|EXCLUSION – Pawnbroking is in vogue. The British poor are forced into Victorian-type practices as they get trapped between exclusion from mainstream credit sources and predatory doorstep lenders.
|Based on a report by Elaine Kempson from the PFRC, pawnbroking figures speak of a revival in this simple (but backward) way of borrowing money. The number of sub-prime borrowers in the UK is rising again as the 9m British being denied access to mainstream credit resort to desperate measures. The lack of alternatives available to the poor and indebteded is shocking, as they are left to fend for themselves. The inflexibility of the current system for an individual’s small treasury financing is blamed on the bankers for leaving the highstreet and forgetting their social responsabilities, and on the fact that people are finally thinking twice before subscribing to credit at 200% APR.
HOUSEHOLDS IN HOCK
(Jul 13th 2006 from The Economist)
WHY PAWNSHOPS' BUSINESS IS BOOMING
A charm bracelet festooned with trinkets, worn and slightly dented, hangs in the window of a pawnshop in Paddington, in west London. It was a gift from a man to his wife, says Bernard Mooney, the shop's manager. Every year he would add a new trinket, until the two ran out of money. They pawned the bracelet and were given, as is usual, a loan for less than a third of its value. But they could not pay it back, and the bracelet is up for sale at a snip. “You hear the saddest stories”, says Mr Mooney. “But you also get people saying, ‘You've saved my life.’”
Pawnshops are saving more and more lives these days. It is hard to say how many pawnbrokers there are because they are lumped with other consumer-credit firms in official statistics. But the National Pawnbrokers Association reckons the number is between 800 and 900, and growing. Harvey and Thompson, Mr Mooney's employer, has 69 shops and plans for another 30 in the next three years. Albemarle & Bond, the other national chain, has 75, twice as many as in 1998. In May Harvey and Thompson floated on the Alternative Investment Market (AIM). It hopes to mimic the success of Albemarle & Bond, whose share price nearly doubled last year. Both firms report mounting profits.
Why this pawn revival? The biggest reason is that more people—just over 9m—are being denied access to mainstream credit, often for missing loan payments in the past. Until last year the number of sub-prime borrowers had been falling.
Without overdrafts or credit cards, such people struggle to get by. In a survey of pawnshop customers, Elaine Kempson, from Bristol University's Personal Finance Research Centre, found that over half had pawned possessions to buy daily necessities, including food. And although pawnshops' interest rates seem outrageous to more fortunate borrowers, they are cheaper than the alternatives available to the poor. They charge around 7%, or an annual percentage rate (APR) of 100%, for a typical six-month loan. Unsecured home—or doorstep—credit has an average APR of about 175%. Borrowers may of course value the convenience of making payments at home and the fact that occasional late payments are not penalised.
Another reason for pawn's resurgence is the switch from weekly to monthly pay days, increasing demand for small sums that can be swiftly raised and repaid. Then there is the exodus of banks and post offices from the high street. Immigration may also play its part: Mr Mooney says many south Asians, who tend to keep some capital in gold, pawn 22-carat pieces.
To exploit this demand, pawnbrokers are shedding their dingy, Dickensian image. Harvey and Thompson's shops are airy and light; their windows look like those of high-street jewellers, with unredeemed goods buffed up and arranged on velvet. The firm has opened branches in shopping malls and attracted new customers by offering cheque-cashing, pay-day advances and pre-paid credit cards.
The ancient business of pawnbroking remains essentially unchanged. But for modern borrowers it has new advantages. Pawnbrokers do not make credit checks, and using them does not imperil credit ratings. Because a loan is secured by the piece in hock, risk is finite. Yet although pawnshops are doing well, they are unlikely to replace doorstep lending. After all, to borrow from a pawnbroker, you must first own an object of value.
Created: 18/07/06. Last changed: 18/12/06.
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