Pawn shop loans spike as high gas prices weigh on Americans

So far, most of the pawnshop owners interviewed said they haven’t yet seen significant increases in defaultsAuthor of the article:You can save this article by registering for free here. Or sign-in if you have an account.Pawn shop owners across the United States say they’ve seen an increase in demand for loans in the past month or so, a sign of just how punishing higher gas prices are for some Americans.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.“We’re making a lot more loans,” said Tim Cassidy, the fourth generation in his family to run Cassidy’s Jewelery & Loan in Stockton, California. “They have to have that gas, they have to get to work.”Lower-income households spend a larger portion of their wages on fuel than wealthier families, and so are among the first to feel the hit when pump prices go up. The surge — from an average of US$2.984 per gallon before the Iran war to US$4.166 as of April 8 — has left some without enough cash to fill up their cars or pay for electricity or groceries.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.On Friday, the Bureau of Labor Statistics said U.S. inflation increased in March by the most in nearly four years, driven largely by the increase in gas prices.The middle-income and beyond are feeling the pinch, too, from what pawnbrokers are seeing. “Expensive watches are coming in a little bit more frequently,” said Abigail Mielcarek, co-founder of Abby’s Pawn and Coin in Santa Rosa, California. “Some of the people who have more money are also feeling what’s going on.”Pawn shops can offer timely signals about consumer strain that may not be clear in official statistics, which often mask the experiences of different socioeconomic groups and are typically released with a lag.The businesses issue short-term loans in exchange for collateral — a gold necklace, a guitar, a tool kit — left at the store. Interest rates vary by state, with monthly averages ranging from three per cent to 25 per cent. That can equate to an annual percentage rate, or APR, of 300 per cent.Cassidy’s family-run shop has been around since about the time Ford launched its Model T, and the 82-year-old Cassidy has seen again and again that costlier gas is bad for U.S. consumers and good for his industry. “A lot of people live very close to the edge,” he said.The business is “countercyclical,” said Brian C. McNamara, an analyst at Canaccord Genuity, who covers the two publicly traded pawn operators, Ezcorp Inc. and FirstCash Holdings Inc. “If pawn shops are doing well, it probably means that some part of the economy is not.”In his quarterly survey of 47 of the companies’ thousands of shops, McNamara said he found around one-quarter were busier in the first quarter compared to the same period a year ago, while only 12 per cent were less so. This week, he raised his FirstCash target to US$242 from US$240 and Ezcorp’s to US$40 from US$34. Shares in both are trading at five-year highs, buoyed by robust revenue growth and what he said was management’s “solid execution.” The average loan made by FirstCash last year was US$312; at Ezcorp, it was US$209.Many borrow money this way because they can’t get bank loans for just a few hundred dollars and they often don’t have accounts with lenders or wouldn’t pass a credit check. For them, “everything is so tight,” said Stacy Vanegas Vazquez, head of marketing at Sunbelt Pawn, which has 19 stores across Texas.“We come at the end of their bills — everyone is going to pay their light bills before they pay their pawn shop.”Some of her customers are starting to ask for more time to repay loans, while some longtime clients have begun to default. Other pawnbrokers said people are starting to sell more valuables to shops outright, probably concerned that they wouldn’t be able to pay off loans. And there’s been an uptick in demand for the merchandise; if a borrower defaults, the collateral becomes the pawnbrokers’ property.“More people are buying secondhand,” Mielcarek said.So far, most of the pawnshop owners interviewed said they haven’t yet seen significant increases in defaults, which may be because tax refunds have been coming in.

But Janelle Morehart-Leevey, co-owner of Ponders Pawnbrokers in Lakewood, Washington, said she’s noticed clients walking back in with the same items they hocked just a few weeks earlier to secure a new loan.“‘I just need a little bit until I get paid,’ we’re hearing that more and more often,” she said.One regular at Ponders, Mel Mason, recently put up a firearm in exchange for US$200, the money going to cover a US$150 veterinarian bill for one of his dogs.Mason, 57, a National Guard program analyst and full-time student, said he prefers a short-term loan from a pawnshop because it’s fast — and at a bank, “loan officers want to know everything about you, including your blood type.”McNamara, the analyst, said that before the Iran war, he and others were expecting tax refunds this year would really help lower-income Americans make ends meet. “That’s not been the case,” he said. “You have gas prices that are just slapping people across the face.”Bloomberg.comPostmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.