by Michael Panzer
I spend a lot of time at Financial Armageddon writing about ordinary people who are dealing with major hardships because of the financial crisis. Many have lost their jobs, their homes, and their families through no fault of their own, and have been reduced to scrapping and scraping as best they can.
But what about those who are nearer the top of the ladder — you know, those big earning-and-spending types that suddenly can’t afford to buy the biggest homes, splash out on the most luxurious outings and vacations, or enjoy all the rewards they feel entitled to? Should they have to suffer because current economic conditions have left them a tad short of cash?
Luckily, they now have access to the kind of safety net that has proven to be a lifeline for the poor and downtrodden — and so many others. If the temporarily un-well-to-do need a little something to tide them over, as Newsweek reveals in “A Pawn Shop for the Affluent,” they can simply put up the Picasso as collateral.
This lender holds onto your Rolex or solid-gold purse if you need a hundred grand right now.
Pawn shops may bring to mind impoverished people dragging in Grandma’s clock radio to trade for just enough money to keep the lights on. But tough economic times have started bringing in a different type of customer: the affluent. Now instead of accepting a boom box in exchange for $60 to buy gas, a new kind of pawn shop is accepting Picassos and Rolexes in order to grant emergency loans of up to $100,000.
Todd Hills, 46, started the company, now called Boomerang Lending, 14 months ago, after noticing that credit had gotten so tight that even the upper middle class were having trouble getting loans. Hills knows the importance of having cash on hand. He started working at a pawn shop outside Denver when he was 22, after his family lost their farm. A few years later he opened his own shop, using his wedding gifts as the first items for sale (his new bride wasn’t angry, he says.)
“It was still very underground, back then, with Plexiglas and bars,” says Hills. By the time the recession came along, 23 years later, Hills owned more than 20 shops in Western states and saw a new opportunity. “There is a certain type of affluent customer that will not go into a pawn shop. And they don’t have a $50 or $100 problem. Maybe they have a $100,000 problem.”
Pawn shops, whether of the dingy or more glamorous variety, make their money by offering high-interest loans while holding onto a possession brought in by the lender—it could be an engagement ring or, in the case of Boomerang, expensive artwork. If the lender fails to pay back the loan—with interest—by the agreed date (usually 30 to 60 days), the family jewels, or whatever, go up for sale. Among regular pawn shops, interest rates can be as high as 20 percent per month.
A Ducati racing bike worth $90,000; a Corum Golden Bridge watch ($85,000); a Viper car worth $70,000; and a solid-gold, 19th-century cocktail purse valued at $25,000 are some of the items Hills has held onto while clients have used the emergency loans to keep their businesses running. Last week a client brought in as collateral a Picasso that could be worth as much as $100,000.
There are other pawn shops (or collateral lenders, as they like to be called) that deal with higher-end customers. Beverly Loan Co., a super-high-end pawn shop in Los Angeles, has made loans in the million-dollar range. Pawn Stars, a reality show, features a Las Vegas shop where a customer once pawned a Fabergé egg.
But Emmett Murphy, a spokesman for the National Pawnbrokers Association, says wealthy customers are still the exception in the industry. The average loan is about $80 and the average customer makes about $29,000 per year. But he says that while Donald Trump is not the average customer, pawn shops are moving into more upscale neighborhoods, as well as shopping centers. “What we are seeing is more middle- and upper-middle-class people coming in over the past two years,” he says. “[During the recession] the pawn shop started to became a more mainstream lending institution.”
