbitant interest rates.
The National Pawnbrokers Association declares that it is trying “to upgrade the image of pawnbrokers.” I give them an A plus for spin. “In today’s diverse society,” the Association’s Web site says, “many people depend on pawnbrokers to help them meet their daily financial needs not met by other financial institutions. Our customers represent the working families of America who have an unexpected need for short-term cash. Pawn loans keep the electricity on, the rent paid, and cars working and full of gasoline.”
Regardless of the profession, you find the good, the bad and the ugly. The one pawnbroker I know certainly defies the stereotype. His family has been in the business for the better part of a century. He’s a small businessman with a dozen employees — an entertaining gentleman who enjoys good food and drink. He dresses well and conservatively, appreciates antiques, travels abroad and is a highly regarded member of his Chamber of Commerce.
I have always wondered how we came to accept as fact the statement that “prostitution is the world’s oldest profession.” Is this an application of the legal principle of “opportunity and inclination” that divorce lawyers understand so well?
There is evidence that the Chinese were lending money using the “pledging” model 3000 years ago. A similar system was well established in the Lombard region of northern Italy in the Middle Ages — so much so that persons in the financial industry sometimes still are referred to as “Lombards” in Europe. The famous Lombard Street in New Orleans was named from the financial activity centered there. English kings pawned treasure to wage war, and Elizabeth I purportedly hocked her jewels to finance the exploration of the New World by Columbus in 1492.
Kevin Prochaska, a pawnbroker in Longview, TX, who is a director of the National Association, knows much of this history. He named his company “Lombard Financial Services,” which intrigued me, so I called him. He is a pleasant sort who makes a convincing case for his industry and the high interest rates on its short-term loans. He pointed out the contingencies involved, including having to make judgment calls on the value of pledged items, costs of storage, rapid obsolescence of property — such as computers and electrical items — and the necessity to sell items to recoup loans.
Kevin made an interesting observation. “Most short-term loan companies, including pay-day loans, require only a couple of people in a small store front. We have lots of employees and substantial overhead. The pay-day shops can start a cycle of credit in which people dig themselves deeper into a hole. They borrow a second time to cover what they couldn’t pay on the first loan, and the debt piles up. With pawnshops, it is a single transaction. You pledge an item, pay off the loan and get it back. Or you can walk away with no hard feelings. It doesn’t go on your credit report, and if you come in a week later with another item to pawn, we welcome you.”

The process is simple. You need quick cash. You bring in an item — let’s say a diamond ring. The pawnbroker makes a judgment on its worth and resale value, then makes a loan using the ring as collateral. A series of payments with interest is agreed upon, and you walk out with money in your pocket. But the ring is “pledged” and stays with the pawnbroker. If you live up to the terms of agreement, you get the ring back. If you don’t, the pawnbroker sells the ring and pockets the proceeds, even if the price he receives exceeds the amount owed on the loan. A deal is a deal.
The pawnbroker’s symbol is three balls, supposedly an adaptation of the symbol for money (three coins) found in ancient heraldry. As Dr. Robert E. Lee at the Wake Forest Law School told us, “Two hang high and one hangs low. That means two-to-one you are never going to get it back.” Actually, 70-80 percent of persons who pawn property reclaim it.
Most pawnshops carry a lot of new merchandise. Jewelry, musical instruments, sporting equipment, cameras — it runs the gambit. They also buy gold — necklaces, bracelets, class rings and the like. My morning paper had a half-page color ad from a company offering “high prices” for gold class rings. “We pay up to $500.”
“Yeah, I bet,” I thought.
I have a high school and a college ring. I fished them out of a drawer that contains a dozen or so pairs of cuff links, expired passports, watches that don’t work, and extra shoe laces and took them to my friend’s pawnshop. He explained that their value is tied directly to the price of gold on a given day. The high school ring was 10-carat gold and weighed 12.9 grams. At $7 a gram, I could have sold it for $90 — three tanks of gas for my Ford — or pledged it for a $65 loan. The college ring was also 10-carat gold and weighed 25.7 grams. At $8 a gram, I could have sold it for $205.60 — a month’s utility bill — or parlayed it into a $126.50 loan.
As we visited and looked at diamond and emerald rings selling for up to $25,000, a young banker-type in suit and tie shopped for an engagement ring; a woman obviously down on her luck made a payment on a loan; a fellow had a gold chain repaired and inquired about Waterford Crystal; two Latino guys examined guitars; and a student in jeans tried to sell a used drum. No luck. The shop was over stocked. And it was a pitiful looking drum.
There Is Another Facet Of The Business.
The stock in trade of an established “gentleman” pawnbroker is discretion. “People of quality” fall on hard times. Today, the rich and famous borrow against artwork through specialty society pawnbrokers. Annie Leibovitz, the renowned photographer, is coping with her cash flow problems by pledging part of her art collection and rights to her photographs. Another example is a friend — old money — who told me she got excited the first time she heard someone use the phrase “cash flow.” “Until then, I was embarrassed to tell family members I was broke and needed an advance. Now I simply tell them, ‘I have a cash flow problem.’ It’s so much more dignified,” said this octogenarian.
For sure, blue-haired ladies with town cars and jewels do have cash flow problems. A discreet, understanding gentleman pawnbroker can be a girl’s best friend by advancing cash against pledged jewelry. The pawnbroker also will buy quality jewelry outright and then quietly sell it through contacts among the smart set. The new owner can tell friends her diamond cluster “dinner ring” was a gift from a favorite aunt. Everyone’s pride is protected.
A word or two about pawnshops and stolen property. I visited another shop for a look-see. As I was leaving a young fellow came in, talked with an employee, then got a high-end bike from the back seat of his battered auto. There was something wrong with the picture. The kid did not look like the biking type.
Except for an occasional shady dealer, there is a close working relationship between law enforcement officers and pawnbrokers. Any item identified as stolen is returned to the owners and the pawnshop is out the amount of the loan — a strong incentive to make sure all transactions are above board.
Most jurisdictions have strict reporting laws that require pawnshops to confirm identities of pawners, report items in certain categories to law enforcement agencies daily, and hold property for a time before selling it. Computerized databases allow police to cross check items pawned against reports of stolen property.
Between you and me, savvy criminals know better than to try to “fence” items at pawnshops. But some still try. As retired policeman Randy Patterson wisely observed, “Crack-heads generally are not very savvy.”