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Noxious or neighborly?

"Noxious or neighborly?" Continued...

Customers are rarely the chatty types of Pawn Stars. More frequent: A short, slender man shuffles in under the red awning that spells out LOANS. He slides an envelope under the partition in the glass. Erica dumps the contents on the counter: several smooth gold nuggets. She studies them, then looks up and asks: "How much do you need? Nine hundred?" He responds, "Can I have one thousand?" Then he slides another gold item under the partition and asks for $1,100.

Erica nods. Ten years in the pawnshop business has taught her to spot false gold. She tests jewelry with acid or by scratching it. She knows her regulars-many of Asian ancestry-by name, and says most of the loans at Simpson are for gambling debts. Many of her Asian customers don't trust banks: They hold their savings in gold and sell some the way others withdraw money from a bank. Others have no savings and a generation ago might have fallen prey to loan sharks who break the legs of non-payers. (That was Rocky Balboa's job at the beginning of the famed film series.) Now, Erica asks concerning her customers, "Where else are they gonna go?"

Simpson charges 4 percent monthly interest and a 4 percent handling fee. For his $1,100 loan, the customer pays $88 interest/handling the first month, and $44 every additional month. About 80 percent of customers reclaim their items. Many will sell them the next time they need gambling cash.

One regular customer, Denise, is talkative. Dressed in red sweatpants and a grey hoodie, she says she regularly pawns jewelry and games, and once pawned her valuable Nikon camera-and never reclaimed it. Her hand shakes as she attempts to light a cigarette: "I've been pawning since the shop opened." She cannot quite remember when that was, but guesses about five years ago: "I need the money."

About 30 million people each year need the money or come to pawnshops looking for bargains. The National Pawnbrokers Association keeps records of customer numbers and average loan amounts: $100 in 2009, maybe up to $150 now. Banks generally don't make loans that small, or to people with poor credit-and since the 2008 banking collapse they've been more reluctant to take chances.

Pawnbrokers do take chances with their loans, because they hold the collateral and can make money whether the customer reclaims his item or gives it up. The question is how much money. Pawnshops generally charge more than banks and even credit card companies do, but 17 million American adults do not have bank accounts and access to loans, some by choice and some because banks have stopped throwing money at people with bad credit. Some say past bank overdraft fees and credit card late fees have cost them more than pawnshop interest.

Others like speed: When they offer an ID and hand over a piece of their property, they can get a loan without requiring a credit check, bank account, or a co-signer. Because the loan is based on collateral, borrowers do not have to keep paying and paying: The most they can lose is the item they've handed over to the pawnbroker. One danger is that pawnshop loans can hook users into a cycle of debt, but the risk is not as high as with other types of loans, since pawn loans tend to be smaller.

The Obama years have seen the rise of pawnshop chains. Two of the biggest, EZCorp and Cash America International, both Texas-based, do about 10 percent of the business done by the 13,000 mostly mom-and-pop pawnshops in the United States. The two companies target middle-class consumers who earn $30,000 to $80,000 a year.

Pawnshops used to be known as places trading in stolen items, but now pawnshops typically need to submit reports to local police that include serial numbers of items and identifying information concerning sellers. Since police can confiscate stolen merchandise and the pawnbroker has to take the loss, pawnbrokers have a financial interest in avoiding stolen property-but some shoplifters at stores reluctant to prosecute, and drug abusers who steal from families reluctant to prosecute, still get away with it.

New York City's Department of Consumers Affairs (DCA) has other concerns about pawnshops. DCA investigators last fall went undercover into businesses that dealt in gold, including pawnshops, and found widespread deception in weighing and pricing. The DCA also examined whether pawnshops stayed in business largely because banks did not have branches in poor areas, with residents lacking bank accounts turning to pawnbrokers instead. The study, though, showed no correlation between the number of bank branches per capita and the number of people with bank accounts.

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