Pawn Broking Facts

The Numbers
The Record
Around The World
Historical Facts
Miscellaneous Facts
Most Commonly Asked Questions About Pawn Broking

The Numbers:

Membership in the National Pawnbrokers Association has in risen from 50 in 1988 to more than 3000 today.
In 1911, there were 1,976 licensed pawnbrokers in the country, or about, one for every 45,700 citizens.
In 1988 there were approximately 6,900 pawnshops in the United States, one for every two commercial banks.
There are between 12,000 and 14,000 pawnshops in operation throughout the United States today.
Pawnshops made about 35 million loans in 1988.
Between 70 and 80% of all items pawned are redeemed.
As many as 10 percent of the adult population are served by pawnshops each year.
According to an article entitled "Cash Customers" in Forbes Magazine (May 1993), 25 million households representing more than 75 million people do not have a bank account. People without banking ties need an alternative.

The Record:

Formerly a male dominated industry, today women are also making their mark as pawnbrokers.
Pawnshop clientele are represented in a range of ages (must be 18 or older), races and genders with male and female customers being about equal. As the public becomes more educated about the types of services pawnbrokers provide pawnshops are serving a wider and more diverse clientele.
All items received by a pawnbroker must to be listed with the city and/or state's police department, therefore reducing the chance of a consumer receiving stolen property.
The pawn industry is one of the most regulated in the country. Most regulation has been initiated, sponsored and supported by pawnbrokers. Regulatory agencies include the Office of Consumer Credit and Law Enforcement on a local and national level.
Pawnbrokers have state, regional and national industry associations which work at self-policing the industry. In the case of public companies, the Federal Securities and Exchange Commission oversees their operations.
Pawnshops serve as a source of credit to millions of Americans, providing average small-secured loans ($50 to $100) for a brief time period (two to four months).

Around the World:

Free enterprise in the form of pawnbroking has reappeared in Russia and communist states such as China to fill the gaps of their national banking system.

Historical Facts

The Nursery Rhyme "Pop Goes The Weasel" refers to pawning. A weasel is a shoemaker's tool and to "pop'.' is to pawn. "That’s the way the money goes... Pop goes the weasel."
Queen Isabella of Spain pawned the crown jewels to finance Columbus' voyage to America.
The word pawn originates from the Latin word "patinure" which means cloth or clothing. The French word “pan refers to a skirt or blouse. In the early centuries, the principle assets people has were their clothes and borrowed money by pawning their clothing.
The Universal symbol of pawn broking is three gold balls and is one of the most easily recognized in the world. The Medici families in Italy, along with the Lombards in England, were moneylenders in Europe. Legend has it that one of the Medicis in the employ of Emperor Charles the Great fought a giant and slew him with three sacks of rocks. The three balls or globes later became part of their family crest, and ultimately, the sign of pawn broking.

Miscellaneous Facts

Many pawnshops around the country cater to the likes of actors, producers and directors.
High quality merchandise such as gold and diamond jewelry, VCRs and musical instruments can be found in pawnshops for about half the price compared with retail stores. The 1980’s provided a boon period for pawn broking, with new shops opening in all parts of the country. This upturn, in part, is due to the increase in the number of Americans excluded from mainstream credit markets and small banks closing and in significant part to the upgrading by the industry of the products and services offered to the public.

Most Commonly Asked Questions About Pawn Broking

Question: How does a pawnshop work?

Response: Pawnbrokers lend money on items of value ranging from gold and diamond jewelry to musical instruments, televisions, tools, household items, etc.. These items maintain their value over a reasonable period of time and are easy to store, especially jewelry. All customers provide collateral, eliminating the need to distinguish high risk from low risk borrowers.

Typically, loans are small averaging between $70 and $100, although they can be as small as $20 or as high as several thousand dollars depending on the value of the collateral. Contracts vary from state to state, but the average loan period is 90 days. Generally, interest rates will vary with the amount of the loan. The process is much the same as any other lending institution, with the primary difference being the size of the loan, the collateral and the holding of the merchandise until the interest or the loan has been repaid.

Question: Why would someone go to a pawnshop to get a loan?

Response: Pawnshops offer the consumer a quick, convenient and confidential way to borrow money. A short-term cash need can be met with no credit check or legal consequences if the loan is not repaid. A customer received a percentage of the value the broker believes the collateral would bring in a sale. Although the loan to collateral ratio varies over time and across pawnshops, a loan of about 50 percent of the resale value of the collateral is typical. In other words, pawnbrokers feel their loan is “ paid in full” at the time it is made.

When a customer pawns an item, terms of the loan are printed on a pawn ticket that is given to the customer. The ticket states the customers’ name, address, type of identification provided to the pawnbroker, a description of the item, amount lent, maturity date, interest rate and amount that must be paid to redeem the item. Most states regulate pawnshop interest rates and other charges, such as storage or insurance fees.

Question: Do most pawning customers lose their merchandise?

Response: On average, 70 to 80 percent of all loans are repaid. Repeat customers make up most of our business, similar to any other lending or retail establishment. Pawnbrokers know the vast majority of their customers because they often borrow against the same items over and over again. Pawnbrokers offer no recourse loans, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the loan. It is solely the choice of the customer whether he/she elects to repay the loan.

Question: How can I be sure the merchandise I purchase at a pawnshop isn’t stolen?

Response: Less than one fifty of one percent of all collateral is even suspect as having been misappropriated in any manner. Thieves and robbers is a pawnbroker’s worst enemy. Pawnbrokers work closely with local law enforcement to catch and prosecute these perpetrators. A customer must provide positive identification to show evidence of the transaction. This information is then presented to the police department, therefore decreasing the likelihood that a thief would bring stolen merchandise to a pawnshop. Pawnbrokers are trained to look for signs of stolen property to avoid these costly mistakes. It is not in the interest of the pawnbroker to accept potentially stolen merchandise because the police can seize the merchandise and the pawnshop owner loses the collateral and the loaned money.

Question: What is the difference between buying at a pawnshop and buying at a retail store?

Response: Mainly price. Pawnshops can offer you merchandise ranging from 1/3 to ½ off retail prices.

Question: Why is the image of PAWNBROKING changing since the 1930’s?

Response: Today’s pawnbroker is up grading everything from the interior and exterior of his or her shop location, employee presentation, customer service, signage, marketing and the merchandising approach. Pawnbrokers focus on providing exceptional customer service and are very active in the community, both politically, and in local charities. Pawnshops today range from a single or multi-store operation to publicly held company chains. The atmosphere at a pawnshop is nothing like what you saw in Rod Steiger’s depiction in The Pawnbroker – just visit one to see for yourself.

Question: Are pawnshops a “bad times” industry?

Response: Pawnshops survive bad times if they make adjustments both in at the retail and loan counters, but they do far better in good times. In hard times, customer’s move away to find employment, have less ability to repay their loans and the value of all merchandise goes down.

Merchandise values go down because the major retail discounter sells for less to maintain or broaden market share. If they sell for less, pawnbrokers must loan less thus creating a smaller return. Regardless of income level, most people periodically borrow money. In good times, customers are more able to repay their loans and redeemed merchandise sells faster because customers have more discretionary income.

Question: Do pawnshops downgrade the neighborhood and hurt property value?

Response: Neighborhood property values are impacted by the appearance and care given to the properties. There is no factual basis to support a claim that an eye-pleasing pawnshop negatively impacts values. On the contrary, if they attract customers, they enhance the opportunities for other merchants and the community.

Question: Are pawnshop rates excessive?

Response: To provide the service, all lenders must charge rates commensurate with risk, size and duration of the loan, collateral offered, and recourse. Pawnshop loans are small dollar, high risk, short duration loans. The item stands s the sole collateral offering no other recourse. And pawnbrokers are liable for replacement value if something happens to the item in their care.

There are no hidden charges as with other lending institutions. On the other hand, a pawnbroker cost basis is far greater. They incur cost for security, handling, storage, and regulations not incurred by others. Due to the 15-20% of pawn shop customers that elect not to repay their loans, pawnbrokers are forced to turn their “bad debts: into a retail center to recover their cost.
Other lending institutions do not incur retail cost including additional floor space, gondolas, counters, personnel, advertising, shop lifters, retail competitive cost, and new merchandise cost to supplement the unredeemed goods.

Question: Should there be zoning restrictions other than general retail?

Response: Pawnshops are neighborhood businesses providing vital services to the community. To restrict zoning to other than general retail should require a very compelling reason. The compelling reason should not be historical perception. To restrict zoning there should be something wrong with the service provided, the business it's self, or the customer served. The services provided by pawnshops include:

1. Discount Retail (new and pre-owned) is an opportunity for customer to make their dollars go further – it helps other merchants and community by giving them more discretionary funds.
2. Short-term credit enables the community to pay the bills of other local merchants such as groceries, medical expenses, utilities, auto and transportation to work. The pawn business is a neighborhood business with the majority of customers residing within 1-2 miles. The same people utilize pawnshops that utilize McDonalds. If appearance or wrongful activities are a problem, it has to do with that particular business, regardless of the kind of business. The customer is the surrounding neighborhood – if good, good – if bad, bad. Restrictive zoning denies access to credit to low-income consumers who cannot travel or who are uncomfortable in restrictive areas. Restrictive zoning implies the neighborhood is dishonest and questions the integrity of the residents. It says that how much money you have determines the quality of your credit worthiness.

The Credit Research Center
This document is a synopsis of the study, “Pawn Broking in the U.S.: A Profile of Customers”, completed in 1998 by the Credit Research Center (CRC), School of Business, Georgetown University, Washington, D.C. Robert Johnson, who holds a Ph.D. in management from Northwestern University, rounded the CRC in 1974 at Purdue University. Mr. Johnson was one of three presidential appointees to the National Commission on Consumer Finance and also was the reporter-economist for the Uniform Consumer Credit Code. Mr. Johnson has researched and testified about the effects of various regulations and judicial decision on credit consumers.
Michael E. Staten, who holds a Ph.D. in economics from Purdue University, is director of the center. Mr. Staten reports to a nine member governing board comprised of five academicians with backgrounds in consumer and mortgage credit, and four representatives from the consumer credit industry.

The CRC's objective is to improve understanding of the financial markets that serve consumers' credit needs, with emphasis on the costs and benefits to consumers of public policies and business practices. Legislation continues to be introduced that affects pawn broking, yet few significant studies and no large databases exist for evaluating the effects of regulations on the pawnshop consumer. The study, Pawn broking in the U.S.: A Profile of Customers, addresses the need to understand this segment of the consumer credit industry.