Rules would spawn layoffs, closings, pawnbrokers say

By Don Shilling

The bills in Congress would lower interest rates that pawnshops can charge their clients.

Local pawnshops say they would be crippled by new loan restrictions that have been proposed. Bills that have been introduced in Congress go too far in limiting interest rates, owners said.

“Try to take your livelihood, and cut it in half,” said Larry Gilmore Jr., president of Larry’s Super Pawn in Warren.

The store, which also buys items from wholesalers and estate sales, would have to be downsized and employees laid off if the new rules pass, he said.

Rick Fine, owner of Sandel’s Loans in Youngstown, said he probably couldn’t afford to keep operating his pawnshop with the cuts in interest rates.

Pawnbrokers in Ohio now can charge interest rates of up to 5 percent a month — which would be an annual percentage rate of 60 percent — plus a $4-a-month service fee.

The proposed bills would limit interest rates and fees to a total APR of either 36 percent or 15 percent.

A Senate bill was introduced Feb. 26. A companion bill in the U.S. House was introduced March 19. The bills each have one sponsor and one co-sponsor and are in committees.

“We’ll be watching it closely to see what type of impact it has for pawnbrokers and their customers,” said Brad Bauman, spokesman for U.S. Rep. Tim Ryan of Niles, D-17th.

Fine said most of his loans are for $100 or less and that pawnbrokers serve people in need. People short on cash pawn items such as jewelry or a television and use the money for basic necessities, such as paying the rent or buying groceries, he said.

“I don’t know where else you would go for a $100 loan or a $50 loan,” he said.

David Rothstein, a researcher with Policy Matters Ohio, said his agency supports efforts to curb consumer interest rates because better options exist for people who need short-term help. Credit unions and some small community banks have developed programs to provide small loans to people at lower rates, he said.

Also, he isn’t convinced the new restrictions would put pawnbrokers out of business. He noted that many payday lenders have remained in operation despite new state restrictions on interest rates that took effect last year.

Policy Matters Ohio has been advocating lower rates for payday loans and tax refund loans, saying that they take advantage of low- and moderate-income people.

Loans from pawnbrokers in Ohio last up to 90 days. Someone with a $100 loan would owe $127 in interest and fees at the full term.

Fine said 85 percent of his customers pay back their loans and take back the items they have pawned.

Lou Tansky, a pawnbroker in Cleveland and president of the Ohio Pawnbrokers Association, said the industry is lobbying for pawnbrokers to be excluded from any interest rate limits set by Congress. Some of the bills don’t specifically mention pawnbrokers but apply to all “creditors,” which the pawnbrokers fear would include them.

The industry is supporting alternative legislation that specifically targets payday lenders, much like the Ohio law did last year.

Tansky said lumping pawnbrokers in with payday lenders is unfair because pawnbrokers are different. They do not threaten to trap lenders in a cycle of debt because borrowers can choose not to repay by allowing the pawnbroker to take possession of the item that was pawned, he said.

That makes operating a pawnshop more expensive than a payday lending store, he said.

“They have a computer and a file cabinet. That’s it. We are very different,” he said.

Pawnshops have to appraise every item and write a contract, he said. They also have to package the items, report every transaction to the police, provide secure warehouse space and insure all of the contents in storage, he said.

The shops have to store the items until they are sold and then hope that they can sell them for more than the loan amount, he said.

Pawnbrokers have started a Web site at savemypawnshop.com to collect signatures of people against the proposed bills in Congress and to alert store owners and others about the bills.

shilling@vindy.com