by As the economy continues to slowly recover from the Great Recession, many Americans are still struggling financially. A lack of available credit and declining home values have made it difficult for some to make ends meet or to obtain quick cash in times of need. At the same time, more consumers are turning to alternative lending options like pawn shops to get the money they need. This rise in demand has fueled the growth of the pawn shop industry across America.
History of Pawn Shops
Pawn shops have existed for centuries and originally emerged as a means for people needing immediate cash to get loans using personal possessions as collateral. Traditionally, the basic concept has remained the same – customers receive a small cash loan by temporarily forfeiting physical possessions to the pawn shop. If the item is not redeemed by paying back the loan plus interest and fees by the agreed upon date, the item becomes the property of the shop to sell.
Pawn shops really took hold and grew in popularity in America during the late 19th century as waves of European immigrants arrived and some took advantage of pawn shop loans as a means of credit when banks were less accessible to newcomers and the poor. The modern Pawn Shops in the U.S. was born, focusing on lending to individuals using a diverse array of collateral from electronics and jewellery to tools and musical instruments.
Expansion and Growth in the 21st Century
According to the National Pawnbrokers Association, the pawn industry has seen steady growth over the past 15 years with over 10,000 pawn shops now operating across the country, up from around 4,000 shops in the early 1990s. This growth can largely be attributed to economic recessions which always increase demand for fast cash loans. The Great Recession of 2008 saw an intense expansion as many people faced unemployment or underemployment with limited credit options.
The Shift to Consumer Loans
While traditional pawn loans using physical items as collateral still make up the core of most shops’ business, many have expanded into small consumer loan programs in recent years by offering loans of a few hundred dollars or less without the need for collateral. This shift has further broadened the industry’s customer base and helped meet a growing demand for small dollar, short term loans from both new and existing customers. According to a FICO survey, around 19% of Americans used this type of payday or installment loan last year.
Consumer spending rules and regulations vary by state but most shops now offer loan programs alongside their traditional pawn services. They have improved technology and streamlined the application process to provide funds more quickly while ensuring customer repayment abilities. These “payday alternative” loans remove the need to forfeit items and normally only require proof of income and ID. Rates and fees are still high but offer convenience that some find worth the cost.
The Rise of Online Pawn Operations
Technology has also allowed some large pawn chains, like Cash America and FirstCash, to move into the online arena by launching web-based pawn and loan platforms. Customers can search inventories across multiple store locations, fill out applications, upload images of items, and receive quotes without visiting a brick and mortar shop. Approved loans are funded within hours via electronic deposit.
Consumers appreciate the ease and privacy of online interaction while operators like that web-based systems lower costs. Online pawning is not yet popular nationwide but usage has doubled each year and appears primed to grow exponentially with rising smartphone and internet access. Major chains are investing heavily in digital infrastructure to transition more established stores to hybrid physical/online models in the next 5 years.
Controversies and Criticism
Despite playing an important financial role for many, pawn shops have long faced criticisms over high interest rates and a perceived association with crime and unethical business practices. However, advocates argue the industry is strictly regulated and point out most loans are quickly repaid without issue by trustworthy customers just needing short term financial flexibility.
Still, public concern over issues like predatory targeting of military families, the elderly, or those struggling with addiction has led some states to enact legislation capping rates or banning certain activities. Ongoing opposition from social justice and consumer advocacy groups also pressures operators to demonstrate responsible lending standards. But with high demand showing no signs of slowing, the regulatory and social battles over balancing consumer protections against financial access are sure to continue.
