Pawnbrokers and 'fringe' Banking Benefiting from Hard Times

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US pawnbrokers benefit from hard times

Hard times in the US are benefiting pawnbrokers as beleaguered consumers pledge jewels, electronics and other goods in return for loans with interest rates running as high as 300 per cent a year.

Dave Adelman, president of the National Pawnbrokers Association, said the number of loans at US pawn shops had risen 15-20 per cent since October. He attributed the increase to rising fuel prices and deteriorating economic conditions – an assessment echoed by other industry executives.

“Brief and shallow downturns in the economy may benefit our business model,” said Daniel Feehan, chief executive of Cash America, the biggest US pawnbroker chain, with 942 locations.

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Cash America said on Thursday its profits had risen 21 per cent to $26.3m in the fourth quarter, reflecting higher sales of pawned goods and more loans.

Alan Fishbein of the Consumer Federation of America said pawnbrokers and other “fringe” banking operations – such as those making loans against future pay cheques or car titles – had grown as banks had withdrawn from poorer areas. About $48bn in payday loans are made every year and the revenues in the whole fringe banking industry are an estimated $12bn-$15bn, according to Dennis Telzrow, a consumer finance analyst at Stephens, an investment bank.

Financial Times

[Fire Walk With Me]

1. Kick and Recommend.

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2. Mixed messages?

In 2004, banks pocketed $32 billion in service fees, up from $21 billion in 1999. According to BusinessWeek, such fees accounted for 76 percent of profits at the Midwestern bank, TCF. Wells Fargo in San Francisco reportedly charges $2 every time someone with a low balance calls a service representative, and a whopping $30 an hour when a rep helps someone reconcile an account. Not surprisingly, the majority of these fees falls upon the poorest customers.

One out of five customers switches banks because he or she is so outraged by these charges. One estimate by Gartner Research shows that it costs banks less than 50 cents to return a payment request, while turning around and charging us anywhere from $25 to $40 for this “service.”

In These Times: Beware the Credit-Industrial Complex

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Low-income bank accounts proposed

Building on a San Francisco program that has become a national model, Gov. Arnold Schwarzenegger announced plans Thursday to help tens of thousands of low-income Californians open their first bank accounts.

Schwarzenegger said his office will bring together bank officials, mayors and community groups in five to seven cities to create and promote starter checking or savings accounts.

SF Gate

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Operation HOPE Founder John Hope Bryant Issues a Statement in Support of the Wall Street Journal William J. Clinton and Arnold Schwarzenegger Op-Ed (Beyond Payday Loans)

Banking the Poor in Today's Global Economy: The Opportunity Is There, Let's Open It!

40 million Americans with no bank account, with more than 20 million of them receiving a regular check without any sort of bank account to put it into, is a genuine market opportunity; an opportunity for banks, credit unions and the global financial industry sector.

Getting banks to provide mainstream access to monetary services is also the best way to put unscrupulous payday lenders and others out of business -- it's called competition, and there is simply not enough of it in the urban, inner city and low-wealth communities we serve.

Marketwire

Some time ago, banks didn't want nor need 'low-income account' holders. Now, banks are riding in as the good guys with the white hats to save the 40M they dispossed?

Or, is it about the $48B 'fringe' payday loan industry?