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Pawnshops see a surprising decline in business during pandemic

Rachel Wilen, president of Brooklyn-based Gem Pawnbrokers, places

Rachel Wilen, president of Brooklyn-based Gem Pawnbrokers, places a watch in a display case at the Melville location. Credit: Barry Sloan

Pawnshops seemed poised for a boom.

With the pandemic causing record high unemployment, more Long Islanders might have been expected to bring their jewelry, electronics and other valuables to the stores in search of ready cash.

Instead, just the opposite happened.

Local pawnshop owners said they're seeing a record drop in business, as fewer customers pawn their possessions and more pay off their loans and get their items back sooner.

"My [loan] portfolio has dropped 50% since Jan. 1, which is unprecedented in the 25 years that I’ve been in the business," said David Kaminsky, president of EZ Pawn Corp., a Long Island City-based business that has 15 pawnshops in the New York City metro area, and president of the Collateral Loanbrokers Association of New York, a trade group.

Stimulus checks and boosted unemployment benefits have helped many people pay off their pawnshop loans and reclaim the belongings they used as collateral, he and other store owners and industry experts said.

Also, New York residents are being helped by Gov. Andrew M. Cuomo’s moratorium on evictions and mortgage foreclosures that began in the spring, they said. Cuomo on Monday extended the eviction protection through the end of the year.

Less to spend on

Another factor in the declining pawn business is the government-mandated shutdowns of leisure activities for months during the pandemic.

In normal times, consumers might want quick access to cash to spend on things that aren't necessities, such as tickets to concerts, stage plays or amusement parks, said John Caskey, an economics professor at Swarthmore College in Pennsylvania who has studied and written a book about pawnshops and check-cashing outlets. Since those leisure activities weren't available for months during the pandemic — and some still aren't — consumers didn't have as much need to borrow from pawnshops to pay for them.

In New York state, pawnshops were deemed essential and have been allowed to remain open for loans and redemption throughout the pandemic, but their retail operations — selling goods when borrowers are not able to pay back their loans — were not permitted to resume until July.

"We’ve been experiencing massive redemptions. Our customers are taking their items out. …. They’re able to get out of debt during COVID," said Rachel Wilen, president of Gem Pawnbrokers, a Brooklyn-headquartered business whose 24 stores include six on Long Island.

Gem Pawnbrokers’ portfolio is down 30% from a year ago, Wilen said.

New York state law requires that pawnshops give property owners at least four months to pay off their debts and reclaim their belongings. The loans can carry a monthly interest rate of up to 4%.

Pawnshops also charge a fee of $3 or $5 per transaction; a storage fee, which typically is 2% of the loan amount; and an insurance fee, which also is 2% of the loan amount, Kaminsky said.

If the debts aren’t paid off after four months, the pawnshops can sell the items.

'We're here if they need us'

"We probably did more redemptions in the last four months than any previous four months we’ve been in business," said Raymond Erario, co-owner of All Island Jewelry and Loan, a 25-year-old business in Centereach.

He is glad to see customers reclaim their possessions, he said. "They know we’re here if they need us again."

The typical pawnshop customer does not have a bank account, said Cyndee Harrison, spokeswoman for the National Pawnbrokers Association, a trade group based in Victor, New York.

"They don’t have a relationship with a bank, so they just need quick cash," Harrison said.

The average pawnshop’s loan amount is $125, and about 85% of customers pay off their loans, she said.

At Gem Pawnbrokers, 90% of customers typically pay off their debt on pawned items but that number likely will grow to 96% this year, Wilen said.

It's important to note that many pawnshop customers are not in poverty, said Caskey, the economics professor.

"They’re just short of cash and have a bad credit rating ... but they’re not down and out," he said.

While the $1,200 stimulus checks, $600 unemployment boost paid through July and recent $300 boost to jobless benefits have kept cash in many Long Islanders' pockets, those programs have ended and no new relief is in sight.

"Now that the stimulus effect and unemployment benefits have been dwindled, I expect people with permanent job loss to experience more financial trouble, especially if virus concerns keep portions of the economy closed for an extended period," said James Bohnaker, associate director and economist in the Boston office of IHS Markit, a market information service headquartered in London.

That could lead to consumers returning to pawnshops for quick cash.

'We're OK now'

Gem Pawnbrokers gives customers eight months to pay off their debt, so it will start seeing the financial effects of the decline in business early next year, said Wilen, who said she expects revenue to be down at least 30%.

"We’re OK now. I know we will not be OK next year," she said.

She and other pawnshop operators said that while fewer customers are pawning items, more are buying merchandise that was not reclaimed by borrowers.

Typically, about 25% of Gem Pawnbrokers’ business is from retail sales but that has risen to 50% over the last two months, Wilen said.

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