Pawnbrokers are  'the people's bank'

Michael Isman values the fine things in life: jewellery, art, vintage instru­ments, the latest consumer electronics. It's not just a personal interest; he values them literally, in his career as a pawnbroker.

A lot has changed since 1976 when, after earning a business degree, he joined his fa­ther in handing out cash loans in return for pledged goods at Vancouver's Royal City Jewellers & Loan, Canada's largest pawn operation. The advent of eBay and other online auction sites, for instance, has greatly broadened the market for the wide range of items pawnbrokers sell when customers default. And there are now several organi­zations enforcing industry ethics, including the U.S.-based National Association of Pawnbrokers (which has several Canadian executive members), the British Columbia Pawnbrokers Association and an Ontario group formed last year.

One thing, however, has not changed: the negative public perception of pawnbrokers.

"It's frustrating how little people under­stand what we do and who our clients are," says Mr. Isman, a founder of the B.C. asso­ciation. "We don't deal with winos and stolen property. Our base customers are middle-class and one-fiftieth of one per cent of the merchandise we handle is stolen.”.

While Royal City polishes its image by participating in charitable activities, Ken Keane, owner of Centretown Pawnbroker, battles the cultural stereotype through the ambience of his London, Ont. store. "People expect to find some guy chomping a cigar in a metal cage in a dark store," he sighs. "We've got lots of bright, natural light, custom-designed wood counters and no bars on the windows. Instead of intimidating, we want it to be a welcoming space."

Still, despite the industry's antiquated im­age, business is booming. Mr. Isman says pawnbroking has steadily grown since the early 1990s, when Canada's social safety net began to unravel.

More than 75 million North Americans have neither bank accounts nor credit cards, which gives them nowhere to turn when they fall short of cash other than payday-loan outlets or pawnbrokers. Even clients of financial institutions find these companies can't be bothered with loans of a few hundred dollars.

"We're the people's bank," Mr. Isman de­clares, adding, "We're a pretty reliable leading indicator: About three months before a trend is officially declared, I can tell you what's going on in the economy by who and what-I'm seeing across my counter."

Although federal regulations cover the pawn sector, these laws are seldom applied. Most oversight is provincial and municipal. Pawnbrokers are monitored by cities because they're obligated to report every item they take as collateral to the police in case it's been reported stolen.

Royal City typically makes about $l-million in loans a month ­sometimes tens of thousands at a time. In a typical transaction, a customer brings an item he wants to "pledge" as collateral. In return, the pawnbroker offers to loan 10% to 30% of the price for which he expects to be able to sell the item (should read: of the current new retail price) if the client defaults. 

Interest on the loan usually ac­cumulates at 5% a month or an annualized rate of 60%, along with various storage and adminis­tration charges. If the loan isn't repaid within a certain period ­commonly 90 days - it's foreclosed and the broker can sell the merchandise. (About 70% (At Royal City Jewellers it is 93%) of collateral is reclaimed.) The customer can renew the loan after those three months as long as the interest has been paid in full.

"In a perfect pawnshop, there's nothing to buy - customers take back all their goods," says David Bridges of Northside Exchange Pawnbroker in Edmonton. "We don't want to own it. We want you to pledge it, reclaim it and pledge it all over again."

Pawnbrokers demand photo ID. Most also refuse to deal with peo­ple under the age of 19 or those without a valid driver's license. The product's serial number must be visible, and if you can provide sales receipts or appraisals, you may command a premium.

You learn to trust your gut on people and their stories;' says Ter­rence Sack of Halifax Estate Jewellery and Pawn Brokers. "I'm careful. I download all informa­tion directly from a driver's license in case the police need it."

EBay and online shopping sites have had a big effect on the indus­try's liquidity and valuations. "We used to just value things in the context of what we could sell in the local market;' says Mr. Isman. "Now we have the option of selling it anywhere in the world, which increases the range of what we can sell and for how much."

He adds that eBay is also a good resource for establishing prices of more unusual and up-market items. For example, he once lent someone $50,000 based on a val­uation of 130 comic books, ­which a collector later bought at auction for US$450,000.

While jewellery is the most common pawn category, brokers also deal in small appliances, con­sumer electronics, musical instru­ments and power tools. The electronics business, however, has come under pressure because of the constant technology upgrades and low sticker prices on new products. While brokers have become extremely selective about what they accept - cordless phones must have a minimum of 25 channels, answering machines must be digital - they often offer guarantees on what they sell. When it comes to jewellery, inde­pendent appraisals are standard on diamonds over a half-carat in size or items over $500 in value.

Mr. Isman says both supply and demand for instruments has declined because fewer children have an interest. And as for power tools, Mr. Sack says cut-rate retail prices have eroded the value of used equipment.

The consensus is that jewellery is the best value for consumers bargain-shopping. Ken Roath, owner of Roath's Pawnshop, once had a 2.8-carat 'diamond appraised at $47,000 and sold it for $17,000.

BUYING PAWNED GOODS

Deirdre McMurdy is co-host of Global TV's MoneyWise. dmcmurdy@globaltv.ca 
National Post Saturday January 17, 2004